I was invited on Fox Business News yesterday to discuss activst investors with Liz Claman. The activist flavor of the week was Dan Loeb's Third Point and thier activism around Sony Inc. (SNE). The investor was lobbying the company's management to spin out its entertainment division. You can read Third Point's letter to management here. As I mentioned on the show, Third Point's logic is hard to argue with. Having spent a big chunk of my career working for an integrated entertainment/media company, I can tell you the synergies are never actualized to the extent they are claimed. On the whole, I believe activist investors are net positive for markets. They keep boards and management teams on their toes and can exert influence that smaller investors simply can not.
Beyond Sony we discussed whether following "load mouth stocks" (as Liz put it) based on hedge fund public disclosures made any sense. Interestingly, our Activist Masters Long strategy has been our best performing Core Strategy since we began implementing it for managed account clients in September 2010. As of April 2013. the strategy has returned 80% net vs. 60% for the S&P 500 (with dividends) over the same period (download performance .pdf).
That kind of performance says a lot about cloning generally and our investment approach specifically. For the uninitiated our Activist Masters strategy invests in the disclosed holdings derived from 15 activist investors that we select from our fund universe. We make manager selections based on our Clone Score appproach - which measures the effectivness over a long period of time of following a particular manager's filings.
I think a nuance that often gets missed in terms of our portfolio construction is the fact that we always include multiple managers in each strategy. That's a very important point - a big part of the value our Core Strateiges add is in the fact that we are selecting multiple managers. Doing so allows us to mitigate single manager risk, key man risk, filings/data risk, and "hot hand" performance risk just to name a few. Not only that, each core strategy can be thought of as a "virtual fund of fund" with NO manager risk, no fraud risk, and NO switching costs. These aspects combined are a powerful driver of our strategies' performance potential.
For more articles that discuss the limitations of 13F filings and the criticisms you some times hear as well as our core strategies and how to think about them as part of your portfolio, please read the "Start Here" section of our blog.