Over the past 10 years the fund returned 9.66% versus 7.22% for the S&P 500.
The fund outperformed the S&P 500 in the third quarter in large part due to its non-participation in the telecom sector, which was the worst performing sector for the quarter. The other sector weighing downward on results was consumer staples, although the fund reduced its consumer staple exposure from 19% to 13% of the portfolio during the first half of 2016.
Wells Fargo, VF Corp., and CVS Health were the biggest losers for the quarter. The fund used the price weakness to add to all three positions.
The big winners for the quarter were Applied Materials, Charles Schwab, and Apple. The fund used the price strength to sell nearly 39% of its Applied Materials position. With Charles Schwab and Apple, however, the fund continued to add shares.
As the fund looks to the future it notes the November election as an event to watch. Both Trump and Clinton have differing tax and trade policies, each which could have a profound impact on the stock market.
During the quarter the fund sold out of Perrigo. It's concerned the company could face a weak pricing environment for the foreseeable future. It also has a high debt load. The fund also sold out of Deere, using the August price strength to do so.
The fund did add one stock during the quarter, KLA-Tencor. The fund likes KLA-Tencor's high margin services which help it during troughs in the product cycle.
Here's the activity for the third quarter of 2016:
KLA-Tencor (NASDAQ:KLAC) is a company that sells equipment to semiconductor manufacturers. The company was in an agreed upon merger with Lam Research that was cancelled at the beginning of the third quarter of 2016. During the quarter the fund picked up just over 1.1 million shares for a smallish 0.6% stake in the portfolio. The stock traded between $67 and $78 during this time.
Fortive (NYSE:FTV) is a recent spin-off from Danaher. It consists of Danaher's former Test & Measurement segment, Industrial Technologies segment and the Retail/Commercial Petroleum platform.
Apple (NASDAQ:AAPL) is a consumer electronics company. The fund established its position in the 2nd quarter of 2013 at an average price of $395.02 (split adjusted $56.43). It likes the company for its strong cash flow, loyal customer base, innovation and the potential of new product categories. The position was trimmed by 13.1% in the third quarter of 2014. Prices ranged from $90 to $103. The fund sold more in the fourth quarter of 2014, 1.5 million shares, or roughly 38% of the position. Prices ranged from $96.26 to $119.00. In the fourth quarter of 2015 the fund added to Apple for the first time since 2013, buying 492k shares and boosting the position by 18%. Prices ranged from $105 to $123. Last quarter the fund bought another 697k shares, boosting the position by 21.5%. Prices ranged from $90 to $112. And it was at it again this quarter buying just over 1.1 million shares as prices ranged from $94 to $116.
Wells Fargo (NYSE:WFC) is one of the big four US money center banks and provides retail, corporate and commercial banking. The fund picked up nearly 10 million shares over the second quarter. The fund considers Wells the best large bank and it's trading at a significant discount to the overall market. The stock traded between $44.50 and $51 during the second quarter. During the third quarter the fund picked up just over 5 million shares, increasing its position by 53%. The shares traded between $41.50 and $51 during the quarter and for a large part stayed depressed due to the fake account scandal. With shares around $45 this is a good consideration for someone looking to emulate the fund.
Disney (NYSE:DIS) is a diversified media company and entertainment conglomerate headquartered in Burbank, CA. Notable properties include ESPN, ABC, and its theme parks. The fund bought over 3.7 million shares in the second quarter for a 2.81% stake in the portfolio. Per the fund commentary they paid an average price of $103. During the third quarter the fund added just under 1.7 million shares, boosting its position by 45%. Disney traded between $91 and $101. Disney is still a good consideration if you want to emulate the fund.
Gilead Sciences (NASDAQ:GILD) is a pharmaceutical company with its core portfolio focused on HIV and hepatitis B and C. The fund first purchased Gilead in 2009 and built up the position to over 4 million shares by the end of 2010. The fund sold approximately 40% of the position in 2011 and another 10% in 2013. Since then the fund has been a buyer, owning 3.5 million shares at the end of 2015. During the first quarter of 2016 the fund added a million shares. Prices ranged from $82. To $100. And it added nearly 2.4 million shares in the second quarter, increasing its position by 53%. Gilead traded between $78 and $103. And it continued in the third quarter, adding nearly 2 million shares and boosting the position by 28%. Gilead's stock price ranged from $77 to $89 during the quarter. With the current share price around $74 this stock is a consideration for someone wanting to emulate the fund.
