NEW YORK--(BUSINESS WIRE)--The 13D Activist Fund (DDDIX) reached its five-year milestone at the end of 2016. The Fund posted a one-year return of 19.57%, net of fees and expenses, as of December 31, 2016 compared to 11.96% for the S&P 500, and a five-year average annual return of 15.27%, net of fees and expenses, compared to the S&P 500 average annual return of 14.79%.
The 13D Activist Fund is not a hedge fund replicator, quantitative fund or an activist investor. It is a qualitative, event-driven mutual fund that analyzes activist catalysts of companies that have been engaged by activist investors and constructs a portfolio of approximately 30 companies that it believes offer the most compelling activist catalysts. The Fund is managed by Ken Squire who founded the premier institutional research service on shareholder activism in 2006, has been writing the Activist Spotlight column in Barron’s since 2007, and hosts the industry’s largest shareholder activist conference.
|Returns Through 12/31/16||
|13D Activist Fund Class I||19.57%||15.29%||15.27%||103.69%|
Inception date of the Fund is December 28, 2011. The total annual Fund operating expense ratio is 1.50% for Class I shares. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. A Fund's performance, especially for very short periods of time, should not be the sole factor in making your investment decisions. For performance information current to the most recent month end, please call toll-free 1-877-413-3228. The S&P 500® is regarded as a gauge of large cap U.S. equities. It is not possible to invest in an index, unmanaged index returns do not reflect any fees, expenses or sales charges.
In the following Q&A, Ken Squire addresses why a pure play on activism is an effective investment approach, the fund’s strategy, and the outlook for activism in 2017.
Q. What is the approach of the 13D Activist Fund?
Our approach is to create the purest, most comprehensive exposure to shareholder activism in a liquid, transparent vehicle at a lower cost than hedge funds. The Fund is long only with minimal cash, so we provide exposure to only activist situations, and not only to the top activist hedge funds, but also engagements of activists who do not take outside money (Carl Icahn), activists who are a small part of a larger multi-strategy fund (Elliott Associates), and some lesser known yet highly skilled activist funds.
Q. You’ve described your fund as an oxymoron—a diversified portfolio of concentrated positions. What do you mean by that?
Most activist hedge funds are highly concentrated with a vast majority of their capital in their top four to eight positions. This is necessary because activism is a time and resource intensive strategy, and it also has the added benefits of concentration – maximized focus, resources and analysis on a few positions. The Fund aggregates these concentrated positions into a portfolio of approximately 30 stocks that is diversified by activist, activist strategy and sector expertise. 2016 was a perfect example of the benefits of this concentration/diversification structure - the Fund’s 13 best performing positions in 2016 came from ten different activists.
Q. Jeff Smith at Starboard has described activism as “alpha1 you can understand.” Do you agree with that description?
Yes. Activism is value investing where the activist provides the catalyst to close the valuation gap. Not only is this understandable, but it is repeatable. In each instance, activists are taking specific steps to change corporate culture, implement best corporate governance practices, offer shareholders an alternate operational or strategic plan, and/or replace entrenched, conflicted and self-dealing management teams. The activists offer the market an alternate plan that creates a different risk curve for the Company. If this plan turns out to be a better plan than management’s and is implemented successfully, it puts the Company on this higher risk curve offering a better return. There are tons of analysts and investors analyzing management’s plan and risk curve. We analyze the activist’s plan, the chance of success of that plan, and the probability that the Company will end up on that risk curve.
Q. 2015 was the worst year for activists in recent memory. How has this affected activism and the Fund?
2015 was an outlier year for shareholder activism and the Fund (the only year we were down and the only year we did not outperform the S&P 500). During that period, growth outperformed value investments, news about Valeant Pharmaceuticals cast a shadow across activism, and a number of activists struggled to make progress in an evolving activist environment. But despite this anomaly, the Fund has still outperformed the S&P 500 net of fees and expenses over our 5 year life and ended our fifth year (as of 12/31/16) in the top 9% of all funds in our Lipper Mid Cap Core category (25 of 297 funds).
