Activist funds posted gains in August; Marcato pushed ahead

September 9, 2016 3:10 PM EDT

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By Svea Herbst-Bayliss

BOSTON (Reuters) - Activist investors that push for better returns by urging corporate actions such as sales and acquisitions and cost cutting posted their best returns in months in August, when bets on a wide range of smaller companies paid off.

Marcato Capital Management's International fund gained 3.1 percent while its Encore International fund climbed 4.7 percent, weeks after the firm announced two new investments in July.

August's gains, following on the heels of double-digit returns in July, put the International fund back in the black for the year with a 0.2 percent gain. The Encore fund has gained 11 percent since January, an investor said on Friday.

Marcato, which invests $1.5 billion and is run by Richard McGuire, in July unveiled bets on crane and heavy equipment maker Terex Corp and sports bar chain Buffalo Wild Wings, whose share price, it said, could nearly triple if management improved the business.

Gains at Marcato were largely fueled by progress at companies with a market capitalization of $10 billion or lower.

At Engaged Capital, Glenn Welling's $500 million fund, returns were even stronger after private equity firm Apollo Global took private Outerwall, one of Engaged Capital's portfolio investments. The fund climbed 6.65 percent in August, leaving it up 18 percent for the year, a person familiar with the numbers said.

After losing money in 2015, activist funds have, on average, gained 5.64 percent this year, fueled in part by August's 3.70 percent gain, research firm Hedge Fund Research said. The sector started the year down 5.48 percent.

Scott Ferguson's $3.8 billion Sachem Head Capital Management gained 1 percent in August to nearly wipe out the year's losses and leaving the fund down 0.2 percent.

Portfolios managed by William Ackman, one of the world's most widely followed activist investors, gained between 5 percent and 6 percent in August, shrinking the year's losses at his various funds to between 10 percent and 14 percent.

And Clifton Robbins' Blue Harbour's main fund has risen 6.3 percent year to date, boosted in part by a surge in cloud services provider Rackspace Hosting Inc's shares.

(Additional reporting by Michael Flaherty; Edited by Steve Orlofsky)

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