Tracking Mason Hawkins' Southeastern Asset Management Portfolio - Q2 2015 Update

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John Vincent
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Summary

  • Mason Hawkins’ 13F portfolio decreased from $15.93B to $14.95B this quarter. The number of positions decreased from 30 to 28.
  • Southeastern Asset Management added to large stakes in Aon plc, Google, and Wynn Resorts while dropping Bank of New York Mellon.
  • The top-three positions are Level 3 Communications, Loews Corporation, and Aon plc and they add up to around 30% of the portfolio.

This article is first in a series that provides an ongoing analysis of the changes made to Mason Hawkins' US stock portfolio on a quarterly basis. It is based on Hawkins' regulatory 13F Form filed on 08/14/2015.

Mason Hawkins and two other partners founded Southeastern Asset Management in 1975. Longleaf Partners Group was established in 1987 with Southeastern Asset Management as the investment advisor. This setup allowed Southeastern employees to invest alongside their clients - employees and affiliates have more than $1B invested in Longleaf Partner funds, thereby ensuring perfect principal orientation. The mutual funds in the Longleaf family are Longleaf Partners Fund (MUTF:LLPFX) incepted in 1987, Longleaf Small-Cap Fund (LLSCX) incepted in 1989, Longleaf International Fund (LLINX) incepted in 1998, and the Longleaf Global Fund (LLGLX) incepted in 2012.

Mason Hawkins is a value investor with a focus on finding strong businesses (solid balance sheet) with good people (capable management team) at deeply discounted prices (margin-of-safety). Concentrated high-conviction stakes with holding periods that stretch out to an average of five years is the common theme with all his portfolios. The flagship Longleaf Partners Fund has generated cumulative returns of 1821% over the 28 years since inception compared to 1235% return for the S&P 500 over the same period: 1.44% annual alpha over that long a time-period squarely points to the fund's superiority.

This quarter, Hawkins' US long portfolio decreased 6.17% from $15.93B to $14.95B. The number of holdings in the portfolio decreased from 30 to 28: a small stake in Bank of New York Mellon and a very small position in Mondelez were disposed of this quarter. The top three holdings are at 29.70% while the top five holdings are at 42.48% of the US long assets. The largest holding by far is Level 3 Communications which has been in the portfolio since 2003 and now accounts for 14.76% of the US long portfolio.

Southeastern is best known for its investor friendly attributes. The characteristics that make the fund family distinct are elaborated in Chapter 10 of David Swensen's (Yale Endowment) book "Unconventional Success: A Fundamental Approach to Personal Investment".

Stake Disposals:

Bank of New York Mellon (BK): BK was a small 1.82% of the portfolio stake as of last quarter. It was eliminated this quarter at prices between $40 and $44. The stock currently trades at $39.46. BK was first purchased in 2008 and the position size peaked at ~45M shares (~4% of the business) in 2012 - the bulk of that buying happened in 2010 and 2011 in the low-20s price-range. Q3 & Q4 2014 saw ~50% reductions at prices between $36.36 and $41.29.

Mondelez International (MDLZ): MDLZ has been in the portfolio since Q4 2012. It was spun-off from Kraft on October 1, 2012 and Hawkins established the position soon after. The original stake was a huge ~35M share position at a cost-basis of around $26. The stake was sold down to 30.6M shares as of Q3 2014. Last quarter, the position was sold down to 1.2M shares at prices between $34.34 and $37.59. The remaining minutely small stake was eliminated this quarter. The stock currently trades at $42.20.

New Stakes:

None.

Stake Decreases:

California Resources Corp (CRC): CRC is a very small 0.55% of the US long portfolio position. It was established in Q4 2014 at prices between $5.29 and $9.13 and reduced by ~20% last quarter at prices between $3.93 and $7.64. This quarter, the selling accelerated: ~50% reduction at prices between $6.04 and $9.70. The stock currently trades at $2.80.

Note: California Resources Corp is a recent spinoff from Occidental Petroleum that started trading in December 2014.

