By Alex Gavrish, Etalon Investment Research; author of " Wall Street Back To Basics "
By following activist hedge funds and having a sound decision making framework in place investors can identify attractive investment opportunities
Performance of activist investors
Tracking the performance of activist investors is difficult, but many academic studies point to outperformance. For example, IRRC Institute's 2009 study of 120 companies - in which activist investors gained board seats during 2005 to 2008 - found that total shareholder returns were 19.1% to 16.6% higher than peers during a one-year period beginning from the proxy contest. Morgan Joseph & Co. tracked 94 campaigns over an 18-month period during 2005 to 2006, and found that excess returns for these stocks were 16% in the year following the first announcement of an activist shareholder's involvement. Other studies also report similarly positive results.
Shareholder interestsActivists engage different types of companies, across different industries, and of various capitalization sizes: from small-cap to large and even mega-cap businesses. The majority of companies that become targets of activists are considered value stocks. For example, it is rare to see activists initiate investments in high-growth companies.
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