It's 13F season again. The time of year when hedge fund managers with more than $100 million in assets under management publish their equity holdings via a report filed with the Securities and Exchange Commission. The report, which must be filed within 45 days after the end of each calendar quarter, contains a detailed description of all equity positions held. It excludes any credit and cash positions.
These reports are backward-looking, so they are not suitable as trading instructions. They do, however, provide a fascinating insight into the hedge fund world as well as ideas for further research.
Data trends
Looking at trends in the data is particularly interesting. Specifically, the investments and sectors that are most loved and hated by the hedge fund industry.
For example, according to figures from GuruFocus and SEC 13F filings, the most popular stocks and among hedge funds, with "popular" being defined as the percentage of the business owned by funds (including Warren Buffett (Trades, Portfolio)'s conglomerate), are Wells Fargo (WFC, Financial), Berkshire Hathaway (BRK.A, Financial), (BRK.B, Financial), Fiat Chrysler (FCAU, Financial), Alphabet (GOOG, Financial) and Bank of America (BAC, Financial).
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The most popular positions in regard to the number of funds that own stock in the business are Alphabet, Microsoft (MSFT, Financial), Wells Fargo, Bank of America and Facebook (FB, Financial).
These data show that while plenty of hedge funds own tech giants like Alphabet, Microsoft and Facebook, the real money, high-conviction, multibillion-dollar bets by some of the most significant hedge funds in the world are on old economy stocks.
Moving on to the most-bought stocks by hedge funds last quarter, there is an obvious trend in the data. Last quarter, the most popular sector was media. Comcast Corp. (CMCSA, Financial), AT&T (T, Financial) and 21st Century Fox (FOXA, Financial) were the most acquired positions in regard to the number of gurus buying and as a total percentage of portfolios.
I should note at this stage that as 13Fs only reveal data about stock acquisitions and do not define why hedge funds were buying, it is difficult to reach a conclusion as to why funds are so attracted to the media sector (notably AT&T, which by all accounts has few attractive qualities apart from its dividend yield).
Although it is impossible to reach a definitive conclusion as to why fund managers are buying these stocks, I believe merger speculation is a driving factor. Seth Klarman (Trades, Portfolio), for example, increased his holding in 21st Century Fox by almost 50% during the quarter, which seems to be a play on the takeover battle that surrounded the business.Ă‚
Aside from media stocks and the tech industry, discount retailer Dollar Tree Inc. (DLTR) also appeared in the ranks of the top acquisitions for last quarter. Lee Ainslie (Trades, Portfolio)'s Maverick Capital increased its holding in the business to 4.2 million shares from just under 200,000 shares in the first quarter of 2018, making the stock the fund's fifth-largest position. Steve Mandel (Trades, Portfolio)'s Lone Pine Capital added just over one million shares to his existing 6.3 million-share stake.
Home improvement retailer Lowe's (L) is also featured among the top 10 most-bought stocks. The data is skewed here by a significant purchase by Bill Ackman (Trades, Portfolio)'s Pershing Square Capital Management, which acquired 7.7 million shares. Lowe's now accounts for 12.7% of Pershing's portfolio.
The final position I'm going to cover is PayPal (PYPL). PayPal was one of the top 10 buys of the quarter primarily due to a significant purchase by Daniel Loeb (Trades, Portfolio)'s Third Point, which acquired 10 million shares of the online payments processor. Other fund managers, including Leon Cooperman (Trades, Portfolio)'s Omega Advisors and Lone Pine Capital, reduced positions significantly, but both Loeb and Pat Dorsey were buyers.
Dorsey Asset Management made PayPal its fourth-largest position, accounting for 9.5% of the portfolio. The first, second and third-largest holdings are Facebook, Dollar General (DG) and Alphabet.
Disclosure: The author owns shares of Berkshire Hathaway.
