While professional investors are obliged to exercise independent judgment when it comes to making portfolio changes, it also pays to be mindful of what other successful asset managers are buying and selling. Besides uncovering an overlooked idea or two from a respected peer, it leaves them better prepared to respond to clients who want to know why their portfolio is positioned differently than those of others. The Securities and Exchange Commission’s Form 13F holdings reports, which institutional investment managers with more than $100 million under management are required to file within 45 days of the end of each calendar quarter, offer investors a snapshot of the stocks held in the portfolios of U.S. asset managers.
It’s important to note that 13F filings cover publicly traded equity securities, certain equity options and warrants, shares of closed-end investment companies, and certain convertible debt securities. Short positions are not included. So in addition to the time lag, any 13F analysis may also lack a complete picture of a manager’s holdings and exposure.
Even so, 13F filings are instructive. A detailed review of the collective filings for the first quarter of 2012 reveal that, as a group, portfolio managers moved out of energy, utilities, and consumer staples stocks, and beefed up their holdings of technology, financial, and consumer discretionary stocks.
Among the most widely held stocks, managers in aggregate trimmed their positions in Google (GOOG), Exxon Mobil (XOM), Apple (AAPL), and IBM (IBM), and added to positions in Microsoft (MSFT), Wells Fargo (WFC), JPMorgan Chase (JPM), and Johnson & Johnson (JNJ).
Here’s a look at some specific and notable portfolio changes in the most recent quarter for some prominent investors:
- Bill Ackman (Pershing Square Capital): Ackman added to existing positions in JC Penney (JCP), Alexander & Baldwin (ALEX), Canadian Pacific (CP), and Citigroup (C), while reducing positions in Fortune Brands (FBHS), Kraft (KFT), and Family Dollar Stores (FDO). Ackman’s portfolio took a big hit in mid-May when JCP, its second-largest holding, announced disappointing earnings and eliminated its dividend. As a result, the stock promptly fell almost 20%. Ackman is betting on JCP’s new CEO Ron Johnson, who had previously overseen Apple’s retail strategy, to turn around the retailer with a new everyday low pricing strategy.
- Kyle Bass (Hayman Advisors): Bass made a number of changes to his portfolio, including establishing new positions in Alcatel-Lucent (ALU), Six Flags Entertainment (SIX), Monster Worldwide (MWW), MEMC Electronic Materials (WFR), Tellabs (TLAB), Yahoo! (YHOO), Peabody Energy (BTU), FormFactor (FORM), Matador Resources (MTDR), Dynegy (DYN), and ZIOPHARM Oncology (ZIOP). Bass also reduced his position in MGIC Investment (MTG), though it remains a top five holding in his portfolio. Bass, famously negative on Japan’s prospects (you can read our analysis of Japan here), had initiated a position in MTG in the fall of 2011 in the belief that the housing market was close to a bottom. Recent changes have given his portfolio a strong tilt toward technology stocks.
- Bruce Berkowitz (Fairholme Funds): Berkowitz added just two new stocks to his portfolio: Orchard Supply Hardware Stores (OSH) and Mercury General (MCY). He also added to existing positions in Sears Holdings (SHLD) and Jeffries (JEF). On the sell side, Berkowitz eliminated Goldman Sachs (GS) from his portfolio and trimmed positions in Berkshire Hathaway (BRK.A and BRK.B), MBIA (MBI), Citigroup (C), Leucadia National (LUK), and St Joe (JOE). JOE, a controversial stock since Greenlight Capital’s David Einhorn revealed a short position in the fall of 2010, remains a top five holding in Berkowitz’s portfolio. While modestly reducing his exposure to financial stocks in the past three months, Berkowitz remains heavily overweighted in this sector.
- Warren Buffett (Berkshire Hathaway): Buffett’s new portfolio additions include General Motors (GM) and Viacom (VIAB). He added to positions in IBM (IBM), Wells Fargo (WFC), and Wal-Mart Stores (WMT). Positions in US Bancorp (USB) and Kraft (KFT) were the most significant portfolio reductions. Perhaps most notable in Berkshire Hathaway’s latest filing was that it noted that “confidential information has been omitted from Form 13F and filed separately with the Commission.” (We highlighted this language last fall when we wrote about Buffett’s initial purchase of IBM.) Buffett is likely building another big position that we will probably hear about before long.
