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Rupert Hargreaves
Rupert Hargreaves
Articles (1367)  | Author's Website |

Li Lu's Himalaya Capital Doubles Up on Facebook in 3rd Quarter

A look at the Chinese fund manager's top investments

November 25, 2020 | About:

Li Lu (Trades, Portfolio) is arguably one of the world's most underappreciated value investors. While most investors are aware of Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio), both of whom Li learned from, he is less well-known than the two billionaires.

One of the reasons why Li seems to fly under most investors' radar appears to be that most of his investments are in China and Hong Kong. As such, unless he directly speaks about these holdings, there's no way to establish which companies he likes.

That being said, Li's firm, Himalaya Capital Investors, which has produced an annual return of more than 20% since its founding in 1998, according to various sources, has started investing in the U.S.

Like other fund managers, this U.S. division is required to report its holdings to the Securities and Exchange Commission via a 13F filing. However, like all 13Fs, the report only details U.S. equity holdings. It does not provide foreign stock ownership details or offer any information related to non-equity positions.

Still, these reports can be a great starting point for further research. They can also offer a nice picture of the sorts of businesses individual investors like to own.

Himalaya's latest filing does just that. The report detailed just $1.3 billion of U.S. equity holdings. We know that the firm's total assets under management sit in the mid-teens bracket, so the 13F details only a sliver of overall funds.

Nonetheless, what is notable is the fact that the firm did not own enough U.S. securities to file a 13F at the beginning of the year. On that basis, it would appear that Li and his team have acquired $1.3 billion of U.S. stocks this year. This suggests they have been able to find plenty of stocks trading at attractive valuations in 2020 (unlike previous years).

Li's U.S. equity holdings

The four stocks that featured in the portfolio at the end of September were Micron Technology (NASDAQ:MU), Facebook (NASDAQ:FB), Bank of America (NYSE:BAC) and Alphabet (NASDAQ:GOOG).

The largest holding by far was Micron. The fund started buying this stock at the beginning of the year and has since acquired 11.5 million shares. The holding was worth a total of $540 million at the end of the third quarter.

As Himalaya's total asset value is not revealed in the report, it is not possible to calculate the holding's weight in the portfolio. In the U.S. equity portfolio alone, it makes up 41%.

Li and his team boosted their holdings in the semiconductor manufacturer by 16% during the three-month period, suggesting they continue to believe it's undervalued.

The second-largest holding in the U.S. portfolio was Facebook with a 26% portfolio weight. The position was worth just under $350 million at the end of the quarter.

The firm clearly thinks the stock remains undervalued even after recent gains. It increased its holdings in the social media company by 119% during the three months to the end of September.

What's notable about both Micron and Facebook is the fact that both of these companies are leaders in their respective industries. This gives them both, to coin one of Buffett's phrases, an economic "moat."

The other two holdings in Himalaya's U.S. equity portfolio also seem to have "moat" qualities. The third- and fourth-largest holdings, respectively, are Bank of America and Alphabet. Both of these holdings were maintained in the quarter.

We know Bank of America is one of Buffett's favorite stocks. In February, he called the company a "fantastic business" as it was earning a double-digit return on net tangible assets. The Oracle of Omaha also highlighted the bank for its cash returns. Specifically, he said:

"Bank of America's buying in a lot of stock every year. So, our ownership of the Bank of America this year probably will go up 7% o 8% without spending a dime. I'd like to own any business -- any good business -- where my ownership is up 7% to 8% every year without me spending any money and on top of it ,I get a dividend."

Li may like the banking giant for the same reasons.

Disclosure: The author owns no stocks mentioned.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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