How you can jump on activists’ bandwagon
ACTIVIST investing, which sees big shareholders chivvy companies into improving themselves in the hope their value will soar, has taken Europe by storm.
Beginning in America, the phenomenon has become increasingly popular in the UK with activist investors hunting for fresh opportunities as rising stock markets make value harder to come by.
But once solely the preserve of hedge funds such as Elliott Management and Third Point, which have shaken up companies from Dulux-maker Akzo Nobel to Nestle,
shareholder activism is being opened up to the normal investor.
Earlier this week, the Mobius Investment Trust began trading on the London Stock Exchange. And later this month, fund house AVI will float its Japan Opportunity Trust. Both claim they will work with companies as an activist investor – and anyone can buy shares in them.
AVI’s Joe Bauernfreund, who will manage the Japan Opportunity Trust, believes activism is only going to get more important as stock markets reach a peak. he says: ‘Investors recognise that where there’s value, you’re going to have to work to unlock it rather than wait passively.’
Many investors have recently been piling money into cheap passive funds which track an index, since they have performed well as indices such as the FTSE 100 have climbed. But these will also start to slide if the markets fall.
For Bauernfreund, activism is the solution.
he has significant experience of managing such a fund, having been at the helm of AVI’s British Empire Trust for three years.
Although Bauernfreund is now listing his second activist fund on the London Stock Exchange, there were previously very few for investors to choose from.
One was Crystal Amber, the fund behind the sale of chocolate brand Thorntons to Italian rival Ferrero and Pinewood Studios to property group Aermont Capital.
More recently it has been trying pushing for change at De La Rue, the British banknote maker which earlier this year lost the contract to produce post-Brexit blue passports.
Run by City veteran Richard Bernstein, the trust would have made an investor more than £1,800 if they had invested £1,000 just five years ago. The average UK investment trust, on the other hand, would have returned £1,450.
Unlike Crystal Amber, which is UK-focused, and the British Empire Trust, which looks at companies across the world, the two new funds will concentrate on specific regions.
Bauernfreund chose to launch a Japan trust due to the huge amounts of cash which companies there often hold on their balance sheets.
ThEMobius trust, headed by 82-yearold emerging markets veteran Mark Mobius, will stick to what its manager knows best and invest in frontier and emerging markets such as Kazakhstan and Indonesia.
But there are downsides to activist investing.
Anthony Leatham, head of investment trust research at Peel hunt, notes that sometimes ‘ corporate inertia’ can be too great for the fund manager to overcome.
But if one campaign fails, this could drastically squeeze the trust’s returns.
Investors should put money with a manager they trust, who has a good track record, and be prepared to wait out the ups and downs.
Changing a company can take time – but when it works, you can reap rewards.