At the end of last week, Jeremy Grantham (Trades, Portfolio)’s GMO LLC released its portfolio updates for the third quarter of 2019. The mutual fund had a turnover of 15%, ending the quarter with holdings in 718 stocks (132 new). Its biggest new buys of the quarter were Genesee & Wyoming Inc. (GWR, Financial) and Medidata Solutions Inc. (MDSO, Financial), and it made major additions to its positions in iShares MSCI EAFE ETF (EFA, Financial) and Alibaba Group Holding Ltd (BABA, Financial). Major sales included First Data Corp. (FDC, Financial) and Fiat Chrysler Automobiles NV (FCAU, Financial).
GMO, which stands for the names of its founders, Grantham, Mayo and van Ottorloo, has been in business for more than 40 years. The Boston-based asset management firm invests in a broad range of companies in order to exploit as many long-term opportunities as it can. The company is made up of smaller investment teams with focused specialties who generally make selections based on long-term, value-based approaches. The firm also makes plays on upcoming corporate actions, which accounts for part of the high turnover rate.
As of the quarter’s end, GMO’s equity portfolio is valued at $14.41 billion. The fund’s top holdings are Microsoft Corp. (MSFT, Financial) at 4.05%, Apple Inc. (AAPL, Financial) at 3.44% and Oracle Corp. (ORCL, Financial) at 3.19%. In terms of sector weighting, GMO LLC is most heavily invested in technology (24.46%), health care (17.05%) and financial services (15.32%).
Genesee & Wyoming Inc.
During the quarter, GMO bought 637,865 shares of Genesee & Wyoming, impacting the equity portfolio by 0.49% and establishing a new holding in the company. Shares were trading at an average price of $110.08 throughout the quarter.
Genesee & Wyoming is an American short line railroad operator that owns (or maintains some sort of investment in) 120 railroads in the U.S., Canada, Australia and several European countries. As of Nov. 18, the company has a market cap of $6.35 billion.
The railroad owner will be a short-term holding for GMO. In late June of 2019, private asset management company Brookfield Asset Management Inc. (BAM) secured a deal to acquire Genesee & Wyoming for $112 per share, providing an opportunity for investors to squeeze out a few arbitrage dollars before the acquisition is completed in early 2020.
Medidata Solutions Inc.
GMO also established a new position of 549,200 shares in Medidata Solutions, impacting the equity portfolio by 0.35%. Shares were trading at an average price of $91.34 during the quarter.
Medidata Solutions is a U.S. company that develops software for utilization in clinical trials. It has more than 1,100 clients around the globe, including emerging biotechs, global pharmas, device and diagnostic companies, academic research sites and government agencies. As of Nov. 18, it has a market cap of $5.76 billion.
The medical data solutions company is another acquisition play for GMO. On Oct. 29, French medical software company Dassault Systèmes (XPAR:DSY) acquired Medidata Solutions for $92.25 cash per share in a deal that it had announced in early June. Buying shares of Medidata after the announcement allowed GMO to make a couple dollars per share on the difference between its buy price and the cash deal.
iShares MSCI EAFE ETF
GMO increased its investment in the iShares MSCI EAFE exchange-traded fund by 3,025,126 shares, impacting the portfolio by 1.37%. Shares were trading at an average price of $64.44 during the quarter.
iShares is a family of ETFs managed by BlackRock Inc., a New York-based investment management company. Blackrock was originally founded in 1988 and has grown to be one of the world’s largest asset managers, with $6.84 trillion in managed assets as of August 2019. The iShares MSCI EAFE ETF is an index of 900-plus large-cap and mid-cap equities in developed markets (such as the U.S. and Japan). Its top holdings are Nestle SA (NSRGF), Roche Holding AG (RHHBF) and Novartis AG (NVS).
The ETF is up 18.22% year to date and has a 52-week range of $56.77 ti $68.64. It has a price-earnings ratio of 15.2, a price-book ratio of 1.58 and a market cap of $61.97 billion as of Nov. 18.
The ETF pays a semi-annual dividend with a dividend yield of 3.27% and a trailing 12-month dividend amount of $2.25 per share.
In terms of average annual performance, the iShares MSCI EAFE ETF has achieved -1.4% in total returns over the past year, an average of 6.42% in total returns per year over the past three years and an average of 5.02% in total returns per year since inception (total returns include the subtraction of the ETF’s 0.31% management fee).
Alibaba Group Holding Ltd
GMO also added 716,400 shares of Alibaba, impacting the portfolio by 0.83%. During the quarter, the stock was trading at an average price of $171.94 per share.
Alibaba is a Chinese multinational e-commerce conglomerate company with holdings in the retail, internet and technology sectors. It is one of the largest business-to-business marketplaces in the world. As of Nov. 8, it has a market cap of $486.35 billion.
The company has a GuruFocus financial strength score of 7 out of 10 and a profitability score of 9 out of 10. It currently has a price-earnings ratio of 22.15, a cash-debt ratio of 1.65, an operating margin of 18.5% and a three-year revenue growth rate of 52.2%.
The e-commerce giant’s share price has been a roller coaster since June of 2019, when it filed for a listing on the Hong Kong stock exchange in the hopes of raising $20 billion. Due to the political turmoil, the offering stalled, with each major piece of news regarding the political situation causing a corresponding move in Alibaba’s stock price.
Regardless of temporary instability, Alibaba’s Hong Kong listing was inevitable, and this past Wednesday, the company kicked off a week-long roadshow to sell 500 million new shares to investors.
In the recent quarter, Alibaba’s revenue was $16.7 billion, with net income coming in at a record amount of $10.2 billion. With share prices ranging for most of this year, this pushes the stock out of the overpriced range.
Disclosure: Author owns no shares in any of the stocks mentioned.
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