Chesapeake Energy (CHK): CHK is a fairly large 4.52% of the US long portfolio stake. It is a very long-term position first purchased in 2006. The original stake was built up to a huge ~87M share position (~13% of the business) by 2011 at a cost-basis in the 30s. Since then, the position was sold down to the current stake of just over 60M shares. The bulk of the selling happened in 2013 in the mid-20s price-range. Last quarter saw a ~13% reduction at prices between $13.50 and $21.26 and this quarter saw a ~6% further trimming. The stock currently trades at $6.33. Hawkins realized long-term capital losses from this position.

Note: Longleaf still controls ~9% of the business.

CNH Industrial NV (CNHI): CNHI is a 2.56% of the US long portfolio position built-up over the last three quarters at prices between $7.46 and $10.18. This quarter saw a minor ~5% trimming. The stock currently trades at $8.04.

Note 1: Longleaf controls ~3.2% of the business.

Note 2: Longleaf had a previous roundtrip with CNHI. A small stake purchased in 2012 was disposed of by Q2 2014.

Consol Energy (CNX): CNX is a top-five stake at 6.51% of the 13F portfolio. The original position is from 2012 when ~25M shares were purchased in the low-30s. Last two quarters have seen a stake doubling at prices between $27 and $42. This quarter saw a marginal reduction. The stock currently trades at $12.18.

Note: Hawkins controls ~20% of the business.

Empire State Realty Trust (ESRT): ESRT is a very small 0.43% of the portfolio stake established in Q4 2013 soon after its IPO. The firm started trading at around $13 per share in October 2013. The original stake was kept steady until Q4 2014 when the position was sold down by ~19% at prices between $14.89 and $17.88. The selling accelerated last quarter: ~56% reduction at prices between $17.41 and $18.96. This quarter saw another ~14% trimming. The stock currently trades at $16.30.

Level 3 Communications (LVLT): LVLT is Longleaf's largest 13F position at 14.76% of the portfolio. It is a very long-term stake that was first purchased in 2003 and every year since then has seen a stake increase. Q4 2014 saw a ~21% increase at prices between $38 and $50 while last quarter saw a ~17% reduction at prices between $47.02 and $55.46. This quarter also saw a ~7% selling. The stock currently trades at $44.52.

Note 1: Hawkins controls ~12% of the business.

Note 2: At the Invest for Kids conference in November 2014, Hawkins presented Level 3 as his investment idea and put a value of $61 per share. The stock was trading at around $46 at the time.

Loews Corporation (L): L stake was established in 2010 in the high-20s price-range. There was a substantial stake increase in 2011 in the high-30s price-range as well. Last five quarters have seen a combined ~20% reduction at prices between $38.26 and $44.41. The stock currently trades at $35.79. It is still the second-largest position at 7.60% of the portfolio.

Note: Longleaf controls ~8% of the business.

Royal Philips ADR (PHG): PHG is a very long-term position first purchased in 2006. Last two quarters have seen a combined ~30% reduction at prices between $25.46 and $30.31. The stock currently trades at $25.40 and the stake is at 2.22% of the portfolio.

Everest Re Group (RE), FedEx Corporation (FDX), Franklin Resources (BEN), Graham Holdings (GHC), McDonald's Corporation (MCD), and Murphy Oil Corporation (MUR: These positions were reduced marginally (less than 10% reduction each) this quarter. As the activities were minor, they do not indicate a shift in bias.

Note: Hawkins has significantly large ownership stakes in the following businesses: 7.2% of Everest RE, 13.8% of Graham Holdings, and 8.7% of Murphy Oil.

Northern Oil & Gas (NOG): NOG is a minutely small 0.04% position. It was established last quarter but was reduced by close to two-thirds this quarter. The sizing is too small to indicate any bias.

