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What do the top hedge fund and mutual fund gurus like in the aerospace and defense group? This article, the 34th in a series, identifies through research of the latest available institutional 13-F filings the gurus that are most invested in the aerospace and defense group, and the specific stocks within that Industry that they prefer to hold in their portfolios. Also, please note that this article will be among the last in this series, as the latest March 2011 quarter 13-F Institutional filings are now beginning to come out. About 40% were out as of recently, and most should be filed by the end of this week. As such, once 13-F filings are complete for all guru funds, with the next series starting the beginning of next week, I will bring to you the "Top New and Added Picks" of guru funds by industry/sector, detailing this time not the top holdings but more importantly what new positions they took and what existing positions they added to in the latest March 2011 quarter. Please check my article page for previous articles in this series.
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 and 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 aerospace and defense companies is $260 billion, or 1.7% of the overall market. The table lists the top five investment gurus whose funds have invested at least two-and-a-half times that average or 4.3% or higher in the aerospace and defense group. The following is a list of the top aerospace and defense company picks of guru funds over-concentrated in that group:
  • Navistar International Corp. (NYSE:NAV), a manufacturer of medium and heavy trucks for government, construction, energy and commercial transportation markets.
  • AAR Corp. (NYSE:AIR), a provider engine, air-frame parts and maintenance, repair and overhaul services for airline and defense markets.
  • BE Aerospace Inc. (NASDAQ:BEAV), a manufacturer of commercial aircraft seats, food and beverage storage equipment and aerospace fasteners.
  • Boeing Co. (NYSE:BA) manufactures commercial and military aircraft, missiles and information and communication systems.
  • Alliant Techsystems Inc. (NYSE:ATK) manufactures military ammunition and gun systems, tactical accessories and equipment, propellant and energetics.
  • Goodrich Corporation (NYSE:GR) manufactures aircraft landing and actuation and power systems, nacelles, and engine and electronic components.
  • Transdigm Group Inc. (NYSE:TDG) manufactures actuators, controls, ignition systems, gear pumps and other components for the aerospace industry.
  • Lockheed Martin Corp. (NYSE:LMT) manufactures military aircraft, missiles, satellites, submarine combat systems and missile defense systems.
  • General Dynamics Corp. (NYSE:GD) manufactures digital communication and information-sharing systems, commercial aircraft and combat and marine systems.
Table
Fund and Guru
Type of Fund
Assets Under Management
Percent Equity Portfolio invested in Aerospace & Defense Companies
Major Aerospace & Defense company positions in Portfolio
Schneider Capital Management Corp. (Arnold Schneider)
Mutual Fund and Separate Accounts - Deep Value
$ 1.8 billion
5.4%
NAV, AIR, BEAV, BA
Hotchkis & Wiley Capital Management LLC
Mutual Fund
$ 17.5 billion
5.0%
LMT, NOC, ERJ, BA, ATK
Lone Pine Capital LLC (Steve Mandel)
Hedge Fund - Long/Short
$ 12.5 billion
4.9%
GR, TDG
Brave Warrior Capital, Inc. (Glenn Greenberg)
Hedge Fund
$ 1.2 billion
4.5%
LMT
Wintergreen Advisers, LLC (David Winters)
Mutual Fund
$ 545 million
4.5%
GD
Wayne, Pa.,-based Schneider Capital Management, founded in 1996 by Arnold Schneider, offers four value-style strategies based on a fundamental approach to investing, and caters to approximately 27 separate account clients and several thousand mutual fund shareholders. The company focuses on equities throughout the capitalization range and offers strategies ranging from small- to large-cap equity strategies.
Los Angeles-based Hotchkis & Wiley, founded in 1980, is a value investor. The company offers mutual funds for Individual Investors as well as separate accounts for Institutional Investors. Equity mutual funds offered are "value" focused (vs. growth) and span the capitalization range from small-cap value funds to large-cap value funds. In addition the company also offers a high yield fund and a capital income fund. The company is also focused exclusively on finding and owning undervalued securities that it believes have a potential for appreciation. The investment approach is based on bottom-up, independent, fundamental research.
Steve Mandel, who started Lone Pine Capital in 1997, is also a former Tiger Cub. He was a senior managing director and consumer analyst at Julian Robertson's Tiger Management Corporation from 1990-97 prior to starting Lone Pine Capital.
Brave Warrior Capital, a hedge fund co-founded in 1984 by Guru Glenn Greenberg and John Shapiro, maintains a highly concentrated portfolio of 11 holdings. Mr. Greenberg describes that as a defense against ignorance, and maintains that the more companies you own the less you know about each, and the less you know about a business the more you are likely to make a mistake out of fear or greed.
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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: Top Aerospace, Defense Picks by Fund Gurus Concentrated in the Sector