ValueAct Capital Keeps Portfolio Largely Unchanged, Adds Stake In Cybersecurity Firm

Founded in 2000 by Jeffrey Ubben, Peter Kamin and George Hamel Jr., ValueAct Capital is today one of the largest activist hedge funds in the world. The San Francisco-based activist hedge fund, which is known for using less aggressive tactics than its peers, garnered significant limelight by taking a huge position in Microsoft Corporation (NASDAQ:MSFT) way back in the first quarter of 2013 when the stock was trading below the $30 level. Since then, Microsoft’s stock has more than doubled and ValueAct has moved on to making large bets in other industries including media and finance. However, the fund continues to remain  bullish on Microsoft Corporation.

As its latest 13F filing shows, Microsoft Corporation represented ValueAct’s largest equity position going into 2017, accounting for almost 20% of the $12.17 billion that its 13F equity portfolio was worth at the end of the last year. The filing also revealed that during the fourth quarter the fund’s portfolio remained nearly unchanged as the fund didn’t liquidate any of its holdings completely. However, it made additional purchases in five stocks and reduced its holdings in three companies. In this post, we are going to go through the five major moves made by ValueAct during the fourth quarter and will try to understand its reasoning behind these moves.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 39.7%, topping the 24.1% gain registered by S&P 500 ETFs. Insider Monkey’s enhanced small-cap strategy registered gains of more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points in the last 4.5 years (see the details here).

NetScout Systems, Inc. (NASDAQ:NTCT)

– Shares Held By ValueAct Capital (as of December 31): 1.64 Million

– Value of The Holding (as of December 31): $51.81 million

NetScout Systems, Inc. (NASDAQ:NTCT) was the only new entrant in ValueAct’s equity portfolio during the fourth quarter and it represents its smallest holding in terms of value. The cyber security firm saw its stock plunge between October 2015 and February 2016, although it has had an astonishing bull run since then, recouping all the losses and appreciating by almost 90% in the past year. On January 17, prior to the company’s  third quarter earnings release, analysts at B. Riley reiterated their ‘Buy’ rating and $45 price target on the stock, which suggests a potential upside of nearly 20%. For its fiscal 2017 third quarter, the company declared EPS of $0.60 on revenue of $311.51 million, compared to EPS of  $0.58 on revenue of 433.40 million it had reported for the same quarter last year.

We’ll check out four other major fourth-quarter moves made by ValueAct on the following two pages of this article.