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Right with Stock Picking, Wrong on Macro Trends; John Hussman’s Top Holdings

February 22, 2011 | About:
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gurufocus

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Money management is a tough business. Just ask John Hussman. When John Hussman correctly predicted the overvaluation of the market and hedged his portfolio to mitigate risks, he was a hero. His research (great researches) convinced him that the market continued to be overvalued after the quick recovery in 2009. So he stuck to his hedges. This time it worked against him. His Strategic Growth Fund gained only 4.63% in 2009, and lost 3.62% in 2010, when the market gained in double digits in both years.

Was he wrong with the overvaluation of the market? Probably not, as it agrees with the fair value estimate of Jeremy Grantham and GuruFocus’ own broad market valuations. To be specific, Mr. Grantham thinks the fair value of S&P500 is at 970. At today’s close of 1315, the S&P500 is 35% overvalued to Mr. Grantham. GuruFocus’ own valuation thinks the market is about 20% overvalued. The expected long term return of the market is lower than 4% a year.

The market has been overvalued, and is more overvalued now. But this does not prevent it from going up, especially if Mr. Ben Berknake’s goal is to pump it up. The government policy apparently worked against John Hussman.

Over long term, Dr. Hussman’s fund has achieved great record. As he wrote in his latest shareholder letter:

Strategic Growth Fund has achieved an average annual total return of 7.00% from its inception on July 24, 2000 through December 31, 2010, compared with an average annual return of 0.40% for the S&P 500 Index over the same period. An initial $10,000 investment in the Fund on July 24, 2000 would have grown to $20,268, compared with $10,429 for the same investment in the S&P 500 Index.

Since the inception of Strategic Growth Fund in 2000, the Fund has outperformed the S&P 500 Index by 6.60% (660 basis points) annually, on average.

Although his fund did not generate positive returns in the past three years, he is still a great stock picker since his losses are from the hedges in his fund. This can be seen from the chart below, which shows the overall performance of his fund and the performance of his stock picks and cash positions relative to the benchmarks.

1_1298406964FuTy.jpg

During the most recent market cycle, we continued to be very good at selecting stocks. For the three-year period ended December 31, 2010, the stocks held by Strategic Growth Fund appreciated by a cumulative 6.30%, versus an overall loss of -9.33% for the S&P 500 Index. In the interim, our stock selections experienced substantial losses during the 2008-2009 market plunge, albeit smaller than those experienced by the S&P 500 Index, but our hedging approach successfully reduced the impact of those losses. He wrote.

With this article we look into the top holdings in his portfolio. Above all, his is still a great stock picker, although his fund underperformed.

John Hussman has been quite consistent with his sector/industry allocations. Healthcare is his largest exposure, with about 1/3 of the total portfolio. Consumer services is the second largest at about 27% of the total equity portfolio. He does not own financials or utilities, has very little exposures to oil and commodities.

John Hussman owns 170 stocks in his portfolio. It is rather diversified.

These are the top 5 holdings of John Hussman

  1. ASTRAZENECA PLC (AZN) - 3,760,000 shares, 2.74% of the total portfolio. Shares added by 0.19%
  2. Life Technologies Corp. (LIFE) - 3,026,000 shares, 2.65% of the total portfolio. Shares reduced by 3.17%
  3. HUMANA INC. (HUM) - 3,000,000 shares, 2.59% of the total portfolio.
  4. Microsoft Corp. (MSFT) - 5,500,000 shares, 2.42% of the total portfolio. Shares reduced by 8.33%
  5. COLGATEPALMOLIVE COMPANY (CL) - 1,750,000 shares, 2.22% of the total portfolio. Shares reduced by 12.5%
Among the top five stocks, the first three are healthcare stocks. From this we can see that he is quite convicted with healthcare sector. These are some discussions on his top holdings.

No. 1: ASTRAZENECA PLC (AZN), Weightings: 2.74% - 3,760,000 Shares

AstraZeneca PLC is one of the top five pharmaceutical companies in the world based on sales and is a therapeutic leader in cardiovascular, gastrointestinal, oncology, anesthesia including pain management, central nervous system (CNS) and respiratory products. Astrazeneca Plc has a market cap of $70.39 billion; its shares were traded at around $49.38 with a P/E ratio of 8.37 and P/S ratio of 2.12. The dividend yield of Astrazeneca Plc stocks is 7.49%. Astrazeneca Plc had an annual average earning growth of 17.6% over the past 10 years. GuruFocus rated Astrazeneca Plc the business predictability rank of 5-star.



No. 2: Life Technologies Corp. (LIFE), Weightings: 2.65% - 3,026,000 Shares

Life Technologies Corporation is a global biotechnology tools company. Life Technologies Corp. has a market cap of $10.16 billion; its shares were traded at around $54.41 with a P/E ratio of 15.33 and P/S ratio of 2.83. Life Technologies Corp. had an annual average earning growth of 22.4% over the past 10 years. GuruFocus rated Life Technologies Corp. the business predictability rank of 2-star.



No. 3: HUMANA INC. (HUM), Weightings: 2.59% - 3,000,000 Shares

Humana, Inc. is a health services company that facilitates the delivery of health care services through networks of providers to its medical members. Humana Inc. has a market cap of $10.34 billion; its shares were traded at around $61.44 with a P/E ratio of 8.81 and P/S ratio of 0.31. Humana Inc. had an annual average earning growth of 23.5% over the past 10 years. GuruFocus rated Humana Inc. the business predictability rank of 3.5-star.

No. 4: Microsoft Corp. (MSFT), Weightings: 2.42% - 5,500,000 Shares

Microsoft develops, manufactures, licenses, and supports a wide range of software products for a multitude of computing devices. Microsoft Corp. has a market cap of $231.51 billion; its shares were traded at around $27.06 with a P/E ratio of 11.51 and P/S ratio of 3.71. The dividend yield of Microsoft Corp. stocks is 2.37%. Microsoft Corp. had an annual average earning growth of 12.6% over the past 10 years. GuruFocus rated Microsoft Corp. the business predictability rank of 3-star.



No. 5: COLGATEPALMOLIVE COMPANY (CL), Weightings: 2.22% - 1,750,000 Shares

Colgate-Palmolive is a global consumer products company, tightly focused on Oral Care, Personal Care, Household Surface Care, Fabric Care and Pet Nutrition. Colgatepalmolive Company has a market cap of $37.85 billion; its shares were traded at around $78.42 with a P/E ratio of 16.24 and P/S ratio of 2.43. The dividend yield of Colgatepalmolive Company stocks is 2.7%. Colgatepalmolive Company had an annual average earning growth of 9.4% over the past 10 years. GuruFocus rated Colgatepalmolive Company the business predictability rank of 4-star.



No. 6: PEPSICO INC. (PEP), Weightings: 2.06% - 2,000,000 Shares

PepsiCo, Inc. consists of: Frito-Lay Company, Pepsi-Cola Company, and Tropicana Products. Pepsico Inc. has a market cap of $100.5 billion; its shares were traded at around $63.41 with a P/E ratio of 15.35 and P/S ratio of 1.74. The dividend yield of Pepsico Inc. stocks is 3.03%. Pepsico Inc. had an annual average earning growth of 8.9% over the past 10 years. GuruFocus rated Pepsico Inc. the business predictability rank of 4-star.



To check the complete list of Top Holdings of John Hussman, please go to http://www.gurufocus.com/holdings.php?GuruName=John+Hussman&tab=top

About the author:

gurufocus
GuruFocus - Stock Picks and Market Insight of Gurus

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