Top Software Picks by Fund Gurus Concentrated in the Sector

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 |  Includes: CA, CRM, CTXS, INTU, MSFT, ORCL, VMW
by: GuruFundPicks

What do the top hedge fund and mutual fund gurus like in the desktop and enterprise software sector? Through research of the latest available institutional 13-F filings, this article identifies the gurus that are most invested in the desktop and enterprise software sector, and the specific desktop and enterprise software stocks they prefer to hold in their portfolios. The first eighteen articles in this series identified gurus that are overweight in the solar sector, utilities sector, China stocks, airline sector, optical networking sector, chemicals industry, oil and gas exploration industry, the automobile Industry, the biotech Industry, the consumer non-durable goods sector, the gold and silver mining industry, and the regional banking industry, the insurance industry, the computer hardware and peripherals industry, the big pharmaceuticals and generic pharmaceuticals segments, the money center and foreign bank sector, the semiconductor equipment industry, and the broadcasting and publishing industry, and the stocks within those sectors that they hold in their portfolios. For those familiar with the series, skip over to the fifth paragraph.

A guru is defined as someone who is regarded as having great knowledge, wisdom, and authority in a certain area. When it comes to hedge funds, there are a number of ways to anoint leading managers as gurus including long-term performance, low portfolio volatility and an elite reputation in the investment community.

Many of us are familiar with leading investors and hedge fund managers such as Warren Buffett, George Soros, Carl Icahn and Julian Robertson. But the hedge fund community alone includes over 9,000 funds; add in mutual funds, ETFs, and other investment entities and the number is likely to be at least two to three times that number. While there is no official list of gurus, less than 1% or between 100 to 200 fund managers are commonly believed by the larger investment community to have earned the distinction of being called gurus.

The study of the investing habits of gurus can be informative as these are very savvy, well-respected investors with high personal net worth deploying large sums of capital from their funds on a regular basis. They have a long-term track record of success, and while one can easily just ride their coattails, the savvy investor may want to use these lists as a starting point to conduct their own due diligence.

The total capitalization of the U.S. equity markets is somewhere in the $15 trillion range, and the total market capitalization of leading desktop and computer software companies is $750 billion which is 5.0% of the overall market. Since only two funds have holdings in the sector greater than or equal to 5%, the field was expanded to include the top four funds with the highest percentage of their portfolios invested in the desktop and enterprise software sector.

As you will see, noticeably absent from the list is Redmond-based Microsoft Corp. (NASDAQ:MSFT), the leading computer software company valued at $220 billion market capitalization or almost 30% of the valuation of the entire sector. As the largest capitalization stock dominating the sector, it would be natural to expect MSFT to be a core holding of top mutual fund and hedge fund gurus concentrated in the sector, so its absence is especially noteworthy. The following is a list of their picks in that sector:

  • Oracle Corp. (NASDAQ:ORCL), a developer of database, middleware and business application software and hardware systems for enterprises.

  • CA Inc. (NASDAQ:CA), a developer of enterprise software with business intelligence, security and infrastructure management applications.

  • Citrix Systems Inc. (NASDAQ:CTXS), a developer of online application virtualization, networking and performance management software.

  • Vmware Inc. Cl A (NYSE:VMW), a provider of virtualization software enabling organizations to run multiple operating systems on a single computer.

  • Intuit Inc. (NASDAQ:INTU), a provider of tax software and services for individual, small business and corporate customers and their accounting professionals.

  • Salesforce.com, Inc. (NYSE:CRM), a provider of on-demand customer relationship management software applications and services to businesses worldwide.

Table

Fund and Guru

Type of Fund

Assets Under Management

Percent Portfolio in the Desktop and Enterprise Software Industry

Major Desktop and Enterprise Software company positions in Portfolio

GMO (Jeremy Grantham)

Mutual Fund

$107 billion including $ 29.4 billion in Equities

5.4%

ORCL, INTU, VMW, CRM, CTXS

NWQ Investment Management Co LLC

Mutual Fund

$ 19.5 billion

5.0%

CA

Muhlenkamp & Co., Inc (Ronald Muhlenkamp)

Mutual Fund

$ 710 million

4.5%

ORCL

Hotchkis & Wiley Capital Management LLC

Mutual Fund

$ 17.5 billion

3.6%

CA, ORCL

Click to enlarge

Jeremy Grantham is one of the co-founders of Grantham Mayo Van Otterloo, a Boston-based asset management firm that manages over $107 billion in total client assets. Besides its headquarters in Boston, GMO has offices in San Francisco, London, Zurich, Singapore, and Sydney. Besides the equities markets, GMO also is regarded as a highly knowledgeable investor in various stock, bond and commodity markets. Grantham's philosophy can be summarized by his commonly used phrase "reversion to the mean." Essentially, Grantham believes that all asset classes and markets will revert to mean historical levels from highs and lows. His firm seeks to understand historical changes in markets and predict results for seven years into the future. When there is deviation from historical means (averages), the firm may take an investment position based on a return to the mean. The firm allocates assets based on internal predictions of market direction.

Los Angeles-based Mutual Fund Company NWQ Investment Management manages almost $20 billion assets under management (AUM). The fund follows a bottom-up, fundamental approach to investing emphasizing three critical factors: (1) attractive valuation, (2) downside protection, and (3) identifying catalysts and inflection points. NWQ product offerings span the equity capitalization from small cap value to large cap value, and they also include fixed income funds, and also alternative funds.

Muhlenkamp and Company, Inc., established in 1977 by founder and President Ronald H. Muhlenkamp, provides the 100% no-load mutual fund, Muhlenkamp Fund, as well privately managed accounts. An award-winning investment manager, frequent guest of the media, and featured speaker at investment shows nationwide, he is a patient value investor with most stocks in his portfolio staying there an average of 10 years.

Los Angeles-based Hotchkis & Wiley, founded in 1980, is a value investor. Hotchkis & Wiley offers mutual funds for Individual Investors as well as separate accounts for institutional investors. Equity mutual funds offered are ‘value’ focused (versus growth) and span the capitalization range from Small Cap Value Funds to Large Cap Value Funds. And in addition, Hotchkis & Wiley also offers a High Yield Fund and a Capital Income Fund. Hotchkis & Wiley are focused exclusively on finding and owning undervalued securities that they believe have a potential for appreciation. Their investment approach is based on bottom-up, independent, fundamental research.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Credit: Historical fundamentals including operating metrics and stock ownership information were derived using I-Metrix® by Edgar Online®, Zacks Investment Research, DailyGraphs®, Thomson Reuters and Briefing.com. Fund data including assets under management and firm profiles are sourced mostly from Hedgetracker.com. The information and data is believed to be accurate, but no guarantees or representations are made.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are my opinions and I may be wrong. I may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to my thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.