GuruFocus tracks the firms entire equity portfolio, including long positions in all equity funds, as filed by the firm with SEC. As of June 30, 2010, the firm has $5.73 billion in 130 stocks.
The best performing fund that the firm offers is the Small Cap Fund. Since inception on December 29, 2000, the fund (Class I) returned 10.32% per year through June 30, 2010. Most of the funds beat the benchmarks during their lives, although their performance have not been so outstanding as the Small Cap Fund. Several of the funds are simply too young as they were established around 2005. For detailed information of the firm’s funds, click here
The firm appears to believe in the right things when coming to investing. On the firm’s website, Diamond Hill displays quotes from Warren Buffett and Benjamin Graham. The firm uses 6 step investment processes when managing their investment portfolios:
1. Generate Ideas: The do this through a "predominantly a bottom-up process beginning with fundamental analysis of a company's profitability and market position, financial and competitive position, management quality, valuation, and growth components of valuation. Top-down analysis is focused on industry dynamics, including sector economic factors, long-term capital flows, and the regulatory environment, not on macro-economic factors. Investment team insight and experience is then applied to further narrow the universe of investable ideas for deeper analysis including the creation of a financial model. The initial pool of stocks available for investment ideas is based on the market cap range for each strategy."
2. Estimate Intrinsic Value: The do this through many different models including discounted cash flows, private market value, and leveraged buyout analysis.
3. Initiate Position: After identifying the margin of safety, one of their portfolio managers will either buy or sell short the position
4. Monitor Portfolios: The "positions are monitored through ongoing research, and the relationship of stock price to estimated intrinsic value is watched closely as market conditions change. The appropriate actions regarding holdings are taken, as necessary."
5. Terminate Positions: When selling the company states "Positions are sold when the market price appreciates (or covered when the price declines) and/or the position appreciates to more than 7% of the portfolio (10% in our private investment funds)."
6. Analyze Positions: The Company does a post exit evaluation on the terminated positions with "the goal of this step is to identify issues and inefficiencies in execution, with the result being enhanced execution."
Such a process should sound like music to our GuruFocus readers.
The firm held an investor conference call for Q2 of 2010. Media files for the conference call can be accessed here. In the call, the firm paraded their individual funds. Each their top positions, new positions, and eliminated positions. In our tracking of the investment management firms, few firms offer these kind of transparency.
In the conference call, Chris Welch, the Co-Chief Investment Officer provided the following assessment for the current market and economic trend:
- Household debt appears to have peaked but remains high; household debt service payments have declined but are still above longterm mean.
- Monetary and fiscal stimulus has provided significant economic support; the impact from removal is likely to be significant
- Corporate profit margins are above historical averages.
- equity valuation appear reasonable based on projected EPS, but appear high based on 10 year average earning
That said, these are the top holdings across the funds of the firm:
No. 1: Apache Corp. (APA), Weightings: 3.73% - 2,534,781 Shares
Apache Corporation is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. Apache Corp. has a market cap of $33.21 billion; its shares were traded at around $98.47 with a P/E ratio of 12.2 and P/S ratio of 3.9. The dividend yield of Apache Corp. stocks is 0.6%. Apache Corp. had an annual average earning growth of 16.6% over the past 10 years. GuruFocus rated Apache Corp. the business predictability rank of 3-star.
No. 2: Occidental Petroleum Corp. (OXY), Weightings: 3.63% - 2,690,696 Shares
Occidental Petroleum Corp. explores for, develops, produces and markets crude oil and natural gas and manufactures and markets a variety of basic chemicals, including chlorine, caustic soda, and ethylene dichloride, as well as specialty chemicals and vinyls, including polyvinyl chloride resins and vinyl chloride monomer. Occidental Petroleum Corp. has a market cap of $65.13 billion; its shares were traded at around $80.19 with a P/E ratio of 15.8 and P/S ratio of 4.2. The dividend yield of Occidental Petroleum Corp. stocks is 1.9%. Occidental Petroleum Corp. had an annual average earning growth of 13.6% over the past 10 years.
No. 3: Devon Energy Corp. (DVN), Weightings: 3.21% - 3,014,942 Shares
Devon Energy Corporation is an independent energy company engaged primarily in oil and gas exploration, development and production, and in the acquisition of producing properties. Devon Energy Corp. has a market cap of $28.78 billion; its shares were traded at around $64.4 with a P/E ratio of 11.9 and P/S ratio of 3.6. The dividend yield of Devon Energy Corp. stocks is 1%.
No. 4: United Technologies Corp. (UTX), Weightings: 3.05% - 2,694,821 Shares
United Technologies Corporation provides a broad range of high technology products and services to the building systems and aerospace industries. United Technologies Corp. has a market cap of $67.75 billion; its shares were traded at around $72.61 with a P/E ratio of 15.1 and P/S ratio of 1.3. The dividend yield of United Technologies Corp. stocks is 2.3%. United Technologies Corp. had an annual average earning growth of 10.7% over the past 10 years. GuruFocus rated United Technologies Corp. the business predictability rank of 4-star.
No. 5: Medtronic Inc. (MDT), Weightings: 2.86% - 4,512,569 Shares
Medtronic is the world's medical technology company, pioneeringdevice-based therapies that restore health, extend life and alleviate pain. Medtronic Inc. has a market cap of $40.64 billion; its shares were traded at around $37.53 with a P/E ratio of 11.7 and P/S ratio of 2.6. The dividend yield of Medtronic Inc. stocks is 2.4%. Medtronic Inc. had an annual average earning growth of 11.4% over the past 10 years. GuruFocus rated Medtronic Inc. the business predictability rank of 4.5-star.
No. 6: The Procter & Gamble Company (PG), Weightings: 2.68% - 2,559,505 Shares
The Procter & Gamble Company manufactures and markets a broad range of consumer products in many countries throughout the world. The Procter & Gamble Company has a market cap of $178.73 billion; its shares were traded at around $62.06 with a P/E ratio of 16.5 and P/S ratio of 2.3. The dividend yield of The Procter & Gamble Company stocks is 3.1%. The Procter & Gamble Company had an annual average earning growth of 12.9% over the past 10 years. GuruFocus rated The Procter & Gamble Company the business predictability rank of 5-star.
Access the video file for the 2Q10 Diamond Hill Capital conference call here.
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