Practical analysis for investment professionals
17 November 2014

13F Watch: Active Management Looks Like a Contrarian’s Bet

Posted In: Equity Investments

It’s been an annus horribilis for stock pickers. In the United States, fewer than one in five active fund managers are beating the market this year, their worst showing in over a decade. As a result, active funds have been bleeding assets and passive products are seeing record inflows. The fortunes of active managers certainly weren’t helped by Warren Buffett, who earlier this year advocated for passive investing. And more recently, Greenwich Associates founder Charley Ellis, CFA, argued that when it comes to active investing, the “party is over.” Active managers counter that artificially low interest rates have increased correlations among stocks, and once we get past quantitative easing, the environment will once again favor stock pickers. At this point, active management looks like a contrarian’s bet, which is why astute investors should not dismiss it.

While quarterly 13F filings are dated and don’t necessarily present a full picture of a manager’s holdings — they don’t include short positions — seeing them is a bit like getting a peek at the other team’s playbook. Below we summarize the notable changes made during the third quarter of 2014 by some widely followed activist investors and other prominent portfolio managers. They warrant our attention because the media attention these managers receive gives them outsized influence over stock price movements, and their long-term track records suggest they may have an idea or two worth pursuing.

  • Bill Ackman (Pershing Square Capital): Ackman established a new position in Zoetis (ZTS). At the end of the quarter, Ackman’s top holdings were Allergan (AGN), Canadian Pacific Railway (CP), Air Products and Chemicals (APD), Burger King Worldwide (BKW), and Platform Specialty Products (PAH).
  • Bruce Berkowitz (Fairholme Funds): Berkowitz reported new stakes in Chesapeake Energy (CHK), British Petroleum (BP), and New York Community Bancorp (NYCB). Notable sells from the portfolio included Fannie Mae (FNMA), Freddie Mac (FMCC), Genworth Financial (GNW), Reynolds American (RAI), and Altria Group (MO). At the end of the quarter, American International Group (AIG), Bank of America (BAC), Sears Holdings (SHLD), St. Joe (JOE), and Leucadia National (LUK) remained Fairholme’s top holdings.
  • Warren Buffett (Berkshire Hathaway): Berkshire disclosed new positions in Liberty Media (LMCK) and Express Scripts (ESRX), and sold its stake in Deere (DE). Top holdings at the end of the quarter remained Wells Fargo (WFC), Coca-Cola (KO), International Business Machines (IBM), American Express (AXP), and Wal-Mart Stores (WMT).
  • David Einhorn (Greenlight Capital): Notable new positions to Einhorn’s portfolio included Citizens Financial Group (CFG), CONSOL Energy (CNX), ON Semiconductor (ONNN), AECOM Technology (ACM), and NorthStar Asset Management Group (NSAM). Sold during the quarter were stakes in Computer Sciences (CSC), Tempur Sealy International (TPX), NorthStar Realty Finance (NRF), Chico’s FAS (CHS), and DSW (DSW). Top holdings at the end of the quarter included Micron Technology (MU), Apple (AAPL), SunEdison (SUNE), Marvell Technology Group (MRVL), and Aetna (AET).
  • Jeremy Grantham (GMO): GMO’s largest new positions included Amazon (AMZN), Shire (SHPG), International Game Technology (IGT), Catamaran (CTRX), and TRW Automotive (TRW). Notable sells from the portfolio included positions in Cummins (CMI), Hillshire Brands (HSH), Forest Laboratories (FRX), LIN Media (LIN), and Nu Skin Enterprises (NUS). At the end of the quarter, GMO’s top holdings included Philip Morris International (PM), Express Scripts (ESRX), Microsoft (MSFT), Oracle (ORCL), and Amazon (AMZN).
  • Carl Icahn (Icahn Associates): Icahn established new positions in Hertz Global (HTZ) and Seventy Seven Energy (SSE), and reduced his position in Netflix (NFLX). At the end of the quarter, top holdings included Apple (AAPL), CVR Energy (CVI), eBay (EBAY), Federal-Mogul (FDML), and Chesapeake Energy (CHK).
  • Seth Klarman (Baupost Group): Klarman added new positions in Ocwen Financial (OCN), Antero Resources (AR), and Veritiv (VRTV), and sold his stake in Idenix Pharmaceuticals (IDIX). Top holdings at the end of the quarter included Micron Technology (MU), Cheniere Energy (LNG), Via Sat (VSAT), eBay (EBAY), and Theravance (THRX).
  • Dan Loeb (Third Point): Loeb’s largest new positions established during the quarter included Alibaba Group (BABA), eBay (EBAY), Bed Bath & Beyond (BBBY), Shire (SHPG), and Parker-Hannifin (PH). Notable sells from the portfolio were American International Group (AIG), T-Mobile US (TMUS), Rackspace Hosting (RAX), Hertz Global (HTZ), and Citrix Systems (CTXS). At the end of the quarter, top holdings included Dow Chemical (DOW), Ally Financial (ALLY), Actavis (ACT), Alibaba Group (BABA), and eBay (EBAY).
  • Howard Marks (Oaktree Capital): Marks’ largest new positions included Tribune Publishing (TPUB), Rock-Tenn (RKT), Yandex (YNDX), Itau Unibanco Holding (ITUB), and ICICI Bank (IBN). Sold from the portfolio were Ambev (ABEV), The Blackstone Group (BX), and Paragon Shipping (PRGN). Top holdings at the end of the quarter included Star Bulk Carriers (SBLK), Dynegy (DYN), First BanCorp/Puerto Rico (FBP), Ally Financial (ALLY), and Masonite International (DOOR).
  • Nelson Peltz (Trian Partners): Peltz made no substantive changes to his portfolio during the quarter. Top holdings at the end of the quarter included PepsiCO (PEP), Mondelez (MDLZ), Bank of New York Mellon (BK), Ingersoll-Rand (IR), and Legg Mason (LM).
  • Barry Rosenstein (Jana Partners): Rosenstein established new positions in Dollar General (DG), Amgen (AMGN), Rackspace Hosting (RAX), Valeant Pharmaceuticals (VRX), and Seadrill Partners (SDLP). Notable sells from the portfolio included Mallinckrodt (MNK), FMC (FMC), CBS (CBS), SunEdison (SUNE), and Endo International (ENDP). At the end of the quarter, top holdings included Walgreen (WAG), eBay (EBAY), PetSmart (PETM), Equinix (EQIX), and American International Group (AIG).
  • David Tepper (Appaloosa Management): Tepper established new positions in NXP Semiconductors (NXPI), Lorillard (LO), Alibaba Group (BABA), and Shire (SHPG). Notable sells from the portfolio included Expedia (EXPE), American International Group (AIG), Prudential Financial (PRU), Celanese (CE), and ASML Holding (ASML). At the end of the quarter, top holdings included General Motors (GM), Citigroup (C), Priceline Group (PCLN), HCA Holdings (HCA), and Google (GOOG).

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image Credit: ©iStockPhoto/jirawatp

About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, is director of Member and Corporate Products at CFA Institute and serves as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

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