Jeremy Grantham (Trades, Portfolio)’s GMO LLC recently disclosed its 13F portfolio updates for the fourth quarter of 2021, which ended on Dec. 31.
Grantham is a co-founder and member of the asset allocation team of Grantham, Mayo, Van Otterloo & Co. LLC. Based in Boston, the asset management firm utilizes various long-term, value-based investment strategies that focus on risk management and diversification. Grantham is known for his success in consistently identifying and avoiding stock market bubbles, such as the Japanese market bubble in the late '80s, the dot-com bubble in the '90s and credit markets in 2006.
During the quarter, GMO’s top buys were Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial) and Visa Inc. (V, Financial), while its biggest sells were Alphabet Inc. (GOOG, Financial) and VEREIT Inc. (VER, Financial). Its most significant new position was CyrusOne Inc. (CONE, Financial).
Taiwan Semiconductor Manufacturing
The firm more than tripled its stake in Taiwan Semiconductor Manufacturing (TSM, Financial), ending the quarter with 1,476,150 shares. The trade added 0.61% to the equity portfolio. During the quarter, shares traded for an average price of $117.32.
Headquartered in Hsinchu, Taiwan, Taiwan Semiconductor is the world’s largest independent semiconductor producer. It derives most of its profits from smartphone components and memory, though its internet of things products have seen increasing sales in recent years.
On Feb. 11, shares of Taiwan Semiconductor traded around $121.01 for a market cap of $627.56 billion. According to the GF Value Line, the stock is modestly overvalued.
The company has a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10. Warning signs include assets growing faster than revenue and increasing long-term debt, while positive signs include a three-year revenue per share growth rate of 11.1% and a three-year Ebitda per share growth rate of 11.7%.
Visa
The firm raised its stake in Visa Inc. (V, Financial) by 48.81% for a total holding of 1,243,010 shares, adding 0.42% to the equity portfolio. In the three months through the end of December, shares changed hands for around $214.28 apiece.
Visa is a major financial services and electronic payments provider based in San Francisco. The company facilitates funds transfers primarily through credit, debit and prepaid cards.
On Feb. 11, shares of Visa traded around $224.69 for a market cap of $486.58 billion. According to the GF Value Line, the stock is fairly valued.
The company has a financial strength rating of 6 out of 10 and a profitability rating of 9 out of 10. Warning signs include high insider selling and a price that is close to the 10-year high, while positive signs include operating and net margins that surpass 83% of industry peers.
Alphabet
GMO slashed its Alphabet (GOOG, Financial) investment by 71.33%, leaving a remaining holding of 30,481 shares. The trade reduced the equity portfolio by 1%. Shares traded for an average price of $2,894.54 during the quarter.
Based in Mountain View, California, Alphabet is a multinational tech conglomerate that was formed as part of a restructuring of Google in 2015, in which Alphabet became the parent company of Google and several former Google subsidiaries.
On Feb. 11, shares of Alphabet traded around $2,682.60 for a market cap of $1.77 trillion. According to the GF Value Line, the stock is fairly valued.
The company has a financial strength rating of 8 out of 10 and a profitability rating of 9 out of 10. Warning signs include a declining gross margin and a price close to the 10-year high, while positive signs include a return on invested capital that consistently surpasses the weighted average cost of capital.
VEREIT
The firm sold out of its 2,676,762-share VEREIT (VER, Financial) holding, which previously took up 0.60% of the equity portfolio. During the quarter, shares traded for an average price of $49.13.
VEREIT is a real estate investment trust based out of Phoenix. It owns and manages single-tenant retail, restaurant, office and industrial properties.
The REIT was acquired by larger industry peer Realty Income Corp. (O, Financial) on Nov. 1, with VEREIT shareholders receiving 0.705 shares of Realty Income common stock for each share of VEREIT owned.
Realty Income did not show up on GMO’s fourth-quarter portfolio, so presumably, the guru sold the shares either before or after the acquisition.
CyrusOne
GMO’s top new position established during the quarter was CyrusOne (CONE, Financial). The firm bought 647,749 shares of the stock, giving it a 0.28% weight in the equity portfolio at the quarter’s average price of $85.12 per share.
Headquartered in Dallas, CyrusOne is a REIT that invests in enterprise-class, carrier-neutral data centers and provides colocation and peering services. It builds and manages data centers around the world to meet business’ computing needs.
On Nov. 15, 2021, CyrusOne announced it has entered into an agreement to be acquired by KKR & Co. Inc. (KKR, Financial) and Global Infrastructure Partners in a deal worth $15 billion. Per the terms of the deal, CyrusOne shareholders will receive $90.50 in cash for each of their shares, and the buyers will assume all of the company’s debt.
Shares of CyrusOne traded around $89.80 on Feb. 11 for a market cap of $11.63 billion, which is just below the acquisition price. Either GMO bought the stock for merger arbitrage, or the firm got very lucky with buying shares when it did.
Portfolio overview
At the end of the fourth quarter, the firm held common shares in 673 stocks valued at a total of $20.18 billion. The turnover for the period was 10%.
The top holdings were Microsoft Corp. (MSFT, Financial) with 4.69% of the equity portfolio, Apple Inc. (AAPL, Financial) with 3.14% and UnitedHealth Group Inc. (UNH, Financial) with 2.99%.
The sectors with the highest weighting in the portfolio were technology, health care and financial services.
