Jeff Ubben is returning $1.25 billion to investors …
because the market is overvalued
Two months ago we reported ValueAct’s Jeffrey Ubben, one of the most-respected activist hedge fund managers, had been taking money out of the capital markets as valuations have become overextended, leaving it with $3 billion in cash. As justification, Ubben said that “I really feel that the large-cap activist plays are very treacherous with high PEs (price-to-earnings) and not a lot of growth,” and added that he was not focusing on any particular sector but instead looking for bets on idiosyncratic, mid-sized companies such as spin-offs and “weird” corporate structures.
Now, thanks to his latest, April 3 letter to investor, we also learn that he is returning a substantial amount of the excess cash to investors because he believes that the market is overvalued, and going forward he will fund purchases primarily by taking profits on existing holdings.
In his letter, as seen by CNBC, Ubben writes that “the broader market context is explicit to us. The S&P 500’s median P/E ratio is 18 times. For most high quality companies we follow, it is much higher. These valuations can only be justified by assuming cyclically high corporate margins will persist, a certainty of lower corporate tax rates and a risk-free rate that stays near all-time lows. We are skeptical of all of the above.“