Clifton Robbins‘ Blue Harbour Group had a solid start this year, according to our data, which shows that the fund’s long equity positions posted a weighted average return of 4% for the first three months of 2015. The methodology is based on holdings from the latest 13F filing and comprises companies exceeding a market cap of $1 billion. In Blue Harbour’s case, 19 out of a total of 22 long positions fulfilled the criteria. Since hedge funds typically have positions in other securities, which they are not required to disclose in their 13Fs, Blue Harbour’s actual returns may deviate from our calculations.
Although activist by definition, Robbins is more of a ‘friendly activist’ as it is better suited to his investment approach. Former partner at private equity giant KKR, Robbins founded Blue Harbour Group in 2004 with an intention to create value for the companies and their shareholders based on collaboration with the management. The $3.7 billion hedge fund has never been involved in a proxy fight or even sued a company. The market value of the fund’s equity portfolio stood at $3.12 billion at the end of 2014 with Technology amassing 34%, which is the largest share across sectors. Star performers among the fund’s top picks during the first quarter were Rackspace Hosting, Inc. (NYSE:RAX), Akamai Technologies, Inc. (NASDAQ:AKAM), Babcock & Wilcox Co (NYSE:BWC), and Investors Bancorp, Inc. (NASDAQ:ISBC), which represent four largest positions from the investor’s equity portfolio.
Blue Harbour initiated a stake in Rackspace Hosting, Inc. (NYSE:RAX) in the second quarter of 2014, when the ailing company was striving to make a turnaround under the leadership of its President and CEO, Taylor Rhodes in an extremely competitive space of cloud computing. The fund’s major incentive for investing in the company at that time was Rackspace’s ability to support a strong buyback program given its strong balance sheet during its turnaround phase. The company has over 300,000 business customers and proclaims itself to be a leader in the managed cloud segment. Rhodes’ turnaround efforts seem to be working as the company posted returns of 10.21% during the January-March period. Rackspace Hosting, Inc. (NYSE:RAX) represented Blue Harbour’s most valuable equity holding at the end of the fourth quarter, with 9.14 million shares valued at $427.99 million. Another prominent stockholder of the technology company was Barry Rosenstein‘s JANA Partners as it held some 8 million shares valued at $374.56 million.
Next in line is Akamai Technologies, Inc. (NASDAQ:AKAM), whose stock rose by 12.85% during the first quarter. The fund held 5.11 million shares of another provider of cloud services valued at $321.68 million. Content Delivery Network (CDN) services form the core of Akamai Technologies, Inc. (NASDAQ:AKAM)’s operations, but with its latest acquisition of Xerocole, the company is aiming to expand its portfolio of the Domain Name System (DNS) services and offerings. Beside Blue Harbour, another significant shareholder of the company is Philippe Laffont‘s Coatue Management, which increased its stake in Akamai Technologies, Inc. (NASDAQ:AKAM) by 45% during the fourth quarter to 4.71 million shares.
Babcock & Wilcox Co (NYSE:BWC) is another strong performer in Blue Harbour’s portfolio, whose stock appreciated by 6.26% returns during the first quarter. Robbins’ fund holds about 10.54 million shares of the provider of clean energy technology and services, according to a 13D filing submitted earlier this year, up by around 350,000 shares from the stake held at the end of 2014. The stake constitutes 9.9% of Babcock & Wilcox’s outstanding common stock. Babcock & Wilcox Co (NYSE:BWC)’s Power Generation Group has recently been granted a contract approximately valued at $40.3 million to construct a spray dryer absorber for controlling sulfur dioxide emissions from Colorado Springs Utillities’ coal-fired plant. The subsidiary is part of a consortium that will carry out other tasks in this emissions control project. Jeffrey Smith‘s Starboard Value and Robert Rodriguez and Steven Romick’s First Pacific Advisors are two other investors bullish on Babcock & Wilcox Co (NYSE:BWC).
The fund initiated a position in Investors Bancorp, Inc. (NASDAQ:ISBC) during the first quarter of 2014 and boosted its stake throughout the rest of the year. Since the beginning of 2015, the investor disclosed two 13D filings, the latest showing a stake of 24.6 million shares, representing 6.9% of the company’s outstanding stock. At the 13D Monitor Active-Passive Investor Summit in New York, Robbins expressed his belief that the company is undervalued mainly because of its complicated mutual-holding structure. The investor added that the company should use its excess cash on buybacks, acquisitions, and perhaps to increase its dividend. Moreover, the manager of Blue Harbour considers that the stock could top $19 per share by 2019. After Blue Harbour, Jonathon Jacobson’s Highfields Capital Management is the largest shareholder of Bancorp, Inc. (NASDAQ:ISBC) among the funds that we track.
Insider Monkey tracks hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of 6 basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of 7 basis points per month between 1999 and 2012. These stocks were able to generate alpha because of their lower risk profile. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). We believe investors can be better off by focusing on small-cap stocks rather than large-cap stocks.
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