Omaha, Nebraska-based Weitz Funds manages $4 billion in assets and is headed by Founder, President and Portfolio Manager Wallace Weitz. Mr. Weitz founded the firm in 1983 and has been in the investment management business since 1970. Of the $4 billion, about $2.2 billion includes equity assets, and the rest is in bonds and money market funds. The three largest equity funds, namely the Value Fund, Partners Value Fund, and the Partner III Opportunity Fund, together account for most of the $2.2 billion in equity assets, and have returned 10.4%, 12.7% and 13.6% in average annual returns since fund inception in 1983 to 1986, in-line with the 11%-13% average annual return for the S&P 500 (SPY) during the same period.
The fund holds a moderately diversified portfolio of 77 equity positions, about 60% of that in large caps, 20%-25% in mid caps and the remaining 15%-20% in small-cap equities. The portfolio turnover is 25-30% implying an average holding period approaching three to four years. Based on the most recent SEC 13-F filing for the March 2011 quarter, we determined that the portfolio is over-weight the Services Sector, and it is under-weight Consumer, Energy, and Utility Sectors.
Based on a review of the most recent SEC 13-F filing for the March 2011 quarter, we determined that it has increased the weighting in the Construction Industry Group by accumulating more Martin Marietta Materials (MLM) stock, that has also increased the weighting in the Internet Group by buying more Google Inc. (GOOG) and Knot Inc. (KNOT), and that it probably is no longer over-weight the Outsourcing and IT Services Group as it sold a portion of the position in Accenture Plc (ACN). Furthermore, we determined based on the recent 13-F filings that it significantly reduced its weighting in the Semiconductor Manufacturing Industry by selling a portion of the Texas Instruments (TXN) position, and that it reduced its weighting in the Medical Services Industry Group by selling a portion of the Omnicare Inc. (OCR) position; however, it continues to be over-concentrated in both of those Industry Groups.
- Target Corp. (TGT) operates 1,750 Target and SuperTarget Stores across the U.S. offering everyday items, food and fashionable merchandise. The position was initiated in the spring of 2010 in the mid-$50s, so the doubling on that position by adding another $34 million to the $35 million position at slightly lower prices in the low-$50s conveys a high conviction in the buy decision.
- Microsoft Corp. (MSFT) develops operating systems, business software, and other applications for servers, PC’s and intelligent devices. It initiated this position in winter of 2008 in the $30 range, and it has been on the wrong side of the trade since then as the stock has continued to be weak, so the addition of another $29 million to the prior $92 million position does not indicate conviction.
- Sandridge Energy Inc. (SD) is engaged in the exploration and production of crude oil and natural gas. It initiated this position in the spring of 2010 in the $7 range, so the selling off a third of the prior quarter position in the $12 range just a year later is most likely just profit-taking and does not indicate conviction in the sell decision.
- Southwestern Energy Co. (SWN) is engaged in the exploration and production of oil and natural gas primarily in AK, OK, TX and PA. This position was initiated in the December 2010 quarter in the high-$30s, so the addition of another $27 to the prior $11 million position as the stock climbed into the $40 range indicates a high level of conviction.
- CVS Caremark Corp. (CVS) operates 7,182 pharmacy drugstores in 41 states and D.C. This is a significant new position in the current quarter and indicates a high conviction level.
- Omnicare Inc. (OCR) provides pharmacy distribution and consulting services to long-term care centers and hospitals in 47 states and D.C. This position was initiated in the summer of 2004 in the low-$40s, so the selling of $20 million of a $142 million position in $30s range seven years later does not indicate conviction in the sell decision.
- ConocoPhillips (COP) is engaged in exploration, production, mid-stream, refining and marketing of crude oil and natural gas worldwide. The position was initiated in the spring of 2010 in the low- to mid-$50s, so the selling of $17 million of a $101 million position is not that significant.
- Cabelas Inc. (CAB) operates 31 outdoor equipment stores in 22 states and Canada offering camping, fishing, and other products. This position was initiated in the spring of 2010 in the high teens, so the selling of $16 million of the $17 million as the stock traded into the $30s could be just profit-taking and does not indicate a high degree of conviction in the sell decision.
- Aon Corp. (AON) brokers insurance products and offers risk management and consulting services worldwide. The position was initiated in spring of 2010 in the low-$40s, and it is the largest holding in the portfolio. The fact that it sold only a minor $1.6 million position as the stock traded into mid-$50s is an indication of the conviction in the buy decision.
- Redwood Trust Inc. (RWT) is a REIT that invests in securitized residential and commercial real estate loans and securities in all 50 states. The position was initiated in the 1990s, and even after the insignificant $2.7 million sell this quarter, it continues to hold a significant $98 million or 8% of the total outstanding shares of the company.
- Dell Inc. (DELL) provides desktop PCs, mobility products, servers and networking products to individuals, businesses and governments. This is among the top five holdings, and the fund added more in the quarter indicating the confidence in this position.
Company | Ticker | Action | Market Value at end of March 2011 Quarter | Change in Value from Prior Quarter | Percent of Portfolio | Percent Shares Owned |
Target Corp. | TGT | Add | $ 35 million | $34 million | 1.60% | 0.10% |
Microsoft Corp. | MSFT | Add | $ 121 million | $29 million | 5.53% | 0.06% |
Sandridge Energy Inc. | SD | Cut | $ 73 million | ($27) million | 3.35% | 1.40% |
Southwestern Energy Co. | SWN | Add | $ 38 million | $27 million | 1.73% | 0.25% |
CVS Caremark Corporation | CVS | New | $ 25 million | $25 million | 1.16% | 0.05% |
Omnicare Inc. | OCR | Cut | $ 122 million | ($20) million | 5.56% | 3.50% |
ConocoPhillips | COP | Cut | $ 84 million | ($17) million | 3.85% | 0.07% |
Cabelas Inc. | CAB | Cut | $ 1 million | ($16) million | 0.02% | 0.03% |
Aon Corp. | AON | Add | $ 124 million | $2 million | 5.66% | 0.71% |
Redwood Trust Inc. | RWT | Cut | $ 98 million | ($3) million | 4.47% | 8.01% |
Dell Inc. | DELL | Add | $ 95 million | $4 million | 4.33% | 0.34% |
Texas Instruments Inc. | TXN | Cut | $ 88 million | ($13) million | 4.01% | 0.22% |
Accenture Plc | ACN | Cut | $ 81 million | ($5) million | 3.70% | 0.23% |