CVS Health (NYSE:CVS) is a pharmacy benefits manager and drug store retailer. This is a long-term position in the portfolio. The fund originally bought 3.15 million shares in 2011. CVS traded between $32 and $41 during this time. The fund increased the position by roughly 13% over 2014. The fund was buying for the first time since 2014 during the third quarter, adding nearly 1.7 million shares and boosting the position by 47%. CVS traded between $88 and $98 during the quarter. The shares now trade in the low $70's after weak guidance in its earnings report.
Compass Minerals (NYSE:CMP), Praxair (NYSE:PX), Procter & Gamble (NYSE:PG), Charles Schwab (NYSE:SCHW), MasterCard (NYSE:MA), Paypal (NASDAQ:PYPL), McCormick & Co. (NYSE:MKC), Mondelez (NASDAQ:MDLZ), Sysco (NYSE:SYY), WD-40 (NASDAQ:WDFC), Pentair (NYSE:PNR), Verisk Analytics (NASDAQ:VRSK), Alphabet Class A and C (NASDAQ:GOOG) (NASDAQ:GOOGL), MDU Resources (NYSE:MDU), National Oilwell Varco (NYSE:NOV), Allergan (NYSE:AGN), Novartis (NYSE:NVS), VF Corp. (NYSE:VFC), Intel (NASDAQ:INTC), Thomson Reuters (NYSE:TRI), Motorola Solutions (NYSE:MSI), and Waste Management (NYSE:WM) saw minor (less than 25%) increases over the last quarter.
Perrigo (NASDAQ:PRGO) is an OTC and generic drug manufacturer based out of Dublin, Ireland. The fund bought just over 1 million shares in the third quarter of 2014 with prices ranging from $139.00 to $158.85. The fund likes Perrigo because it's a play on two big trends; an aging population and the pressure to lower healthcare costs. The fund added another 840k shares over the fourth quarter of 2014. Prices ranged from $145.69 to $168.76. In the second quarter of 2015 the fund sold 760k shares, or 38% of its position. Shares rose in April 2015 on an offer from Mylan. In the third quarter of 2015 the fund added 360k shares, boosting its position by 29%. Prices ranged from $151 to $197. The fund added nearly 1 million shares in the first quarter of 2016 as prices ranged from $124 to $151. It added another 1.2 million shares in the second quarter. Perrigo traded between $85 and $134. The fund did an about face and sold the entire position during the third quarter on concerns over a prolonged weak price environment and heavy debt load. Shares traded between $83 and $99.
Deere & Co. (NYSE:DE) is an industrial goods company that manufactures equipment for the agricultural, construction, and forestry industries. The fund acquired just over 1.5 million shares in the second quarter of 2015. Prices traded between $87.50 and $98. The fund likes Deere for its competitive advantages, including its extensive dealer network, robust research and development, and powerful brand name. The fund boosted the position roughly 25% over the rest of 2015. During the third quarter the fund sold out of Deere, using the price strength from a positive August earnings report. The stock traded between $77 and $88.50 during the quarter.
Questar (NYSE:STR) is an integrated natural gas company in the US with operations in Utah, Wyoming and Idaho. The fund established a 2.8 million share position in the last quarter of 2010 and built the position to over 7.2 million shares by the end of 2011. Prices ranged from $16.50 to $20 during this time. Over 2012 through 2014 the fund added 1.5 million shares. The fund bought more every quarter in 2015, adding nearly 4 million shares. On February 1, 2016 Dominion Resources (NYSE:D) offered $25 per share to buy Questar. The transaction completed in the third quarter.
Applied Materials (NASDAQ:AMAT) is a provider of manufacturing equipment, services, and software to the semiconductor industry and other related industries worldwide. The fund bought into AMAT in 2012 picking up nearly 18 million shares. Prices ranged from $10 to $13 during this time. The position held steady until the first quarter of 2015 when the fund sold nearly a third of its position. Prices ranged from $22 to $25.50. The fund built the position back up to roughly 16 million shares during the rest of 2015. During the third quarter of 2016 the fund sold 6.2 million shares, or 38% of its position, as prices traded between $23.50 to $31.
Disclosure: I am/we are long AAPL, DIS, GOOGL, GILD, INTC.
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.