- Jim Chanos (Kynikos Associates): Noted short-seller and China bear, Chanos added to existing positions in Visteon (VC), Liberty Media (LMCA), and Activision Blizzard (ATVI), while eliminating positions in Boeing (BA), American Capital Agency (AGNC), Abercrombie & Fitch (ANF), and Invesco Mortgage Capital (IVR).
- David Einhorn (Greenlight Capital): Einhorn added positions in Computer Sciences (CSC), Expedia (EXPE), and Roundy’s (RNDY), and significantly increased positions in Marvell Technology (MRVL) and Seagate Technology (STX). Eliminated from Einhorn’s portfolio were Travelers (TRV), Yahoo! (YHOO), Energy Partners (EPL), Broadridge Financial Solutions (BR), Furiex Pharmaceuticals (FURX), and OmniVision Technologies (OVTI). More recently, Einhorn recommended shorting Martin Marietta Materials (MLM).
- Jeremy Grantham (GMO): Grantham, for some time now, has been advocating high-quality, large-cap stocks and his portfolio’s top holdings — including Microsoft (MSFT), Johnson & Johnson (JNJ), Philip Morris (PM), Pfizer (PFE), and Coca-Cola (KO) — reflect this bias. Grantham was very active in the most recent quarter, initiating positions in Cementos Pacasmayo (CPAC), Solutia (SOA), Companhia Energetica Minas Gerais (CIG), Novellus (NVLS), Home Inns & Hotels Management (HMIN), Health Care Select Sector Fund (XLV), US Bancorp (USB), Companhia Siderurgica Nacional (SID), Pep Boys (PBY), American Tower (AMT), and SanDisk (SNDK). Jettisoned from the portfolio were BRF Brasil Foods SA (BRFS), Suncor Energy (SU), NetLogic Microsystems (NETL), Constellation Energy (CEG), Southern Union (SUG), USG (USG), Healthspring (HS), Magma Design Automation (LAVA), Grupo Televisa SAB (TV), Gold Fields Limited (GFI), and Pharmasset (VRUS).
- Seth Klarman (Baupost Group): Klarman added to existing positions in Idenix Pharmaceuticals (IDIX), NovaGold Resources (NG), and Theravance (THRX). Sold from his portfolio were Genworth Financial (GNW), PDL BioPharma (PDLI), and Targacept (TRGT), while positions in BP (BP), Microsoft (MSFT), Hewlett-Packard (HPQ), Alere (ALR), and Multimedia Games Holding (MGAM) were reduced. Klarman’s portfolio maintains a significant overweight in the technology sector.
- Dan Loeb (Third Point): Loeb was very active during the first quarter, initiating positions in Delphi Automotive (DLPH), Apple (AAPL), United Technologies (UTX), Google (GOOG), Medco Health Solutions (MHS), Family Dollar Stores (FDO), Capital One Financial (COF), Abercrombie & Fitch (ANF), Wells Fargo (WFC), and Teradyne (TER). Portfolio deletions included Gilead Sciences (GILD), Plains Exploration & Production (PXP), Big Lots (BIG), Sunoco (SUN), Skyworks Solutions (SWKS), Newell Rubbermaid (NWL), Liberty Interactive (LINTA), Gardner Denver (GDI), Celanese (CE), SanDisk (SNDK), and FMC (FMC). Loeb added to positions in Yahoo!, his largest holding, against which he has staged a public battle.
- Howard Marks (Oaktree Capital): Marks’s portfolio changes reflect his willingness to look internationally for investment opportunities. He initiated positions in Rio Tinto (RIO), Banco Bradesco (BBD), America Movil SAB de CV (AMX), BRF Brasil Foods SA (BRFS), United Microelectronics (UMC), SINA (SINA), and ANSYS (ANSS). Sold from the portfolio were LyondellBasell Industries NV (LYB), Petroleo Brasileiro SA (PBR), Companhia Energetica Minas Gerais (CIG), Itau Unibanco Holding (ITUB), Turkcell Iletisim Hizmetleri AS (TKC), Mechel OAO (MTL), PT Indosat Tbk (IIT), Taiwan Semiconductor (TSM), and Mobile TeleSystems OJSC (MBT).