JANA Partners Founder Barry Rosenstein
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Activist hedge fund in trouble a year after inking deal with Neuberger Berman.

By Marshall Hargrave
August 12, 2016

Corrected 12:30 p.m.

Even Orville Redenbacher hasn’t been able to help Jana Partners pop this year.

The hedge fund, which is led by activist investor Barry Rosenstein, is suffering one of its worst performance patches in its 15-year history. The firm’s main fund posted negative returns in 12 of the past 19 months through July. Through the middle of year, three of Jana’s top four holdings were down, though two, Alphabet goog and Microsoft msft , were up sharply in July.

The only one of its top four holdings that is beating the market this year is Orville’s owner ConAgra Foods, which is up 12% this year. It’s second biggest holding, after ConAgra, Walgreens Boots Alliance is down nearly 2.6% this year.

All told, Jana Partner’s main fund was down 4.1% in the first seven months of the year. That’s far below the 6.3% gain the S&P 500 had in the first seven months of the year. It also puts the fund toward the bottom of the hedge fund heap as well. The average hedge fund was up nearly 3%, through the first seven months of the year. Even among activist hedge funds, which have hit a dry spell recently, Jana is getting easily passed. The average activist hedge fund is up nearly 1.7% this year.

A lot has been written about the strikingly poor performance of fellow activist investor Bill Ackman, whose fund is down nearly 18% this year, suffering another set back this week with Valeant, after a similarly bad year in 2015. But Jana’s disappointing numbers as of late is another prominent example of how activist investors aren’t living up to their hype of the last few years.

The lackluster returns come a little more than a year after Jana inked a deal that seemed to give credence to the idea that activist investing—when hedge funds take stakes in companies and push executes to make changes, which often include boosting buy backs or breaking up a company—was here to stay. In March 2015, Neuberger Berman, the 75-year-old asset management firm that had survived being owned by Lehman Brothers, invested $400 million in Jana Partners, taking a 20% stake in the hedge fund company. The deal valued Jana at $2 billion. And it helped boost assets in Jana’s fund to just over $11 billion.

Rosenstein cut his teeth in activism during the 1980s with famed corporate raider, Asher Edelman, who is widely believe to be the inspiration for Wall Street‘s Gordon Gekko. Rosenstein famously ask for a $1 million salary to join the firm, and Edelman agreed. It’s there that he fell in love with corporate raiding and it’s with Edelman that he realized “activism can be productive for the economy,” according to Rosenstein.

He eventually founded Jana Partners, which Rosenstein named by using the first initials of his four children, in 2001, with just $35 million, creating it to be a shareholder watchdog at a time when corporate scandals like Enron and Worldcom were in the process of being unearthed, and giving new credence to the fact that corporate management teams had grown too powerful.

For more than a decade, Jana’s event driven strategy, with a focus on activism, worked out well. In 2011, he scored big in part by forcing 100 year Through 2012, Jana posted average annualized returns of over 13% since inception. In 2014, Rosenstein, who favors expensive Italian suits, but seldom where ties, paid $147 million for a Hamptons mansion, which at the time was the most expensive residential home in the U.S.

But the fund’s performance has sunk recently. Last year, the fund lost 5.4%, its first annual loss since 2011, and just the third since inception. That has put Jana’s on track for its first ever back-to-back annual losses.

One of the problems appears to be its rapid growth. The flood of new capital to activist hedge funds has forced Jana and others to go after bigger and bigger targets. In 2015 there were 30 activist campaigns waged against large- and mega-cap companies, compared to just six in 2009. Similarly, heading into 2013, the same year that Jana generated a 20.4% return, none of its top 10 holdings had a market cap greater than $60 billion. This year, three of its top 10 are above that mark.

And while activist investors have done well pushing for change at smaller companies, their track record investing in bigger firms hasn’t been as hot. For example, in early 2015, Jana made a big bet on Qualcomm qcom —the $90 billion telecom tech giant—investing $2 billion in the company, which made it the fund’s largest holding. Jana pushed for the company to break itself up, a move Qualcomm’s management successfully resisted.

In the next 15 months, from the beginning of 2015 to the end of the first quarter of this year, Qualcomm’s shares dropped nearly 50%. Earlier this year, Jana threw in the towel and dumped its entire stake. That’s proved to be a bad move as well. Qualcomm has outperformed the S&P 500 year-to-date, up 24% from its 52-week low in February, though it’s still below were Jana bought in.

Pharmacy giant Walgreens Boots Alliance wba , too, where Rosenstein recently stepped down from the board, has done little to boost the fund’s performance of late. Its stock is down a little over 10% during the past twelve months.

Not everything has gone wrong for Jana this year. Back in January, Jana placed a bet that the shares of three large U.K. companies would fall. It’s not clear that the bet was based on a possible Brexit vote. But following the British referendum, which passed, shares of all three companies fell. Shares of one of the three companies Dixon’s Carphone is down 28% this year.

But even that bet hasn’t worked out all that well. Of the three companies, Jana’s biggest so-called short bet was against Royal Mail. But shares of the U.K. shipping company are up 16% this year, even including a sharp drop after the Brexit vote.

Despite the tilt toward large caps, Jana’s weighting toward activist targets is the same percentage today as it has been historically. But it appears Jana has drifted away from the tactics that made it successful in the past. Jana previously had success with taking larger stakes in smaller companies and pushing for a buyout, such as with PetSmart petm , Safeway swy , and ConAgra.

In 2013, Jana filed five 13Ds with the Securities and Exchange Commission—a filing that’s required for funds owning 5% or more of a company and looking to push for change. In 2014 it filed four 13Ds. Last year, it was down to just two.

The activist hedge fund says it’s sticking to its core strategy and believes it’ll prove to be the right one in the long-term.

It certainly looks like Jana is laying the groundwork for getting back to what made it great—targeting small and mid-cap stocks. In the quarterly holdings filing it made with the SEC back in May, Jana revealed that it added the $8 billion market cap specialized waste disposal company, Stericycle, to its top 10 holdings in the first quarter. That hasn’t turned in to a good long-term pick. Shares of Stericycle have fallen by just over 30% since the end of March, including a one day plunge in late April when the stock dropped 20%. A spokesperson for Jana says the fund sold its stake in waste management company for a gain in the second quarter before the late April drop.

Correction: An earlier version of this story said Jana’s main fund was down 4.9% through July, and that the fund’s assets peaked at $17 billion. In fact, the fund’s investment rose 1.9% in July, putting the fund down 4.1% for the year. What’s more, Jana main fund has never had more than $11 billion in assets. After Fortune’s publication of its initial article, a Jana spokesperson contacted Fortune to say that the fund had sold its position in Stericycle during the second quarter. Jana has yet to file its second quarter holding statement with the SEC, so Fortune could not independently confirm that the fund had in fact exited the position.

 

 

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