Fed-up activist investors are making a run for S&P 500 companies like Disney. Could this be the push needed to drive better returns for investors?
Already, activist investors amassed a 5% or greater stake in nine companies in the S&P 500, including Invesco, Howmet Aerospace and Best Buy, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Shares of the nine stocks are down 15% on average in the past year, offering an entry point for investors who think they could do better.
The latest company to face the ire of activist investors is Disney. Nelson Peltz of Trian Fund Management is making a bid to join the media company's board of directors. Peltz is pointing out the dismal performance of Disney — down 40% in a year's time — as an opportunity to make hard decisions to improve.
What is Peltz' plan? "Trian wants to help build lasting value at $DIS by working with Bob Iger and the Board. We are not trying to create additional instability. We want to ensure a successful succession process; improve the balance sheet; make $DIS more profitable and reintroduce the dividend," Trian stated on its @RestoringMagic Twitter feed.
The Rise Of Activists
Shareholder activism, or actions by investors who agitate for change at a company deemed to be underperforming, is due for an upswing.
Just this month, nearly 220 of the companies in the S&P 500 saw activist investors adding to their positions, S&P Global Market Intelligence data shows. And the average jump in share ownership by activists jumped more than 50%.
Seeing an uptick in activism is right on cue. The number of activist campaigns dropped off in 2020 amid the Covid-19 pandemic, says Sullivan & Cromwell. But before that, activist activity was picking up. Activist campaigns topped 300 in 2019, which was up from more than 260 in 2018 and 250 in 2017.
With Covid health concerns subsiding and S&P 500 stock prices falling, the environment is right for more activism. Additionally, a long bull market that only ended in 2022 hid many corporate sins that activists like to target.
The Most Targeted S&P 500 Companies
Investment manager Invesco is the most targeted company by activists in the S&P 500. More than 12% of its shares are in the hands of activists.
But in Invesco's case, it's mainly one activist calling the shots: Disney's gadfly Trian. Trian alone owns 12.3% of the top provider of investment management, including ETFs. That makes Trian the second-largest owner of the stock, second only to Massachusetts Mutual Life Insurance with a 17.9% stake. And this month, Trian increased its stake by more than 1%. So far this year, Trian has plenty to complain about. Shares of Invesco are down nearly 21% in the past year.
Next up is defense contractor Howmet Aerospace, which is 11.4% owned by activists. The largest owner is Elliott Management with an 8.7% stake. But Elliott seems to be loosening its grip slightly with shares up nearly 21% in a year's time. Elliott cut its position by 15% in the past month.
Not all activists, though, are completely financially motivated. Richard Schulze, founder of Best Buy, is the largest activist investor in the firm.
Will More Activists Help The S&P 500
Can you score on stocks getting lit up by activists? Research on the effects of shareholder activism is mixed, largely due to the wide range of campaigns and different goals. But there are often benefits to shareholders.
"The literature establishes that, on average, activism has positive longer-run financial and real benefits for targets. But is there a conflict in the effects of activism on the targets versus some of their important stakeholders, such as suppliers, as suggested by anecdotal evidence," said a research study by Hadiye Aslan of Georgia State University.
But it looks like S&P 500 investors will soon have fresh examples to consider.
Activists' Top S&P 500 Targets
Highest % of shares owned by activist investors
| Company | Ticker | Activist Investors — % Owned | Stock 1-year % ch. | Top activist | Activist position% |
|---|---|---|---|---|---|
| Invesco | 12.8% | -20.6% | Trian Fund | 12.3% | |
| Howmet Aerospace | 11.4 | 20.8% | Elliott Management | 8.70 | |
| Best Buy | 10.3 | -16.2% | Richard Schulze | 10.2 | |
| Wynn Resorts | 8.7 | 16.0% | Elaine Wynn | 8.5 | |
| Newell Brands | 8.1 | -35.4% | Icahn Capital | 8 | |
| Qorvo | 8.0 | -34.8% | Baupost Group | 6.7 | |
| Seagate Technology | 6.6 | -48.8% | ValueAct Capital | 6.5 | |
| Bath & Body Works | 6.4 | -21.3% | Third Point | 6.0 | |
| Dollar Tree | 5.2 | 7.0% | Mantle Ridge | 5.1 |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
