Tracking Mason Hawkins' Southeastern Asset Management Portfolio - Q4 2016 Update

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Includes: ATU, BEN, BIDU, CABO, CHK, CKH, CKHUY, CNHI, CNX, CTL, DD, DEL, DOW, FDX, FWONA, FWONK, GHC, GOOG, GOOGL, HCMLF, KODK, LLGLX, LLINX, LLPFX, LLSCX, LVLT, MLCO, RE, RL, RYN, SNI, SNOW, SONC, TRCO, TROW, UTX, VIPS, VSAT, WYNN, YUM, YUMC
by: John Vincent

Summary

Mason Hawkins’ 13F portfolio value decreased from $10.44B to $10.36B this quarter. The number of positions increased from 28 to 30.

Southeastern Asset Management added T. Rowe Price Group and Yum China Holdings while decreasing Chesapeake Energy.

The top three positions are Level 3 Communications, FedEx Corporation, and Wynn Resorts and they add up to ~35% of the portfolio.

This article is part of 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 02/14/2017. Please visit our Tracking Mason Hawkins' Southeastern Asset Management Portfolio series to get an idea of his investment philosophy and our previous update for the fund's moves during Q3 2016.

This quarter, Hawkins' US long portfolio decreased marginally from $10.44B to $10.36B. The number of holdings in the portfolio increased from 28 to 30. The top three holdings are at ~35% while the top five are at ~50% 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 15.20% of the US long portfolio.

Southeastern is best known for its investor friendly attributes. The mutual funds in the Longleaf family are Longleaf Partners Fund (MUTF:LLPFX) incepted in 1987, Longleaf Small-Cap Fund (MUTF:LLSCX) incepted in 1989, Longleaf International Fund (MUTF:LLINX) incepted in 1998, and the Longleaf Global Fund (MUTF:LLGLX) incepted in 2012. The flagship Longleaf Partners Fund had an outstanding 20.71% return for 2016 in spite of a large ~18% cash allocation (~$3.5B AUM). Although the fund is focused on US mid-and-large cap businesses, the current allocation has two non-US companies in the top ten: CK Hutchison (OTCPK:CKHUY) and LafargeHolcim Ltd. (OTCPK:HCMLF).

Although their mutual funds are well known among retail investors, it should be noted that the vast majority of Southeastern's AUM is attributable to separately managed accounts. The characteristics that make the fund family distinct are elaborated in David Swensen's (Yale Endowment) book "Unconventional Success: A Fundamental Approach to Personal Investment".

Stake Disposals:

None.

New Stakes:

T. Rowe Price Group (NASDAQ:TROW) and Yum China Holdings (NYSE:YUMC): These are the two new stakes this quarter. The 2.56% TROW position was established at prices between $63 and $79 and the stock is now at $71.95. YUMC is a 2.28% stake purchased at prices between $24 and $30 and it is now at $26.99. For investors attempting to follow Mason Hawkins, these two stocks are good options to consider for further research.

Note: Yum China Holdings is a November 2016 China unit spinoff from Yum Holdings (NYSE:YUM).

Stake Decreases:

Level 3 Communications (NASDAQ:LVLT): LVLT is Southeastern's largest 13F position at 15.20% of the portfolio. It is a very long-term stake that was first purchased in 2003 and every year through 2014 had seen a stake increase. The last major buying was in Q4 2014 when there was a ~21% increase at prices between $38 and $50. 2015 saw an about turn: ~40% reduction at prices between $43 and $57. 2016 also saw a ~15% trimming. The stock currently trades at $57.61.

Note 1: In October 2016, CenturyLink (NYSE:CTL) agreed to buy LVLT in a cash-and-stock ($26.50 cash, 1:1.4286 for stock portion) deal valued at $66.50 per share.

Note 2: Southeastern controls ~7.8% of LVLT.

FedEx Corporation (NYSE:FDX): FDX is a very long-term position that has been in the portfolio since 2000. Currently, it is the second-largest position at 10.19% of the portfolio. Q3 2015 saw a ~24% increase at prices between $141 and $172. The stock currently trades at ~$193. There had only been very minor adjustments in the last four quarters. This quarter saw a ~14% trimming at prices between $170 and $201.

