We recently published a list of The 10 largest investments of committed capital. In this article, we take a look at how Evolent Health, Inc. (NYSE:EVH) compares to Engaged Capital’s other top holdings.
Engaged Capital was one of the hedge funds that resurged when activist investors had one of the best runs in the market. With the S&P 500 up 24% in 2023, the hedge fund was in one of the best positions thanks to shrewd stock picking. A 29% gain by the hedge fund was much better than the average 16% loss most hedge funds saw in 2022 as the market came under pressure amid increased inflation.
Founded in 2012 by veteran investor Glenn W. Welling, Engaged Capital is one of the most respected activist hedge funds driving strategic change in companies. With initial capital of $85 million, it has grown to become one of the largest, controlling a portfolio valued at $617.1 million, and has evolved into an experienced small-cap hedge fund that makes investments with a two- to five-year time horizon.
Welling is best known for his skill in stock picking. He began his career in 2008 at the renowned activist fund Relational Investors under the leadership of Ralph V. Whitworth. He was a director and managing director of the hedge fund and was responsible for investments in the consumer, healthcare and utilities sectors.
While Engaged Capital’s top 10 holdings are publicly traded stocks with market caps ranging from $300 million to $8 billion, they are typically spread across specific industries. For example, the fund isn’t keen on investment opportunities in commodity sectors such as utilities, energy and financials. The hedge fund also avoids companies with two classes of stock and those with more than 20% insider ownership, as this makes it difficult to sponsor successful activist campaigns.
Engaged Capital focuses primarily on companies that excel in their industry, have high profitability, generate solid cash flows, and have low debt ratios. The activist hedge fund takes a closer look at the reasons behind the stock’s poor performance. It also examines financials to identify areas where improvement is needed to change the market’s view of the company. It then discusses the company’s management structure to gauge shareholder sentiments and whether there is interest among other investors in making changes.
As part of its activist campaigns, Engaged Capital always pushes for operational improvements, including cost cutting, to deliver optimal shareholder value. In some cases, it argues for strategic reviews that include selling non-core assets or the entire business if that is the only remaining opportunity to create value. Board renewal, including seeking seats on the board, is also part of the strategy the hedge fund uses to advocate for change and influence the direction of a company to unlock hidden value.
Engaged Capital is not the only hedge fund pushing for corporate changes to unlock shareholders in 2024. With activist investors generating an average return of 20.2% in 2023, there has been an influx of capital into various stocks. Investors are looking for ways to unlock additional value as the stock market continues to reach new highs in the high-yield environment.
Engaged Capital and other activists are expected to continue to advocate for strategic changes as the high-yield environment dampens expansion and hurts certain lines of business. Investors are expected to demand more transformation from companies, according to lawyers, bankers and hedge fund managers.
Some investors have expressed a willingness to invest additional funds as activists expect returns to remain strong due to increasing merger and acquisition activity. Last year, a record 77 first-time activists launched campaigns, according to Lazard data, up significantly from 55 the previous year.
Our methodology
Activist investing has rebounded following double-digit percentage gains in 2023 as stock markets rose to record highs. In this article, we have compiled the top 10 holdings of Engaged Capital, a hedge fund that is gaining attention through activist investing. After analyzing Insider Monkey’s database, we have compiled the top 10 holdings of Engaged Capital and ranked them by the hedge fund’s equity holdings.
At Insider Monkey, we’re obsessed with the stocks hedge funds invest in. The reason is simple: Our research shows we can beat the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (read more details here).
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Evolent Health, Inc. (NYSE:EVH)
Engaged Capital Investments: $106.94 million
Number of hedge fund owners: 28
Evolent Health, Inc. (NYSE:EVH) is Engaged Capital’s top holding and provides health information services in the healthcare sector. The company offers specialized care management services in oncology, cardiology, and musculoskeletal in the U.S. While the stock rose 22% in 2023, it has been a major disappointment in 2024, losing about 40% in the first half of the year.
During the sharp decline, Engaged Capital held 3.26 million shares of Evolent Health, Inc. (NYSE:EVH), valued at about $106.94 million, representing 17.32% of its portfolio. At the end of the first quarter, 28 hedge funds tracked by Insider Monkey’s database held shares of Evolent Health, Inc. (NYSE:EVH), up from 29 at the end of 2023.
Total EVH 1st place on our list of Engaged Capital’s top 10 investments. You can visit The 10 largest investments of committed capital to see the other stocks that are on hedge funds’ radar. While we recognize EVH’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than EVH but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
