What were value investors buying last quarter? According to 13F filings, which have to be filed by hedge funds with more than $100 million in assets under management every quarter (at the end of a 45 day period) despite the market elevated level towards the end of the year, some value investors were still adding and buying positions in their portfolios.
There was some selling going on, but this was relatively limited. For the most part, it seems these investors are willing to let the market run higher and take profit slowly (in some cases the large positions they have built will take several quarters to unwind).
The most significant position change has to be Warren Buffett (Trades, Portfolio) decision to cut almost all of his holding in international tech giant IBM (IBM, Financial). The Oracle of Omaha has been reducing his position in IBM for some time. Due to its size, he's had to sell over several quarters rather than dump the entire holding all at once. At the end of the third quarter of 2017, Buffett still held 37 million shares in IBM in the Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) portfolio, down from the peak of just over 81 million shares recorded at the end of 2016. He sold a fifth of the stake in the first quarter of 2017 and gradually reduced it throughout the year. At the end of 2017, just 2 million shares were left in the portfolio, a decline of 97%.
Whether or not he made a loss on this position is unclear. According to Dataroma, in the fourth quarter of 2016 the average reported price of the IBM holding was $165.99, over the next four quarters the stock traded between $180 and $140 and distributed just under $6 per share in dividends. It looks as if some of this cash was reinvested inApple (AAPL, Financial). The oracle of Omaha increased his stake in the tech giant by 23.3% to 165 million shares during the fourth quarter. The holding now accounts for 14.6% of Berkshire's equity overall portfolio, making it the largest position.
Elsewhere, David Einhorn (Trades, Portfolio) made several substantial changes to his portfolio at Greenlight Capital during the quarter. He disposed of around a quarter of his stake in General Motors (GM, Financial), bringing it down to 19.2% the overall portfolio as well as reducing his position in aircraft leasing business AerCap Holdings N.V. (AER, Financial) and Mylan (MYL, Financial).
The largest addition to the portfolio was Brighthouse Financial (BHF, Financial). This is now the second largest holding after Einhorn effectively doubled his position during the fourth quarter. Other additions include Consol Energy (CEIX), Twitter (TWTR), Time Warner (TWX, Financial) and Ensco (ESV, Financial).
CNX Resources (CNX, Financial), Tempur Sealy (TPX), Altbaba Inc. (AABA) and Micron Technology (MU) were all reduced.
Seth Klarman (Trades, Portfolio)'s Baupost didn't make many changes to its top 10 holdings. A eight million share stake in Time Warner was added to its equity portfolio, making it the fifth-largest position after 21st Century Fox (FOXA). A former top-10 holding, PBF Energy (PBF) was relegated out of the top positions as Klarman and reduced his holding by 30%. The most significant additions were a 6,800% increase in the fund's position in Pioneer Natural Resources (PXD), a 660% increase in AmerisourceBergen Corp. (ABC) a two-fold increase in McKesson (MCK) and doubling of Cardinal Health (CAH). No positions were completely removed from the overall equity portfolio.
Mohnish Pabrai (Trades, Portfolio)'s highly concentrated equity portfolio was not changed much during the quarter. Around 60% of the portfolio is still invested in Fiat Chrysler (FCAU) with four other positions making up rest of the holdings. However, I should note that these holdings are limited to Pabrai's U.S. investments. As I've covered before, the skilled value investor has invested most of his funds' wealth in Indian securities over the past year as he believes that this market offers much better value than the U.S.
The second largest U.S. holding is Google (GOOG), accounting for 12% of portfolio. It was cut by around a third during the fourth quarter. The second largest holding was AerCap Holdings, cut by around a fifth during the quarter. Ferrari (RACE) and Southwest Airlines (LUV) make up the balance.
The last value investor I'm going to cover is Glenn Greenberg (Trades, Portfolio). I really like Greenberg's investing strategy; he looks for the most undervalued securities on a discount cash flows basis, demanding a high hurdle rate of return before investing. This is very similar to the approach I use.
During the quarter, Greenberg added Alphabet (GOOGL) to his portfolio, making it the fourth largest position with 241,000 shares. He also added a small position in Express Scripts (ERSX) of around 7,000 shares. At the same time he bulked up on Alliance Data Systems (ADS), adding 267,732 shares to take his holding to 1,656,724 shares, making the stock the largest holding in the portfolio at 17.9% of assets. To fund this holding, he lightened up on Charles Schwab (SCHW), HCA Healthcare (HCA), JPMorgan Chase (JPM) and Antero Resources (AR), among others.
Disclosure: The author owns no stock mentioned.
