Activist investors are back on the agenda thanks to hedge fund Sachem Head Capital taking a small stake in Whitbread (WTB) and a high profile spat between TCI and London Stock Exchange (LSE).

While these events have been headline-grabbing news, it is worth bearing in mind that activist investors have been omnipresent in UK stocks for several years, as part of a growing trend across many stock markets globally.

Morgan Stanley calculates the number of activism campaigns launched across non-US companies is up nearly 10-fold since 2013. Activism campaigns across European companies, in particular, have increased materially over the past three years, it finds.

Does activism boost the share price?

Analysis by Morgan Stanley implies you won’t suddenly make a lot of money on shares being targeted by activists. Extracting value as a result of activist investor involvement can be a much slower game.

The investment bank analysed 132 campaign announcements across European companies since 2005 to see whether activist-related news flow had a positive impact on share prices.

Its back test didn’t reveal a meaningful impact on companies’ subsequent share price performance over the short term. ‘The median company involved in such campaigns only outperformed modestly in the one month after the announcement and underperformed both the market and their respective sectors over the subsequent two years,’ it reveals.

‘However, our analysis shows that activism has been instrumental in driving relative return on equity higher over the following two years.’

A new way of thinking

It’s impossible to say that a share will follow a certain pattern once an activist gets involved. However, the presence of an activist investor can be very interesting as it could get the target’s board thinking in a different way – and hopefully one that benefits shareholders.

Activist investor Elliott first invested in miner BHP Billiton (BLT) in 2015 but didn’t start its activism campaign until 10 April 2017. Shares in the company have subsequently been very volatile but currently trade essentially at the same level as they did when Elliott started to put public pressure on the miner.

Toscafund, another activist investor, started to lobby Speedy Hire (SDY) in October 2015 on the composition of its board. It failed in an attempt to remove the chairman in summer 2016, but remains a major shareholder with 8.2% of the business. Speedy’s shares have risen by approximately 40% since Toscafund got involved.

Other examples of stocks with activists on the shareholder register include newspaper publisher Johnston Press (JPR) and luxury goods firm Burberry (BRBY).

It is also possible to get exposure to activist investors whose shares trade on the London Stock Exchange. For example, Crystal Amber Fund (CRS:AIM) was behind campaigns at Pinewood (subsequently taken over) and property group Grainger (GRI).

Crystal Amber increased its net asset value by a third in the year to 30 June 2017, making it the seventh best performing investment trust among 119 analysed by Trustnet. ‘The company achieved exceptional performance thanks to its focus on undervalued opportunities where it sees the potential to act as a catalyst for change,’ said chairman William Collins. (DC)

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