Wynn Resorts (NASDAQ:WYNN): WYNN is a top three ~9% stake established in Q1 2015 at prices between $94 and $159. It had a ~56% increase in Q2 2015 and another ~71% increase the following quarter at prices between $53 and $111. The stock currently trades at $94.01. Last quarter saw a marginal increase while this quarter saw a ~8% trimming. For investors attempting to follow Hawkins, WYNN is a good option to consider for further research.

Consol Energy (NYSE:CNX): CNX is a top-five ~8% of the 13F portfolio stake. The original position is from 2012 when ~25M shares were purchased in the low-30s. Q4 2014 and Q1 2015 saw a stake doubling at prices between $27 and $42. Q1 2016 saw a ~13% increase at prices between $5 and $12. The stock currently trades at $15.78. Last quarter saw a marginal increase while this quarter saw a ~10% trimming.

Note 1: Regulatory Filings after the quarter ended show Southeastern owning 49.98M shares (~22% of the business). This is compared to 44.9M shares in the 13F. The increase happened at an average-cost of ~$17.50.

Note 2: Consol Energy was Southeastern's second-best performing holding for 2016 - 131% return and 3.96% portfolio impact. They are still bullish and their appraisal is much higher than the current stock price. Also, they believe the coal & gas separation will happen in 2017.

Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL): GOOG is a large (top five) ~7% portfolio position purchased in Q1 2015 at prices between $492 and $575 and increased by ~50% the following quarter at prices between $520 and $565. Q1 2016 saw a ~14% selling at prices between $678 and $765 and that was followed with a ~7% trimming the following quarter at prices between $668 and $767. Last quarter saw an about turn: ~11% increase at prices between $692 and $787. There was a ~13% trimming this quarter at prices between $736 and $813. The stock currently trades at $829.

Scripps Network Interactive (NYSE:SNI): SNI is a large ~7% of the portfolio position first purchased in 2011. The bulk of the current stake was purchased in Q3 and Q4 2014 at prices between $72.50 and $85. Q1 2016 saw a ~14% reduction at prices between $52 and $62. The stock currently trades at $80.76. There was a marginal increase last quarter while this quarter saw a ~6% trimming.

Note: Southeastern controls 10.6% of the business.

United Technologies (NYSE:UTX): The large ~6% UTX position was increased by ~400% in Q4 2015 at prices between $88 and $101. Q1 2016 saw another ~30% increase at prices between $85 and $100. The stock currently trades at ~$113. There was a ~13% selling this quarter at prices between $99 and $111.

Graham Holdings (NYSE:GHC): GHC is a medium-sized 3.80% of the portfolio stake first purchased in 2013. Q2 and Q3 2014 saw a ~30% increase at prices between $286 and $360. The stock currently trades at $534. There was minor trimming this quarter.

Note: The prices quoted above are adjusted for the spinoff of Cable One (NYSE:CABO) from Graham Holdings that closed on July 1, 2015. Shareholders of GHC received one share of CABO for each share of GHC held. Southeastern controls 16.5% of Graham Holdings.

Chesapeake Energy (NYSE:CHK) and CNVRTS: CHK is a medium-sized ~3.4% of the US long portfolio stake (~5.5% of the business). 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. 2013 saw a reduction to ~69M shares in the mid-20s price-range. 2014 saw a minor increase while there was a combined ~25% reduction in 2015 at prices between $4.50 and $21. Q1 2016 had seen a ~11% increase while the following quarter saw a huge ~60% selling at prices between $3.50 and $7. Last quarter saw an about turn: ~250% increase at prices between $4 and $8. There was a ~45% reduction this quarter at prices between $5.31 and $7.72. The stock is now at $5.66.

Note: Chesapeake was a huge winner in Southeastern's portfolio in 2016: 377% return and 8.5% portfolio impact - the result was achieved by expertly trading the capital structure (equity, bonds, converts, and preferreds).

ViaSat Inc. (NASDAQ:VSAT): The ~3% VSAT stake was first purchased in Q2 2014 with the majority acquired the following quarter at prices between $54 and $59. Q3 2015 saw a one-third increase at prices between $56 and $64.50. There was marginal trimming this quarter. The stock currently trades at $68.90.

Note: Southeastern controls ~9.3% of VSAT.

CNH Industrial NV (NYSE:CNHI): CNHI is a 2.76% of the US long portfolio position built-up from Q3 2014 at prices between $7.50 and $10. Q2 2015 saw a minor ~5% trimming and that was followed by a ~16% reduction the following quarter at prices between $6.50 and $10. The pattern reversed in Q4 2015: ~18% increase at prices between $5.50 and $7.50. The stock currently trades at $9.17. Q2 2016 saw a ~15% trimming at prices between $6 and $8 while last quarter saw a marginal increase. There was a very minor ~4% trimming this quarter.

