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Margaret Moran
Margaret Moran
Articles (254) 

3 Gurus Outperforming the US Market as Stocks Tumble

Investing in recession-proof moats has mitigated losses for these investors

With the Dow Jones and the S&P 500 in bear market territory, it would be difficult, perhaps even impossible, to find a diversified multibillion-dollar equity portfolio that has both posted gains in recent years and avoided losses from the market downturn.

However, there are some gurus whose equity portfolios have posted fewer losses than the S&P 500, which is down 27% year to date as of March 18.

Looking purely at common stock holdings without considering other factors such as short-selling and other forms of downside protection, GuruFocus data shows that Frank Sands (Trades, Portfolio)’ Sands Capital Management, Daniel Loeb (Trades, Portfolio)’s Third Point LLC and Chuck Akre (Trades, Portfolio)’s Akre Capital Management have seen their portfolio values marked down less than the S&P 500 year to date.

A look at the holdings of these investors reveals that their investments in companies with durable, recession-proof moats have contributed to the (relative) preservation of portfolio value.

Akre Capital Management

Chuck Akre (Trades, Portfolio) founded Akre Capital Management in 1989 and currently serves as the chairman and chief investment officer of the firm. Headquartered in Middleburg, Virginia, the firm invests in a small number of quality businesses run by good managers who reinvest their free cash flow wisely. These are the three components that make up Akre’s “three-legged stool” investment philosophy, which the firm is known for sticking closely to.

GuruFocus data estimates the value of the equity portfolio is down 23% year to date compared to the S&P 500’s -27%. Over the past 10 years, the firm has returned an average of 16% per year compared to the S&P 500’s 13%.

The holdings that have held up best in recent declines are American Tower Corp. (NYSE:AMT), Berkshire Hathaway (NYSE:BRK.B) and SBA Communications Corp. (NASDAQ:SBAC), which have posted year-to-date returns of approximately -4%, -1% and 9%, respectively.

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American Tower and SBA Communications are in the business of wireless infrastructure. With the rollout of 5G on its way, many investors are still bullish on these stocks, and the building of communication infrastructure from which they earn their revenues is less likely to take a hit than most of the economy. Berkshire Hathaway, on the other hand, is headed by famous value investor Warren Buffett (Trades, Portfolio), who has made his fortunes on buying when the market goes south. Berkshire’s cash pile of over $100 billion worried investors during the bull market, but now that stocks are down, Buffett has more opportunities to put that cash to good use.

Sands Capital Management

Founded in 1992 by Frank M. Sands Sr., Sands Capital Management is a staff-owned independent investment management firm that invests in high-quality growth business. Frank Sands (Trades, Portfolio) Jr. joined the firm in 2000 and now serves as CEO and Chief Investment Officer. The Arlington, Virginia-based firm has two main concentrated growth strategies: Select Growth, which chooses innovative businesses, and Global Growth, which diversifies holdings in countries outside of the U.S. Sands Capital Management has achieved success by focusing on its six investment criteria: sustainable above-average earnings growth, leadership position in a promising business space, a clear mission with a focus on value, good financial strength, rational valuation and significant competitive advantages.

According to GuruFocus data, the value of the firm’s equity portfolio is down 22% year to date compared to the S&P 500’s -27%. Over the past 10 years, the firm has returned an average of 16% per year compared to the S&P 500’s 13%.

The holdings that have held up best for the firm are Amazon.com (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Atlassian Corp. PLC (NASDAQ:TEAM), which have posted year-to-date returns of approximately -2%, -0.3% and 0.5%, respectively.

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Amazon and Netflix are large caps that have dug themselves enduring competitive moats in the online sales and content streaming fields. These companies have also seen increased demand due to their services recently as virus fears and quarantine measures push people to stay at home. Atlassian is a multinational leader in enterprise software that is most famous for its issue tracking application, Jira, and its wiki product, confluence.

Third Point

Third Point is a New-York Based investment firm founded by Daniel Loeb (Trades, Portfolio) in 1995. The activist investor seeks to identify and push situations that will have a positive effect on the stocks that the firm owns, thus creating value for shareholders. More than 50% of the firm’s positions are activist positions, since activism has returned more gains to Third Point since 2011.

GuruFocus data estimates that the valuation of the firm’s equity portfolio is down 21% year to date compared to the S&P 500’s -27%. Over the past 10 years, the firm has achieved returns of approximately 10% per year compared to the S&P 500’s 13%.

The holdings that have held up best for the firm in recent declines are Baxter International Inc. (NYSE:BAX), Campbell Soup Co. (NYSE:CPB) and Amazon (discussed above), which have posted year-to-date returns of around -6%, 3% and -2%, respectively.

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Baxter International is a leading provider of medical supplies for acute care and immune disorders, kidney disease and other chronic and acute conditions. Industry leadership, strong financials and the growing demand for health care combine to dig a strong moat for this company. Campbell Soup, on the other hand, is an iconic staple in the canned foods industry. When markets are down, this stock can serve as a natural hedge as panic buyers rush to stock up on non-perishables.

Disclosure: Calculations are approximations based only on equity holdings as of the latest 13-F filing on Dec. 31, 2019 and do not include buys or sells after that date. Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research or consult registered investment advisors before taking action in the stock market.

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