Activists are turning out to be a shareholder's best friend.
The often noisy investors such as Carl Icahn, Bill Ackman and Nelson Peltz — who urge corporate leaders to rethink their strategies and expedite stock-boosting changes — generated a 48% average gain for shareholders of the companies they've preyed on in the last five calendar years, according to an analysis of 81 companies by Bloomberg News.
That beat the S&P 500 index by about 17 percentage points.
“Some people argue that the activist hedge funds benefit at the expense of the other shareholders, but that doesn't happen,” said Wei Jiang, a Columbia Business School professor whose own study reached similar conclusions. “It's not like they pump and dump and the rest of the shareholders suffer.”
Last year, 369 companies were targeted, up 12% from the year before, according to Hedge Fund Solutions, affecting corporations as big as Microsoft Corp., PepsiCo Inc. and Apple Inc. The increase was fueled by an almost tripling of money flowing to the activist hedge funds over the past five years, to $93 billion at the end of 2013.
In the six-month periods before the activists stepped in, the stocks had been trailing the S&P by about eight percentage points on average, data compiled by Bloomberg show.
The findings were embraced by activists including Mr. Icahn and Relational Investors co-founder David Batchelder, who said in interviews their internal fund data showed targets continued to outperform the S&P 500 years after exiting the investments.