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Rupert Hargreaves
Rupert Hargreaves
Articles (1371)  | Author's Website |

ValueAct Capital's 14% p.a. Return and Top Investment Holdings

A look at the hedge fund's top investments based on recent filings

One of the world's most successful hedge funds is ValueAct Capital. The firm, which managed around $16 billion at the end of 2019, has returned 14.1% per annum for investors since its inception in 2000.

Managed by founder Jeff Ubben until the beginning of this year, ValueAct followed a strategy that has been labeled a "Mr. Nice Guy" style of activist investing. Unlike other activists, which may have been more aggressive in pushing for change at companies, ValueAct favored working with management behind the scenes to improve operational performance without engaging in explosive confrontations.

ValueAct holdings

The last time I covered the firm, I noted that ValueAct's flagship fund portfolio was highly concentrated. Its latest 13-F filing at the time (for the three months to the end of June 2019) noted that the firm had 23% of assets under management invested in just one position, Citigroup (NYSE:C). The hedge fund owned 31.5 million in this global investment bank at the end of the second quarter of 2019.

The firm still owns 27 million shares in the banking giant, but it's no longer the fund's largest position. This position has been taken by Seagate Technology (NASDAQ:STX). At the end of the third quarter of 2020, ValueAct owned 31.5 million Seagate shares, giving the $1.5 billion position a 22% portfolio weight. The second-largest holding, with a similar weighting, was KKR & Co. Inc. (NYSE:KKR).

ValueAct made some significant changes to its portfolio in the quarter. Overall, the fund sold ten positions and only bought one. It already reduced its holding in Morgan Stanley (MS). Based on the positions detailed in the firm's most recent 13F, it would appear that ValueAct is currently holding a lot of cash.

As a reminder, these SEC filings do not detail cash holdings, international investments or credit investments. However, based on the information contained in the report, it would appear that ValueAct owned $7.1 billion worth of securities at the end of the period, which compares to overall assets under management of $16 billion as reported at the end of 2019. I should note, however, that these are only estimates.

According to the firm's second-quarter 2020 13-F, the hedge fund acquired just under 12 million shares in controversial electric vehicle manufacturing Nikola Corp (NASDAQ:NKLA) in the three months ended June. This gave it a 9% portfolio weight, making it the fourth-largest holding in the portfolio. However, in the third quarter, SEC filings show the firm disposed of this holding. It's not clear to me why ValueAct disposed of the holding in the company. Still, it's interesting to note that the hedge fund's founder is a Nikola board member and has strenuously defended the company against fraud allegations in the past few months.

The difference in position between the manager and the hedge fund he founded is stark. It seems that the new management team at Ubben's former fund is not willing to take the same risks as the firm's founder. The electric vehicle manufacturer's stock's recent trading performance suggests the holding may also have been sold at a loss.

The one investment the hedge fund acquired during the three months to the end of September was CDW Corp (NASDAQ:CDW). ValueAct bought just under a quarter of a million shares, giving it a 0.4% portfolio weight.

The provider of technology products has seen its share price underperform the rest of the tech sector this year. It would appear at the activist hedge fund is looking to change this by opening its is turnaround playbook. After all, the hedge fund has a strong track record of improving the operating performance and the companies it decides to work with.

Disclosure: The author owns no share mentioned.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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