Activist investors can benefit from current volatile market conditions, especially in the US market.
This is according to Franck Berlamont and Jean-François Bassignot, portfolio managers at a Meyrin-based boutique Quaero Capital.
One of such opportunities in their Argos Active Governance fund is the US auto technology firm CDK Global, which was added to the fund on the back of volatility in March.
'The opportunity arose because CDK’s management had failed to improve operations and margins since the spin-off of the company. This lack of progress created a credibility gap between shareholders and managers'
Berlamont and Bassignot said one of the firm's activist investors, Paul Singer of Elliott Management Corp, triggered changes in the company.
'In March, Brian P. MacDonald was appointed new CEO of the CDK Global and has since engaged in constructive dialogue with him. Elliott’s ‘Value-Maximising Plan’, which has pushed shares higher, was welcomed by CDK’s new leadership'
Among other activist shareholders of the company is Bill Ackman with his protégé investment firm Sachem Head Capital.
Auctions and frozen returns
Nomad Foods, an European food company, is the second biggest contributor to the Argos Active Governance fund. Berlamont and Bassignot consider two frozen food companies; UK-based Iglo and Sweden's Findus, to be strong brands within its structure.
'At current levels, Nomad price does not value the M&A synergy savings, the "platform M&A model" and the new action plan put in place by management, which includes a new advertising campaign, fresh packaging and renovated products'
The managers also added that the recent poor performance of the stock, which has seen a 60% decline in its share-price over the last six months, can be explained by the lack of liquidity and ‘crowded’ stock ownership.
'About 60% of Nomad shares are owned by hedge fund managers, most of whom have performed poorly year to date'.
The third biggest contributor to the fund has been an auction house Sotheby’s. Both fund managers cite an activist investor Third Point of Dan Loed, who exercises significant influence on this particular stock.
In order to define the best activist investors, the fund managers screen their target companies for conviction, influence and investment momentum. The final stage is proprietary analysis of the risk and return profile of each stock.