Stake Increases:

Deltic Timber (DEL): DEL is a small 0.59% of the portfolio position first purchased in Q3 2014 at prices between $59.50 and $69.20. The original stake was more than doubled over the last two quarters at prices between $62.32 and $69.36. This quarter saw a ~200% further increase at prices between $64 and $69. The stock currently trades at $60.07.

Note: Hawkins controls ~10.3% of the business.

Dream Works Animation (DWA): DWA is a medium-sized 2.90% portfolio stake first purchased in Q3 2014 at prices between $20 and $25. The original stake was more than tripled over the last two quarters at prices between $18.57 and $27.27. This quarter also saw a marginal increase. The stock currently trades at $19.75.

Note: Hawkins controls ~21% of the business.

Aon plc (AON): AON is a top-three 7.34% of the US long portfolio stake. The position saw a ~47% increase this quarter at prices between $96 and $103. It currently trades at $92.62. AON was first purchased in 2008 and by 2010 the stake was at over 23M shares at a cost-basis in the high-30s. More than half the position was sold in 2013 realizing huge long-term gains. Last five quarters had also seen a combined ~25% reduction at prices between $80 and $100.

Note: Hawkins still controls ~3.9% of the business.

Scripps Network Interactive (SNI): SNI is a fairly large 5.79% of the portfolio position first purchased in 2011. The bulk of the current stake was purchased in Q3 & Q4 2014 at prices between $72.68 and $84.90. This quarter saw a minor ~7% increase. The stock currently trades at $52.

Note: Hawkins controls ~14% of the business.

Google Inc. (GOOG) (GOOGL) and Wynn Resorts (WYNN): These are fairly large stakes established last quarter and increased significantly this quarter. GOOG is a 4.71% position purchased at prices between $492 and $575 while WYNN is a 4.69% stake established at prices between $94 and $159. GOOG and WYNN currently trade at $629 and $74.29 respectively. GOOG was increased by ~48% and WYNN by ~56% this quarter.

Rayonier Inc. (RYN): The small 1.47% RYN stake was established in 2013. The stock currently trades at $22.50. This quarter saw a ~11% increase at prices between $24.91 and $26.96.

Triangle Petroleum Corp. (OTC:TPLM): TPLM is a minutely small 0.34% of the portfolio position established last quarter and increased by ~78% this quarter at prices between $4.22 and $6.18. The stock currently trades at $3.

Note: Hawkins controls ~13.5% of Triangle Petroleum.

Kept Steady:

Chemtura Corporation (OTC:CHMT): CHMT is a small 0.83% of the portfolio stake established in Q4 2014 at prices between $21.71 and $24.94. It was increased by ~17% last quarter at prices between $21.52 and $26.85. The stock currently trades at $26.07.

Note 1: Hawkins controls ~7% of the business.

Note 2: Chemtura's CEO Craig Rogerson commented in June that compared to making a large acquisition, it is more likely for the business to get sold.

ViaSat Inc. (VSAT): The 1.40% VSAT stake was first purchased in Q2 2014 with the majority acquired the following quarter at prices between $54 and $59. The stock currently trades at $59.23.

Note: Hawkins controls ~7.3% of VSAT.

Vail Resorts (MTN): MTN is a 1.70% position. It is a long-term stake first purchased in 2010 at a cost-basis in the low-40s. Last significant activity was a ~30% reduction in 2013 in the high-60s. The stock currently trades at $107.

Note: Hawkins controls 6.6% of Vail Resorts.

Diamond Offshore (DO) and HollyFrontier (HFC): These are small positions (less than 1% of the portfolio each) purchased last quarter and left untouched this quarter.

Note: With Diamond Offshore, Hawkins also has a large stake in Loews. Diamond Offshore is a 52% owned subsidiary of Loews.

The spreadsheet below highlights changes to Hawkins' US stock holdings in Q2 2015:

This article was written by

John Vincent profile picture
21.4K Followers
Focused on cloning strategies by analyzing 13F reports of a curated set of around fifty super-investors and generating Absolute Returns thru exploiting inefficiency, volatility, and momentum.

Disclosure: I am/we are long CHK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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