Activists were especially busy during the third quarter ending September 30, as a number of funds made more changes to their portfolios during the period than in recent years.
In some cases, these activist funds established more new positions than they have in several earlier quarters. In other cases, funds liquidated more positions in a single quarter than usual.
Several very concentrated funds expanded their roster of long positions, perhaps realizing during the third-quarter stock market downturn and accompanying volatility that they were better off being more diversified.
However, none of these filings may be of much use to those who closely follow hedge fund activities. As we have noted a number of times in recent months, most new activist targets of late have not been foreshadowed by earlier regulatory filings.
Still, the heavy revamping of activist portfolios in the third quarter is a fascinating trend.
For example, Jeffrey Smith’s Starboard Value liquidated 15 different positions in the September quarter, excluding options. In that period, Starboard bailed out of far more stocks than in any prior quarter in recent years.
In each of the three previous quarters going back to December 2014, the New York activist liquidated just five positions. In the third quarter of 2014, the firm completely sold out of seven stocks, excluding options.
One of the liquidations in the third quarter is really not a sale at all. On July 1, previous activist target MeadWestvaco, based in Richmond, Virginia, completed its merger with Norcross, Georgia’s RockTenn Co., renaming the company WestRock Co. So, Starboard technically unloaded its huge position in Westvaco, but instead the newly merged company is now the activist’s third-largest individual stock holding.
On the other hand, the firm totally sold out of Framingham, Massachusetts–based office supply giant Staples, which has been struggling to obtain regulatory approval to merge with a major rival, Boca Raton, Florida’s Office Depot, another longtime Starboard activist target.
Starboard also sold all of its shares of China e-commerce giant Alibaba Group Holding, which was not an activist target.
On the other hand, Richard (Mick) McGuire III’s Marcato Capital Management was very busy buying in the third quarter. The San Francisco–based activist, which likes to run a very concentrated portfolio, took 12 new positions in the period, boosting its total U.S. stock holdings to 19. It also unloaded all of its shares of just one stock — Lake Forest, Illinois’s Packaging Corp. of America, previously one of its largest holdings.
As of June 30, Marcato reported owning only eight different stocks and took no new disclosed positions as of that date. It also owned just eight stocks at the end of the first quarter after liquidating two positions during that period.
One explanation for Marcato’s additional positions taken in the third quarter could be that they were a result of raising money for a new fund or series of new funds, which we reported on back in July. As you accept more money, it may makes sense to expand the number of your holdings.
However, at the end of September, Marcato’s roughly $2 billion in U.S. equity assets was down from $2.4 billion at the end of June. So, there goes the fundraising theory.
Marcato’s largest new holding: United Rentals, the Stamford, Connecticut, equipment rental company that is now its sixth-largest holding.
Sachem Head Capital Management also greatly expanded its roster of holdings in the third quarter. The New York activist fund founded by Scott Ferguson, a former analyst of William Ackman’s Pershing Square Capital Management, which also runs a very concentrated portfolio, disclosed 11 positions as of the end of September, five more than it owned three months earlier.
Among its new positions: Jacksonville, Florida–based Fidelity National Information Services, a provider of banking and payments technologies, which is now its third-largest holding.
The activist who appears to turn over his portfolio more aggressively than any other is Thomas Sandell of Sandell Asset Management. The New York investor established 13 new positions in the third quarter and liquidated 22, excluding options. This is a lot of activity, given that the firm owned only a total of 32 individual stocks at the end of September.
The previous quarter Sandell bought 19 stocks for the first time and totally sold out of 13, while at the end of the first quarter it took 17 new positions and liquidated 16.
Given this flurry of activist among activists, let’s see if any of these changes foreshadow their next targets. If recent history is any indication, however, this could wind up being much ado about nothing for those who like to trade on the 13F filings.
