Activist Hedge Funds Rebound from Worst Month Ever

(Bloomberg) -- A high-stakes hedge fund strategy of betting on a small number of stocks returned bumper profits in April after landing firms with agonizing losses just a month earlier.

So-called activist hedge funds, which build stakes in companies and demand changes in a bid to boost share prices, posted their best month since late 2012, according to Hedge Fund Research data. That’s after suffering their worst-ever losses amid the virus-fueled sell off in March.

Billionaire Nelson Peltz’s Trian Partners gained more than 12% in April after losing 16% the previous month, according to an investor letter. Hedge fund CIAM, which makes bets on European companies, rose 14% for its best-ever month after shedding 27.5% in March, while Accendo Capital surged 26.3% to record its best monthly gains in April, separate letters showed.

A spokesman for Accendo confirmed the April numbers, while spokespeople for CIAM and Trian declined to comment.

The three firms join the likes of activist investor Chris Hohn’s The Children’s Investment Fund and Dan Loeb’s Third Point, whose concentrated long-only bets rebounded in April as U.S. stocks saw their largest monthly gain in more than 30 years.

With an average return of 10.3% last month, activist hedge funds outperformed peers betting on other corporate events such as mergers and acquisitions or those wagering on or against shares. That suggests a high-conviction portfolio spread over a limited number of stocks may be susceptible to market swings, but can still offer promising returns to investors even in the short-term.

“Activist hedge funds are more volatile than most strategies because they tend to have more market exposure than the typical long-short equity fund,” said Don Steinbrugge, head of Agecroft Partners, which helps hedge funds gather assets. They “are unique in that they can provide both by owning a large position in the company and proactively helping to unlock value.”

Trian’s investment in Sysco Corp., which delivers food and related products to restaurants, surged in last month’s rally. The hedge fund, which runs a portfolio of just 10 long bets and has assets of about $10.5 billion, had similar success with its wager on fast-food restaurants operator Wendy’s Co.

CIAM’s bets on Telenet Group Holding NV and French reinsurer Scor SE also paid off. The fund, which bets on just 21 companies, is still down 33.7% this year due to the first-quarter losses. Accendo Capital, which invests in northern European small-cap companies and discloses just five stocks, profited from its bets on firms such as Impact Coatings AB and Remedy Entertainment Oyj.

Loeb’s Third Point Offshore Fund returned 7% in April on winners such as auto marketplace IAA Inc., Amazon.com Inc., electronics conglomerate Sony Corp., Baxter International Inc. and Prudential Plc. It’s a turnaround from the first quarter, when some of those same wagers helped drag down returns.

©2020 Bloomberg L.P.