Activist investors have been getting a lot of press lately. Parting from the secretive behavior common to hedge funds, many activists actually rely on media to amplify their claims, help influence public opinion and in turn drive profits on their positions. The attention has been well-deserved as of late as many campaigns have been successful in bringing about change in target companies, not to mention tidy profits for activists and their clients. However, this recent trend has been the benefactor of a persistent bull market, and risks do exist in this strategy, the main one being significant illiquidity. The reason illiquidity can pose a serious risk is that during market corrections managers tied up in their names are subject to violent swings without the ability to quickly exit their positions.

Eoin Treacy's view

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For investors unencumbered by regulations and modern portfolio theory, the attractions of concentrated portfolios, identifying market misallocations and then using every tool at their disposal to influence board decisions are obvious. However the risk of adopting such a strategy as liquidity on which a market relies is withdrawn means that one could be left holding illiquid securities as client redemptions mount.

Among publicly traded activist funds:

Icahn Enterprises completed a four-year base in late 2012 and has found support in the region of the 200-day MA on successive occasions since. Following a clear acceleration late last year the share has been trading in the region of $100 and a sustained move below that level would be required to signal a return to medium-term supply dominance.

The Fairholme Fund which has significant weightings in AIG Group, Bank of America and Sears is currently engaged in a progress of mean reversion in what has been a very consistent uptrend since 2011