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

E I du Pont de Nemours (NYSE:DD): DD is a 2.57% of the portfolio stake established in Q3 2015 at prices between $47 and $64. Last quarter saw the position reduced by one-third at prices between $62 and $71 and that was followed with another ~13% trimming this quarter. The stock currently trades at $79.81. Hawking is realizing gains.

Note: In December 2015, Dow Chemical (NYSE:DOW) and DuPont announced a merger of equals with plans to separate into three businesses after the merger.

Everest Re Group (NYSE:RE): RE is a very long-term stake that has been in the portfolio since 2004. Currently, it is at ~2% of the portfolio. 2015 saw a ~35% reduction at prices between $169 and $190. Last year saw another ~55% reduction at prices between $169 and $218. The stock currently trades at $235.

Actuant Corporation (NYSE:ATU), Tribune Media (NYSE:TRCO), Melco Crown Entertainment (NASDAQ:MPEL), Franklin Resources (NYSE:BEN), and Eastman Kodak (NYSE:KODK): These very small (less than ~1.5% of the portfolio each) stakes were reduced this quarter.

Note: Southeastern controls ~10% of Actuant Corporation, ~3.5% of Tribune Media, and 22.1% of Eastman Kodak (most of the 11.9M shares are in preferreds which are not listed in the 13F report).

Stake Increases:

Ralph Lauren (NYSE:RL): RL is a medium-sized 2.73% portfolio position purchased in Q2 2016 at prices between $84.50 and $97. This quarter saw a ~12% increase at prices between $89.50 and $114. The stock is now at $79.21. For investors attempting to follow Mason Hawkins, Ralph Lauren is a good option to consider for further research.

Note: Southeastern controls 5.6% of Ralph Lauren.

Sonic Corporation (NASDAQ:SONC): SONC is a small ~1% portfolio stake established last quarter at prices between $25.50 and $29.50. This quarter saw a ~23% increase at prices between $22 and $28.50. The stock is now at $25.56. For investors attempting to follow Southeastern, SONC is a good option to consider for further research.

Note: Southeastern controls 10.2% of Sonic Corporation.

Vipshop Holdings (NYSE:VIPS) and Intrawest Resorts (NYSE:SNOW): These minutely small stakes (less than ~0.1% of the portfolio each) saw increases this quarter. The positions are too small to indicate a clear bias.

Kept Steady:

Liberty Media Formula One (NASDAQ:FWONA) (NASDAQ:FWONK): FWONK is a 2.68% of the portfolio stake established in Q2 2016 at prices between $17.50 and $20 and the stock currently trades well above that range at $33.18. Last quarter saw a ~6% trimming.

Note: Following acquisition of Formula One, Liberty Media was renamed Liberty Media Formula one and the stock symbols changed. Southeastern controls ~15% of Liberty Media Formula One. Southeastern controls ~16% of the business.

Rayonier Inc. (NYSE:RYN): The small 1.73% RYN stake was established in 2013. Q2 2015 saw a ~11% increase at prices between $25 and $27 while the following quarter saw a further ~28% increase at prices between $22 and $26.50. The pattern reversed in Q4 2015: ~27% reduction at prices between $22 and $25. Last quarter saw another ~16% selling at prices between $25.50 and $28. The stock currently trades at $28.68.

Note: Southeastern controls ~5.4% of the business.

Deltic Timber (NYSE:DEL): DEL is a small 1.36% of the portfolio position first purchased in Q3 2014 at prices between $59 and $69. The original stake was more than doubled over Q4 2014 & Q1 2015 at prices between $62 and $69.50. Q2 2015 saw a ~200% further increase at prices between $64 and $69 and that was followed with another ~40% increase the following quarter at prices between $59 and $69.50. The stock currently trades at $77.10.

Note: Southeastern controls ~15% of DEL.

Baidu Inc. (NASDAQ:BIDU) and Seacor Holdings (NYSE:CKH): These two very small stakes (less than ~1% of the portfolio each) were kept steady this quarter. The positions are too small to indicate a clear bias.

The spreadsheet below highlights changes to Hawkins' US stock holdings in Q4 2016:

Disclosure: I am/we are long DOW.

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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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