Profit from activists: Mischievous investors at Disney and Scottish Mortgage can give shares a boost

Updated: 12:03 GMT, 30 March 2024

Activist investors are aggressively agitating for change at major British and American corporations. You may see these larger-than-life personalities as ‘bully billionaires’.

But you should also be asking whether they are not only making mischief, but also money for other investors.

The key figures in the game are US hedge fund managers. Most famous among them is Nelson Peltz, boss of the Trian fund, enemy of ‘woke’ and father-in-law to David Beckham’s son, Brooklyn.

Agitating for change: Nelson Peltz (left) and Paul Singer

Peltz recently conceded that he may be a bully billionaire, but sees himself as a ‘constructivist’ not an activist. At present, he is making his presence felt at Unilever, the Dove soap and Marmite group.

He is also seeking board representation at the Walt Disney empire. This acrimonious campaign reaches a showdown on April 3.

The equally combative Paul Singer, boss of Elliott Investment Management, has snapped up a 5 per cent slice of Scottish Mortgage, the FTSE 100 tech trust where private unlisted companies constitute 30 per cent of the portfolio.

Singer’s other investments encompass the bookshop Waterstones. He also used to own the AC Milan football team. His bid for electricals retailer Currys has just been rebuffed. The drugs company GSK and the Alliance trust number among his past UK targets.

Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity fund claims that activists can be a force for good.

But a study by asset manager Lazard of US traditional activist campaigns, which examined the years from 2018 to mid-2023, showed them generating short-term outperformance of 2 per cent the first week after the campaign was announced. But long-term outperformance was elusive, with an average 8.6 per cent price fall over the following 12 months.’

Against the background of such scepticism, Peltz seems to be winning respect. Unilever’s share price is up by 4 per cent this year, indicating confidence in a Peltz-style glow-up of the business.

As part of the re-shaping of Unilever, the £15billion Magnum and Ben & Jerry’s ice cream division is set to be floated in Amsterdam. Peltz, 81, should be pleased. Some claim his distaste of Ben & Jerry’s progressive activism was the reason he took a 1.4 per cent stake in Unilever.

Peltz takes issue with costs and the woke tone of recent Marvel movies at Disney. He faces opposition from film director George Lucas and other Hollywood heavyweights who support Bob Iger, Disney’s chief executive.

Peltz turned his attentions to Disney in early 2023, acquiring shares at about $92. The price is now $118, following the unveiling of a $5.5billion restructuring programme. Analysts at Barclays have set a target price of $135.

As a shareholder, I am unsure whether it will be happily ever after if Peltz joins the board, but I am going to relax into my seat (maybe with some popcorn) and watch the story unfold.

Even more uncertainty surrounds the outcome of Singer’s Scottish Mortgage excursion.

But again, as an investor, I am going to wait and see, hoping that he will make a positive difference – reasonably quickly.

The Alliance saga ran for seven years. Scottish Mortgage’s share price has recovered to 894p, having peaked at 1515p in October 2021.

Singer contends that buying back the trust shares would boost the shares – and narrow the discount between the price and the net asset value. But critics fear this would be funded by selling listed holdings, so increasing the size of the unlisted element.

Darius McDermott of FundCalibre also questions Elliott’s dislike of these holdings. ‘Private companies are inherently less transparent than publicly-traded ones,’ he says. ‘But some of those owned by Scottish Mortgage are established businesses like ByteDance, owner of Tik Tok, or Elon Musk’s Space X.’

Some may be tempted to take a bet on Disney, Scottish Mortgage or Unilever. But those who bought BT or Vodafone when French activists burst onto the scene have been disappointed

Patrick Drahi owns a 24.5 per cent stake in BT. Xavier Niel has 2.5 per cent in Vodafone. BT’s share price is 109.65p, below its level in June 2021 when Drahi started buying. Vodafone’s price has also gone into reverse.

I would suggest a different strategy: sit back and enjoy the fun if you have cash in UK stocks.

The arrival of Peltz and Singer suggests that UK markets are undervalued and that these activists could spur yet more action.

Solid-sounding name of Scottish Mortgage belies racy nature of this FTSE100 member investment trust

The solid-sounding name of Scottish Mortgage belies the racy nature of this FTSE100 member investment trust.

Its portfolio is not made up of loans advanced to Scots homeowners. Rather it is a bet on innovation in AI (artificial intelligence) and other fields in the US, Europe and China.

Scottish Mortgage’s largest quoted company holdings include the tech titan Nvidia, maker of AI microchips and ASML, the Dutch group, the number one in the manufacturing of the machines that make microchips.

More controversial is the trust’s unquoted ‘private equity’ element which constitutes about 27 pc of the portfolio. Some of the investments are obscure. Others are world-famous such as ByteDance, the Chinese owner of TikTok and Elon Musk’s SpaceX.

These businesses excite many investors. But they do not impress the holder of 5pc of the trust’s shares – US activist investor Paul Singer, boss of the Elliott Investment Management hedge fund and veteran of battles against the boards of drugs group GSK and others.

Singer may own the bookshop Waterstones and was proprietor of the football club AC Milan until 2022. But the 79-year old does not seem to wish to devote his time to such pursuits, being more interested in forcing change at the companies where he invests.

Scottish Mortgage’s other investors ought now to consider if they like the strategy Singer wants the trust to pursue. – for he may succeed.

Baillie Gifford, Scottish Mortgage’s manager, is known for having the courage of its convictions. Some call the stance ‘arrogant’ and even ‘cult-like’. But Singer can be very persuasive. This is the man who impounded an Argentinian vessel to force the country to settle lapsed bond debts.

Singer argues that Scottish Mortgage should buy back its own shares, a mechanism that aims to boost the share price, reducing the discount between the price and the trust’s NAV – net asset value.

A narrowing of the discount would be welcome. But to achieve this, some of the quoted stocks might need to be sold off, increasing the proportion held in the more illiquid unlisted companies.

Trimming these unlisted holdings would be challenging. Normally some would proceed to an IPO, becoming quoted companies. But there is less activity in this section of the market at present.

Disposing of these stakes by other means risks depriving the trust of some of the future stars of tech.

This opportunity to be a small-time venture capitalist by backing such businesses is one of the reasons why I have put a small amount into Scottish Mortgage each month for more than a decade.

But this is an adventurous choice, suitable for those happy to take a long-term view.

The trust’s shares have almost halved since their peak in the autumn of 2021 and there is no guarantee that Singer’s intervention can rapidly reverse this trend.

If you would prefer something with a lower risk profile, there are many other global trusts such as F&C which also provide some AI industrial revolution exposure.

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