Shareholder activists concentrated their spending on a smaller number of companies in the second quarter of 2023, with an emphasis on healthcare, technology and publicly traded funds.

Primary- and partial-focused activists spent $3.02 billion on 60 new positions in the quarter ending June 30, according to Diligent Market Intelligence’s (DMI’s) recently released 13F Summary. That compares to the $2.87 billion that activists spent on 81 names in the first quarter and $4.08 billion spread across 71 names in the second quarter of 2022.

Instead, activists appear to be focusing on what they already own, increasing stakes in 205 existing positions, up from 188 the prior quarter, while exiting only 79 names, versus 96 in the first quarter. Third Point Partners and Bulldog Investors were the most active buyers, with nine new investments apiece.

Below, DMI examines some of the notable trading trends in the second quarter:

Healthcare in focus

Healthcare proved especially popular, attracting $735 million in new investment, with several companies attracting multiple activists.

Corvex Management, Sachem Head and Wynnefield Capital made new investments in U.S. contract drugmaker Catalent in the quarter ending June 30. By late July, news emerged that Elliott Management was preparing a proxy fight for board seats. And on August 29, Catalent agreed to appoint four new board members, including Elliott Investment Management’s Steven Barg, and to launch a strategic review in a settlement. The stock is up over 35% since July 1.

Other healthcare companies attracted interest from multiple activists including drug company Horizon Therapeutics, which saw investment from Taconic Capital Advisors and Third Point Partners. The two activists also invested in medical care company Option Care Health.

The sector has already generated some of the year’s most important proxy fights, namely Sarissa’s board sweep at Irish drug firm Amarin and the same activist’s failed proxy at Alkermes. Partial and dedicated activists have launched campaigns at 13 U.S.-based healthcare companies in the first eight months of this year, winning 19 board seats, the most in any sector.

Third Point long on tech

In his second quarter letter to shareholders, Third Point chief Dan Loeb attributed the hedge fund’s underperformance year to date (down 1.5% as of July 31) on a failure to buy tech stocks at the end of 2022, instead committing capital to value situations which have since underperformed.

Third Point, he stated, was now refocusing its portfolio on tech and other growth stocks, predicting “AI could compare to the Industrial Revolution but compressed into a period of months and years rather than decades.”

The shift was evident in the second quarter. Third Point took a $535-million stake in Amazon, the largest new investment by any activist in the quarter. Meanwhile, Third Point sold a $830.4-million stake in consumer giant Colgate-Palmolive, the largest single exit of the quarter.

Besides Amazon, Third Point took stakes in Activision Blizzard, NVIDIA, Uber and Black Knight, a software provider which DMI’s Vulnerability module identified as vulnerable to activism in a 2021 report.

Closed-end funds (CEF) under attack

Financial sector names were the most popular in terms of the number of new investments, accounting for 25% of all new positions with 11 concerning the funds sector and four concerning financial services. Many were driven by Bulldog Investments and Saba Capital Management, activists that specialize in acquiring stakes in closed-end-funds trading at deep discounts to their net asset value (NAV).

Bulldog took new stakes in nine CEF’s in the quarter, including those run by BlackRock, BNY Mellon and Templeton. The biggest increase of any existing position in the quarter was taken by Saba, which upped its holdings in BlackRock Health Sciences Trust to over the 5% disclosure threshold. Saba has indicated it may seek four board seats at the BlackRock CEF, according to SEC filings.

The buying spree may have been encouraged by the fact that CEF’s were relatively cheap in the second quarter. The discount for all publicly traded CEF’s widened to over 12% in May, as their share prices failed to reflect the rising value of underlying stock and bond holdings. That discount has since narrowed to 8.5%, according to the Closed-End Fund Association.

More activist investment in financial stocks has resulted in more activist campaigns, with 32 campaigns launched in the U.S. since the start of 2023, more than any other sector.

Out with the old

On the sell side, two notable activists closed out positions in companies after waging multiple proxy fights over many years.

Legion Partners ended its five-year investment in consumer products company Genesco, where it mounted three activist campaigns between 2018 and 2022, each progressively less successful.

Steel Partners Holdings sold its remaining stake in Aerojet Rocketdyne, which it had held since at least 2008 and had long controlled the aerospace company’s board room. That changed in July 2022, when Aerojet Rocketdyne’s CEO Eileen Drake defeated board Chairman Warren Lichtenstein, founder of Steel Partners, in one of the hardest-fought proxy battles that year.