Jeffrey Ubben is the founder and CEO of ValueAct Capital, a highly regarded activist investor and prominent board member.
After studying at Duke University and Kellogg School of Management he joined Fidelity Investments in 1986, where he managed the Fidelity Value Fund from 1990 until 1995. He then served as managing partner at Blum Capital Partners for 5 years. At Blum Capital, Ubben took several companies private by arranging management buyouts.
He co-founded ValueAct in 2000 in San Francisco, California. The company acts as an advisor to private funds and also manages a family of funds. The largest fund is the Legacy Fund, which holds concentrated, long-term positions. A family of co-invest funds invest alongside the Legacy Fund but holds fewer positions. The firm concentrates on long-term equity investments, but does also sell short positions and holds corporate debt.
As of 2017, ValueAct has $15 billion under management and Ubben stepped down from his roles as the chief investment officer and portfolio manager to focus on serving as a board member for portfolio companies.
Jeff Ubben serves on the boards of AES Corporation (NYSE: AES) and Twenty First Century Fox (Nasdaq: FOX). He was previously chairman at Martha Stewart Living Omnimedia and held board positions at Catalina Marketing Corp, Gartner Group, Mentor Corporation, Misys plc, Sara Lee Corp, Valeant Pharmaceuticals International and Willis Towers Watson.
Ubben has built a personal fortune of $400 million. He contributes to several charities and foundations related to education and serves on the board of the Posse Foundation.
A Friendly Approach to Activist Investing
Although he is an activist investor, Ubben believes in working with companies rather than forcing change. The firm has managed to be represented on the boards of as many as 30 companies. He often encourages companies to focus on their core competencies and eliminate distractions by selling off non-core assets.
ValueAct looks for companies that are undervalued and also going through a period of crisis or change. He stated in an interview that he likes to buy stocks at a discount from uninformed investors, then help to fix the company, and finally exit when the market recognizes the increased value of the company. He also likes to ensure a degree of control by being the largest shareholder amongst members of the board.
Ubben prefers to work internally with the board and management of a company, rather than through the hostile media campaigns some activist investors use. In addition, Ubben advocates for CEO remuneration to be aligned with total shareholder return.
To ensure the fund will be able to exit a large position, ValueAct will often look for strategic investors who will be keen to buy an entire position. By selling a large stake to a single buyer, they can sell stock at a premium to the market price.
Over the years ValueAct has played a role in refocussing the businesses of American Express, Twenty-First Century Fox, Morgan Stanley, Seagate Technology and Trinity Industries.
Although Ubben is not usually hostile in his approach to activist investing, there have been some contentious moments. In 2013 ValueAct built a substantial position in Microsoft shares. After a protracted battle with Bill Gates and Steve Balmer, the firm managed to have its president, Mason Morfit, appointed to the board. This was the first time an investor had managed to appoint a representative to Microsoft’s board. ValueAct also lobbied for Steve Balmer to step down, which he did the following year.
Early in 2017, ValueAct began to lighten its exposure to equity markets due to concerns over valuations. This led to underperformance in 2017, but may still turn out to be a prescient decision if markets correct in 2018.
Recently, Ubben joined the board of AES Corporation. ValueAct invested in the energy company and is helping it to sell off its coal assets and focus on renewable energy. This investment forms part of a new ValueAct fund that invests in socially responsible companies.
I take a closer look at ValueAct’s stock portfolio below.
ValueAct Capital’s Largest Holdings
On February 15th, Jeffrey Ubben’s firm ValueAct Capital filed its quarterly Form 13F regulatory filing. I reviewed the filing to gain a glimpse into the firm’s large portfolio.
ValueAct Capital’s stock portfolio included 13 holdings worth $9.9 billion according to the latest filing. The list value of stock holdings is down -0.9% when compared to the last quarter. As a benchmark, the S&P 500 was up 6.1% over the same period.
The Ideas section of finbox.io tracks top investors and trending investment themes. You can get the latest data on the holdings discussed below at the ValueAct Capital page. The following table summarizes the firm’s largest holdings reported in the last filing:
The largest stock purchase for the quarter was Seagate Technology PLC (Nasdaq: STX). ValueAct Capital increased its position in the company by $773.1 million and the stock now represents 9.1% of the firm’s portfolio.
The next largest stock purchase was Express Scripts Holding Company (Nasdaq: ESRX). The investment manager increased its position in the company by $89.6 million with the stock now representing 0.9% of the firm’s portfolio.
ValueAct Capital’s 3 Biggest Sells
Here’s the list of biggest position reductions determined by comparing the last two filings:
The largest stock sale for the quarter was Baker Hughes Incorporated (NYSE: BHGE). ValueAct Capital exited its position in the company by selling its $1.15 billion stake which had represented 11.5% of the firm’s portfolio.
The next largest stock sale was CBRE Group, Inc. (NYSE: CBG). ValueAct Capital reduced its position in the company by $171.6 million and the stock now representing 10.9% of the firm’s portfolio.
ValueAct Capital’s Most Undervalued Holdings
To determine which stocks are trading below their intrinsic value, aka “fair value” I used the finbox.io Fair Value estimates. I also wanted to blend in some indication of which stocks might be ready to make a move up soon because they’re popular with Wall Street analysts.
I calculated an average using the finbox.io fair value upside and analyst upside to create a blended upside which I then used to rank the most undervalued holdings.
Here are the top 7 stocks based on my calculations:
Alliance Data Systems Corporation (NYSE: ADS) appears to be the most undervalued stock in the fund. The company has a blended upside of 15.7% relative to its current trading price. Value investors may want to take a closer look into the valuation of the company.
Managers with more than $100 million in qualifying assets under management are required to disclose their holdings to the SEC each quarter via 13F filings. Qualifying assets include long positions in U.S. equities and ADRs, call/put options, and convertible debt securities. Shorts, cash positions, foreign investments and other assets are not included. It is important to note that these filings are due 45 days after the quarter end date. Therefore, ValueAct Capital’s holdings above represent positions held as of December 31st and not necessarily reflective of the fund’s current stock holdings.
However, most can agree that with thousands of stocks traded on U.S. exchanges, doing thorough research on each one is nearly impossible for smaller investors. Leveraging the resources of the largest hedge funds on Wall Street can be a powerful way to narrow down the list.
Matt Hogan is a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock.