One Year Performance Beats the S&P 500 Index by 5.27%
New York (December 31, 2012) – The 13D Activist Fund, the only mutual fund that offers investors exposure to shareholder activism as an investment strategy, turned in one year performance of 21.27%, net of fees and expenses, that beat the S&P 500 by 5.27%. The 13D Activist Fund is an event driven mutual fund that focuses on and analyzes 13D filings for investment opportunities. The 13D Activist Fund was founded by Ken Squire, who has been operating the premier research service on shareholder activism for the institutional community since 2006. In the following Q&A, portfolio manager, founder and Chief Investment Strategist Ken Squire talks about the genesis of the fund, its strategy, approach and process. Squire also discusses the success of the fund during its first year.
Performance for periods less than one year is not annualized. Inception date of the fund is December 28, 2011. The maximum sales charge for Class A Shares is 5.75%. Class A Share investors may be eligible for a reduction in sales charges. The total annual fund operating expense ratio is 1.75% for Class A, 1.50 % for Class I and 2.50% for Class C. The performance data quoted here represents past performance. Current performance may be lower or higher than the performance data quoted above. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. A Fund's performance, especially for very short periods of time, should not be the sole factor in making your investment decisions. For performance information current to the most recent month end, please call toll-free 1-877-413-3228. The S&P 500® is regarded as a gauge of large cap U.S. equities. It is not possible to invest in an index, unmanaged index returns do not reflect any fees, expenses or sales charges.
Performance Through 12/31/12
Average Annual Return
||Since Inception (annualized)
||One Year Through 12/28/12
||Inception Through 12/31/12 (annualized)
|13D Activist Fund Class I
|S&P 500 TR
Q. What prompted you to start a fund that focuses on 13D filings?
With a background in law and private equity investing, I founded 13D Monitor in 2006, a
research company that tracks and analyzes 13D filings and shareholder activism for the
institutional marketplace. 13D Monitor clients include most of the major investment banks and
many top law firms, hedge funds and institutional investors. 13D Monitor research convinced me
that activist investing is a successful strategy that has historically outperformed the market, yet
we knew of no way for advisors or individual investors to participate in activism. We know of no
one who has spent as much time with or understands this marketplace the way we do. So, a year
ago we began the Fund with an aim of providing the individual investor with what we believe to
be the best of both worlds; to gain access to the well documented strategy of activist investing
with the cost structure, liquidity and lower investment thresholds of a mutual fund.
Q. How does the 13D Activist Fund achieve its investment strategy?
The 13D Activist Fund is an event driven fund that focuses on 13D filings. 13D filings are made
by investors who acquire over 5% of a company’s common stock and intend to influence
management. We track activists and review and analyze approximately 2,000 13D filings and
4,000 13D amendments each year. At any given time, we follow between 150 and 200 material
activist campaigns. We invest in those companies that we believe to be the most compelling 13D
filings of the most experienced activist investors who publicly take positions that their strategy
and ideas are better than managements’.
Q. How do you determine which positions to hold in the fund?
The decision is based primarily on an analysis of the 13D event. Among other things, we analyze
the activist, his track record, the sector, and the activist’s track record in that sector. Additionally
we look at the activist strategy that will be employed and the type of returns that strategy
typically creates. We also make a judgment on the probability for success of the filing based on
the activist’s experience, the shareholder base and other factors. The fundamental analysis of the
company is largely outsourced to the activist. Our investments are spread among many top
activists with different activist styles, strategies and sector expertise. The Fund will take between
20 and 40 positions of 10 to 15 different activists on average at any time.
Q. What is your average holding period for a stock?
We generally hold the stocks for the duration of the 13D filing which historically has an average
of 15 months.
Q. When 13Ds are filed, you often see a large almost instantaneous bump in the stock price.
Does the success of the Fund depend on being able to capture this price bump?
No. Absolutely not and in fact, we expect that we will never capture the return on that price
bump. For the types of investments we focus on (investments in companies with $1 billion+
market caps by premium activist investors), 13D Monitor data shows that historically there is an
average 2.65% one day bump in the stock price However, 13D Monitor data also shows that
these 13D filings produce an average return during their 15 month life that outperforms the S&P
500 by approximately 16%, after the 2.65% bump. We focus on capturing this long-term growth
for shareholders, and are not as concerned with any initial, small bump in return.
Q. Of the positions you took this year tell us about a few of your top performers?
There are many different styles and types of activism, but our best performers generally come
from activists with Board seats and strategic transactions. A great example of successful board
representation is Howard Hughes Corp. Although the 13D was filed before we launched our
Fund, we bought this position on day one of the Fund when it was trading at $44.26 per share.
Bill Ackman of Pershing Square is Chairman of the Company’s Board. We have followed Bill
for many years and know him well. We know him to be an extremely value-added Board
member and the fact that he was Chairman made us even more confident. We knew he would be
consistently looking to unlock shareholder value and as busy as he is, if he were going to
dedicate his time and resources to take the Chairman’s seat, we knew he saw a great deal of
upside in this Company. As of year-end, the stock was trading at $73.02 per share, a 65.0%
return from where we first bought it.
The second type of success we regularly see in the Fund is when an activist urges a Company’s
Board to sell the Company or spin off a subsidiary. Relational Investors filed a 13D on Par
Pharmaceuticals on November 25, 2011 and said they were going to make sure cash flow was
utilized for the greatest shareholder value. Because of the type of activist catalyst, we allocated it
to an equal weight position and bought shares at $33.09. On May 7, 2012 Relational amended its
13D and called for the Board to sell the Company, making a very compelling argument as to the
value that could be attained through a sale. As a result we increased PRX to an overweight
position on May 8. On July 16, 2012 the Company announced that it will be acquired by TPG
Capital for $50 per share, a 51.1% return from where we first bought it less than seven months
Q. Which positions did not do as well as expected and why?
It is no secret that J.C. Penney has not been a good investment for Pershing Square. This was an
activist campaign that started out with a great deal of promise. Bill Ackman negotiated for a
Board seat and orchestrated the hiring of Ron Johnson, formerly of Target and Apple, to
restructure the Company’s operations. We owned this stock right from our launch at a price of
$35.48. By mid-February it was at $43. Between February and November it became obvious that
the restructuring was going to take longer than expected and the “J” curve, often associated with
activist campaigns, was going to be steeper and the stock sunk to below $20 per share. At an
opportune time thereafter, we reduced our exposure to JCP (Sept. 14 - $29.36) and ultimately
sold the entire position as the restructuring was expected to take longer than we initially thought
and we already had a very large exposure to Pershing Square in the Fund. Another position that
we learned a lot from was Navistar. Carl Icahn filed a 13D on Navistar and gave them a “pass” at
the first annual meeting by agreeing not to commence a proxy fight in return for the company de-
staggering its Board. With no real catalyst in sight at that point, we should have not included the
stock in our portfolio. The Company’s operations began to sour and the stock was down
significantly by the time Carl Icahn received board representation. However, at this time it was
more of a restructuring opportunity than an activist opportunity and we decided to sell it from
Q. Are there other funds with a similar objective?
Currently there are no other mutual funds that follow 13D filings or track activists. We believe
this is the only mutual fund for advisors and individual investors to gain exposure to the activist
Q. How has the past year’s merger and acquisition environment impacted your fund?
The lack of M&A activity this past year has not been ideal for the Fund. In general, we think the
Fund would have benefited from a more robust M&A environment. More companies in play
create more opportunities to invest in the strategy. So I welcome merger and acquisition activity.
Q. What’s the relationship between your research business and the fund?
13D Monitor provides research on shareholder activism and 13D filings to our institutional
clients who use our reports and data to advise their own institutional and corporate clients or
make their own investment decisions. The 13D Activist Fund is a separate entity that serves
advisors and individuals wanting to invest directly in the strategy. Reports to institutional
subscription holders are generally distributed by 13D Monitor within 2 hours of a 13D filing.
While generating the reports and thereafter, we are evaluating the 13D filing as a potential
investment for the Fund, and the 13D Activist Fund will make its investment after the report is
issued, sometimes on the same day and sometimes one or more days later.
Q. What category does this fund fit in?
While Morningstar categorizes the Fund as a mid-cap blend, its distinct strategy makes it more
similar to an alternative investment. However, the Fund does not sell short and takes long-only
positions. We benchmark the Fund against the S&P 500.
Q. How does this fund fit in an investor’s portfolio?
Because activist investments tend not to be correlated to the market, the Fund offers an
opportunity for diversification for a typical portfolio. The Fund seeks to produce outsized
returns, but keep fluctuations in value low. Institutional investors have long been able to avail
themselves of alternative strategies like this one and many have benefited as a result. Individual
investors can now access that strategy in the form of a mutual fund.
Q. What historical data supports this strategy?
13D Monitor performed extensive research and analysis before the Fund was launched.
Additionally, there are numerous academic studies that validate the advantages of activist
investing. Our data and other studies show that stocks subject to activist 13D filings historically
deliver non-correlated market beating returns. We seek to give investors access to a successful
strategy that has historically outperformed the markets and is not correlated to the overall
markets. More data about historical results can be found at this link:
Q. What are the fees for this mutual fund?
About 13D Management
The total expense ratio for the Fund is 1.75% for Class A shares, 1.50% for Class I shares and
2.50% for Class C shares. The Fund is competitively priced for its distinct investment style. The
fund is available with an 5.75% load which is generally waived.
New York based 13D Management, a registered investment advisor and manager of the 13D
Activist Fund, is an event driven asset manager that focuses on 13D filings of activist investors.
The firm was founded by Ken Squire who is the leading authority on activist investors and also
leads 13D Monitor, a research service for major investment banks, top law firms, hedge funds
and institutional investors. The 13D Activist Fund is available directly to investors or through
Schwab, Fidelity, UBS, E*TRADE, Pershing LLC, and Scottrade.
Investors should carefully consider the investment objectives, risks, charges and expenses. This
and other important information is contained within the Prospectus, which can be obtained by
calling 877-413-3228. The Fund Prospectus should be read carefully before investing. The Fund
is distributed by Northern Lights Distributors, LLC. 13D Monitor and 13D Management, LLC
are not affiliated with Northern Lights Distributors.
Overall stock market risks will affect the value of individual instruments in which the Fund
invests. Factors such as economic growth, market conditions, interest rate levels, and
political events affect the U.S. securities markets. When the value of the Fund's investments
goes down, your investment in the Fund decreases in value and you could lose money. The
Fund is a non-diversified investment company, which makes the value of the Fund's shares
more susceptible to certain risks than shares of a diversified investment company. The
Fund has a greater potential to realize losses upon the occurrence of adverse events
affecting a particular issuer. The value of small or medium capitalization company stocks
may be subject to more abrupt or erratic market movements than those of larger, more
established companies or the market averages in general.