When the largest wealth managers in the world make significant portfolio changes it is big news. Individuals and institutions buy and sell companies for many reasons, but the sum of a portfolio is usually bigger than its parts, and investment strategies almost always involve macro assumptions.
Warren Buffett's primary investing focus for over three decade has been value. While the Omaha native built his original portfolio in the 1980s around American companies such as Coca-Cola (KO), Procter & Gamble (PG), and Walmart (WMT), Buffett has also had strong positions in Chinese equities, European banks, and many other investments over the past decades.
This is why I think the recent disclosure of Berkshire Hathaway's (BRK.A) latest portfolio changes was particularly important. While institutions or individuals may invest or sell a position in a company for a variety of reasons, looking at an overall portfolio can usually provide insight into an individual or institution's outlook and strategy.
The two biggest changes that Buffett recently made were significantly reducing his holdings of consumer staple companies such as Procter & Gamble and Kraft (KFT), and initiating new positions several energy stocks. National Oilwell Varco (NOV) and Conoco-Phillips (COP) were two energy stocks that Berkshire Hathaway initiated new positions in. Buffett also reduced his positions less significantly in companies such as Visa (V), UPS (UPS), Ingersoll-Rand (IR), U.S. Bancorp (USB), and Intel (INTC), while boosting his stake in IBM (IBM), Bank of New York Mellon (BK), and Wells Fargo (WFC). Buffet also recently warned about the risks of investing in municipal bonds, a tax free investment that has become very popular as investor risk tolerance remains low.
Buffett's recent investment moves seem to suggest two significant shifts in Berkshire Hathaway's strategic focus.
First, Buffett seems to be rotating out of consumer staples stocks significantly exposed to Europe and building stronger positions in cyclical companies in the energy sector. Procter & Gamble and Kraft had fairly standard recent earnings reports, and neither company's business outlook has changed substantially in the last six months. The fact that Buffett significantly reduced his stake in both companies, as Johnson & Johnson (JNJ), suggests that Berkshire Hathaway is likely making a valuation call on a number of consumer staple and defense stocks. Berkshire Hathaway's increasingly negative view of the municipal bond market also suggests Buffett is becoming negative on many safe heaven investments as well.
Second, Buffett seems to clearly be shifting away from Europe and more towards Asian and North American economies. While Wells Fargo and Bank of New York Mellon obviously have exposure in Europe, these companies are much less exposed to the EU than Bancorp, a company that has also had ethics issues. Visa, Intel, and GE, are also heavily levered to the EU as well. While IBM obviously has significant exposure to Europe as well, the company's recent earnings report as strong, and IBM has increasingly shifted its focus to Asia and Latin America as well.
Likewise, Buffett's new positions in a number of oil producer and oil service stocks seems to reflect an increasingly bullish outlook on China, the world's largest consumer of crude. Still, while Berkshire Hathaway initiated significant new positions in cyclical companies, his positions were in companies with very little European exposure. Wells Fargo and Bank of New York Mellon have significantly less exposure to Europe than Citigroup and JP Morgan, and Buffett's new positions in energy stocks also suggest that Berkshire is more bullish on Asia and the U.S. than Europe as well.
To conclude, Buffett has been fairly optimistic over the last several years, but Berkshire Hathaway's recent investment focus suggests the Omaha native is becoming increasingly bullish. While Buffett's recent track record has been mixed, with Berkshire recently making poorly timed investments in companies such as Conoco-Phillips and several European Banks prior to the financial collapse, Berkshire Hathaway is still one of the largest and respected wealth managers in the world. While many leading dividend and consumer staple companies have significantly outperformed the broader indexes by a fairly wide margin over the last several years, past performance is not always indicative of future results.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.