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What do the top hedge fund and mutual fund gurus like in the conglomerate group? This article, the 33rd in a series, identifies through research of the latest available institutional 13-F filings the gurus that are most invested in the conglomerate 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 recently, and most should be filed by the end of this week. As such, once 13-F filings are complete for all guru funds, for 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 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 conglomerate companies is $745 billion, or 5.0% of the overall market. The table lists the top six investment gurus whose funds have invested at least equal to that average of 5.0% or higher in the conglomerate group. The following is a list of the top conglomerate group company picks of guru funds over-concentrated in that group:
  • Fortune Brands Inc. (FO), a manufacturer of home and hardware products, spirits and golf products.
  • Emerson Electric Co. (NYSE:EMR), a designer and supplier of product technology and engineering services for the industrial, commercial and consumer markets.
  • Honeywell Intl Inc. (NYSE:HON), a provider of automotive and aerospace products, security technologies, specialty materials and engine systems.
  • General Electric Co. (NYSE:GE), a manufacturer of transportation, energy generation, consumer appliances, industrial and medical equipment.
  • Siemens AG ADR (SI), a German provider of industry automation products, power generation systems, and medical imaging systems.
  • United Technologies Corp. (NYSE:UTX), a manufacturer of aircraft engines, elevators, flight systems, heating systems, aerospace products and security systems.
  • 3M Co. (NYSE:MMM) provides industrial tapes and adhesives, medical supplies, office products, surveillance and communications products.
  • Leucadia National Corp. (NYSE:LUK), engaged in manufacturing, land-based contract oil and gas drilling, gaming entertainment and real estate activities.
Table
Fund and Guru
Type of Fund
Assets Under Management
Percent Equity Portfolio invested in Conglomerate Companies
Major Conglomerate company positions in Portfolio
Pershing Square Capital Management, L.P. (Bill Ackman)
Hedge Fund - Deep Value and Shareholder Activist
$ 5.8 billion
17.2%
FO
Mairs and Power, Inc. (William B. Frels)
Mutual Fund
$ 3.5 billion
9.6%
EMR, HON, GE
Jabre Capital Partners (Philippe Jabre)
Asset Management including Hedge Fund
$ 1.7 billion
7.7%
GE, SI
Fisher Asset Management (Kenneth Fisher)
Mutual Fund
$ 36.2 billion
6.6%
SI, UTX, FO, HON, EMR, GE
Tweedy Browne Co LLC
Mutual Fund
$ 2.9 billion
6.5%
EMR, MMM
Fairholme Capital Management LLC (Bruce Berkowitz)
Mutual Fund and Hedge Fund - Deep Value
$ 15.8 billion
5.5%
LUK, GE
New York-based Pershing Square, founded by guru Bill Ackman in 2003, is a $5.8 billion hedge fund. He has a deep value orientation and is a shareholder activist, meaning that the fund can take large stakes in target investments and then can use its influence resulting from the ownership to effect change at these companies, with the objective of eventually selling them for a tidy profit. He currently holds a concentrated portfolio of 12 positions.
St.Paul, Minnesota-based mutual fund company Mairs and Power, Inc. is Minnesota’s longest-standing investment firm and has been serving clients since 1931. It offers two no-load mutual funds, a growth fund and a balanced fund. The growth fund has returned annual average returns of 13.74% in the last year, 7.38% over the last 10 years, and 12.45% over the last 20 years, all handily beating S&P 500 index returns over the same period; comparable numbers for the balanced fund are at 13.52%, 6.29% and 9.75%, still all higher than the S&P 500 index returns. The fund has a very low turnover, with only two new positions and four closed positions during the latest quarter ending March 2011, out of a total of 132 positions, implying an average holding period of almost a decade. The company's investment philosophy is based on a careful selection of quality growth stocks purchased at very reasonable levels, which by its own admission is not that complicated, but as the returns demonstrate, it has proven to be effective over the long-term. The cornerstone of its strategy besides the long-term buy and hold strategy is a regional strategy, as both funds have a heavy representation in stocks of companies headquartered in the Upper Midwest.
Jabre Capital Partners, headquartered in Geneva, was started by Lebanese-born Philippe Jabre in 2007. It is an asset management firm that offers both hedge fund and traditional management strategies.
Woodside, California,-based mutual fund company Fisher Asset Management was founded in 1979 by guru Kenneth Fisher, who is perhaps best known by his landmark book "Super Stocks" that presented Fisher’s theoretical work identifying and testing the price-to-sales ratio which is now widely used in investment analysis. Also, Fisher was a pioneer in offering small cap value strategies to his clients in the late 1980s. Mr. Fisher is on the 2010 list of richest Americans, with a net worth of $1.6 billion. Also, in 2010, he was named to Investment Advisor magazine’s “30 for 30” list of the 30 most influential people in and around the investment advisory business over the last 30 years.
New York-based Tweedy Browne Co LLC has been in the investment business for over 90 years. Its approach is based on Benjamin Graham, and focused on the intrinsic value in making investments, generally calculated by summing the future income generated by an asset and discounting it to the present value. This differentiates it from the market value and book value of the security.
Miami-based hedge fund and mutual fund manager Fairholme Capital Management LLC is a deep value investment manager, founded by Chief Investment Officer and Managing Member Bruce Berkowitz in 1997. Fairholme Capital seeks long-term growth by investing in a concentrated portfolio of equities. Fairholme's preferred investment strategy is to silently partner with exceptional owner-managers who have demonstrated success, honesty and integrity. The firm buys when it finds such companies generating or holding significant cash when compared to market values. Purchases are made without regard to categorization. The firm also invests in special situations, including, but not limited to, Chapter 11 reorganizations.
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 Conglomerate Picks by Fund Gurus Concentrated in the Sector