Hanover Re-Visited -- Has It Made Money?

By Padraig O'Hannelly | 19 May 2008

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Just over a year a ago, I wrote about the activist shareholder Hanover Investors, and its lucrative habit of buying into companies and shaking them up. Its track record was impressive at that stage.

So how have Hanover's investments performed since then?

As you can see from the table below, it's a very mixed bag, but mostly it's bad news.

Hanover was holding six companies when I wrote that article, and only two of those have increased in value in the meantime. Additionally, Hanover has bought 18% of Debt Free Direct, since renamed Fairpoint Group (LSE: FRP) , and that has lost two-thirds of its value since the purchase.

These figures show the share price performance from the article date to the closing price last Friday, as well as the best and worst points over that period.

* Tracking Fairpoint from Hanover's purchase of Debt Free Direct in August '07.

If you had bought an evenly-weighted portfolio of these shares at that time, you would have lost more than 36% (ignoring dividends -- and you would be ignoring dividends if you'd lost that much capital). This compares to a loss of only 21% for the FTSE Small-Cap (LSE: FTSC) index.

Almost by definition, companies in transition are a higher risk investment than the overall market, but the potential returns should also be greater.

And while each of these companies have their own idiosyncratic risk factors, they have also been affected by the general sell-off in small-cap shares.

Copycat investing is never advisable. While Hanover, and other funds that I respect, have undoubtedly done their due diligence to a degree that the private investor would find difficult or impossible, so too have the funds that sell to them.

While I'd never automatically follow any investor, I have to admit that I regard holdings by certain investors as a comfort factor; I'd rather have profit, but at the moment I have to settle for comfort.

Padraig (still) owns shares in Renold.

If you fancy buying a share in the Hanover portfolio, consider using Motley Fool Sharebuilder where you can buy shares for zero commission until June 30th.