Top Stocks For Activist Investing
Marshall Hargrave: Activist investing has been brought front-and-center on Wall Street, thanks to its poster boy, Carl Icahn. The billionaire investor has been practicing shareholder activism since the 70s, when it was known under a less friendly term, corporate raiding.
Activist investing hit a new high earlier this year when Icahn took on one of the biggest companies in the world. Icahn went toe-to-toe with Apple, pushing the company to put its cash hoard to work by boosting its buyback program.
However, many companies have hedge funds pushing for change in order to boost shareholder value.
This is still a relatively new concept for retail investors. But the 13D Activist Fund (NASDAQ: DDDIX), which is the only mutual fund that uses activist investing as its primary strategy, gives investors access to stocks that have activist investors involved.
Since its early 2012 inception, the 13D fund has returned 59%, compared to the S&P 500 that’s up 46.5%.
However, instead of buying the fund itself, investors can pick and choose activists’ top picks. Here are the top three holdings for the 13D funds:
Howard Hughes Corp. (NYSE: HHC)
This real estate company makes up 5.35% of the 13D fund. This isn’t the sexiest stock you’ll find in the market. It’s more of a pure real estate play, with a diverse mix of retail, office, multifamily and resort assets.
Back in 2008 billionaire Bill Ackman of Pershing Square got involved with General Growth Properties. He invested for as low at $0.35 a share in 2008. After coming out of bankruptcy, General Growth decided to focus on shopping centers, spinning off assets that require significant development. Thus, in 2010, Howard Hughes was spun off from General Growth.
And while Ackman’s Pershing Square sold all of its General Growth stock last quarter the fund still has large part of his portfolio invested in Howard Hughes. The fund has owned 3.56 million shares (roughly 9% of the company) for the last few years. Ackman has even said that his Pershing Square hedge fund will likely own a part of Howard Hughes forever.
Horizon Kinetics, a long-term contrarian-focused fund, is another major owner of Howard Hughes. It owns over 5 million shares, or 13.8% of the company.
Again, Howard Hughes is a long-term real estate play; it doesn’t pay a dividend and is not a real estate investment trust. Its key properties include master planned communities in Houston, Las Vegas and Maryland. It also has operating assets that generate income, including various retail and office properties.
Most notably, it owns 60 acres within a mile of Waikiki Beach and downtown Honolulu. It also owns the South Street Seaport, which includes a long-term ground lease with NYC that doesn’t expire until 2072. The key is that most of its real estate is on the books at well below market prices.