The experience of 2015 has led to a Darwinian effect on certain activist investors, the exodus of many fad followers who will move on to the next thing, and a much dimmer spotlight on activist investing. What will remain will be the real activist hedge funds engaging with the boards and shareholders of underperforming companies with less of a spotlight on their endeavors. We believe this is beneficial for activism and the Fund. No portfolio manager likes to go through a year like 2015, but we did take away several positives from that experience including how fast we bounced back in 2016 and how the structure of our fund afforded us the agility to exit our Valeant position with a significant gain, turning a potential catastrophe into one of our best investments.
Q. What were some of the fund’s top performing positions in 2016?
There were many M&A catalysts for our portfolio holdings in 2016, but the crux of our returns has been and we believe will continue to be derived from successful operational and corporate governance activism. Only three acquisitions were among our top ten contributors in 2016 - Lifelock, Cabelas and Mentor Graphics. However, our best position (without accounting for value from spinoffs) was Marvell, which was a corporate governance and operational activist campaign by Starboard that was up 57.3% in 2016. Other top contributors included: Manitowoc (Icahn, Strategic, +64.9%), Brinks (Starboard, Operational, +42.9%), HD Supply (JANA, Strategic, +31.6% since our 10/27/16 purchase), Air Products (Pershing Square, Operational/Strategic, +31.2%), Terex (Marcato, Operational/Strategic, +31.2% since our 7/29/16 purchase) and Allison Transmission (ValueAct, Corporate Governance, +23.7% through our 11/22/16 disposition).
Q. Do you anticipate anything different in 2017?
We have not changed our strategy going into 2017. While the activist landscape has changed from several years ago — it is now easier to get board seats but somewhat harder to create value — the experienced activists have adapted to this new environment and our focus remains on analyzing all activist campaigns and selecting those opportunities we think offer the most compelling activist catalysts. We do not try to predict the future of the markets or make wholesale changes based on macro factors. Activism is a resilient strategy that adapts to different market environments. Strategic activism works well in a low interest rate environment. A focus on operational and corporate governance activism worked well in 2008 and 2009. In flat, down or unpredictable markets, activism often works best as investors need a catalyst to generate returns, it is hard for bad management to hide, and it is easier for activists to gain support from other shareholders.
About 13D Management
New York based 13D Management, a registered investment advisor and manager of the 13D Activist Fund, is an event driven asset manager that focuses on 13D filings of activist investors. The firm was founded by Ken Squire who is the leading authority on activist investors and also leads 13D Monitor, a research service for major investment banks, top law firms, hedge funds and institutional investors. The 13D Activist Fund is available directly to investors or through Schwab, Fidelity, TD Ameritrade, UBS, Scottrade, E*TRADE, Vanguard and Pershing LLC, among other major platforms.
Investors should carefully consider the investment objectives, risks, charges and expenses. This and other important information is contained within the Prospectus, which can be obtained by calling 877-413-3228. The Fund Prospectus should be read carefully before investing.
The Fund is distributed by ALPS Distributors, Inc. 13D Monitor and 13D Management, LLC and the above listed platforms are not affiliated with ALPS Distributors, Inc.
Lipper Rankings – 25 out of 297 Mid Cap Core funds on the 5 year. 79 out of 402 Mid Cap Core funds on the 1 year & 126 out of 349 Mid Cap Core funds on the 3 year. Source Lipper: Rankings are based on total returns, are historical and do not guarantee future results. Past performance is not indicative of future results.
Overall stock market risks will affect the value of individual instruments in which the Fund invests. Factors such as economic growth, market conditions, interest rate levels, and political events affect the U.S. securities markets. When the value of the Fund's investments goes down, your investment in the Fund decreases in value and you could lose money. The Fund is a non-diversified investment company, which makes the value of the Fund's shares more susceptible to certain risks than shares of a diversified investment company. The Fund has a greater potential to realize losses upon the occurrence of adverse events affecting a particular issuer. The value of small or medium capitalization company stocks may be subject to more abrupt or erratic market movements than those of larger, more established companies or the market averages in general.
Past performance is no guarantee of future results.
CN 13D000216 Exp. 1/31/18