Tracking Mason Hawkins's Southeastern Asset Management Portfolio - Q1 2017 Update

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

Summary

Mason Hawkins’s 13F portfolio value decreased from $10.36B to $9.84B this quarter. The number of positions decreased from 30 to 28.

Southeastern Asset Management increased Consol Energy and ViaSat while decreasing Du Pont, Scripps Networks Interactive and Ralph Lauren.

The top three positions are Level 3 Communications, Wynn Resorts, and FedEx Corporation, and they add up to ~39% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Mason Hawkins's US stock portfolio on a quarterly basis. It is based on Hawkins's regulatory 13F Form filed on 05/15/2017. Please visit our Tracking Mason Hawkins's Southeastern Asset Management Portfolio series to get an idea of his investment philosophy and our previous update for the fund's moves during Q4 2016.

This quarter, Hawkins's US long portfolio decreased ~5% from $10.36B to $9.84B. The number of holdings in the portfolio decreased from 30 to 28. The top three holdings are at ~39%, while the top five are at ~55% 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 16.16% 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 (~$3.5B AUM). In Q1 2017, it was up 3.90%. Although the fund is focused on US mid-and-large cap businesses, the current allocation has three non-US companies in the top ten: CK Hutchison (OTCPK:CKHUY), LafargeHolcim Ltd. (OTCPK:HCMLF), and Cheung Kong Property Holdings (OTCPK:CHKGF). They believe values in Asia and Europe are superior compared to US. Also, cash allocation is now at ~24%.

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:

Rayonier Inc. (NYSE:RYN): RYN was a 1.73% stake (~5.4% of the business) as of last quarter. It was first purchased in 2013. Q2 2015 saw a ~11% increase at prices between $25 and $27, and 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. Q3 2016 saw another ~16% selling at prices between $25.50 and $28, and the disposal this quarter was at prices between $27 and $29.79. The stock currently trades at $28.03.

Tribune Media (NYSE:TRCO): TRCO was a very small ~1% portfolio stake (~3.5% of the business) reduced last quarter and eliminated this quarter.

New Stakes:

Belmond Ltd. (NYSE:BEL): BEL is a minutely small (less than 0.1% of the portfolio) stake established this quarter at prices between $11.75 and $14.40, and the stock is now at $12.25.

Stake Decreases:

Level 3 Communications (NASDAQ:LVLT): LVLT is Southeastern's largest 13F position at 16.16% 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 $59.67. There was a marginal trimming this quarter.

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.

Wynn Resorts (NASDAQ:WYNN): WYNN is a top three 11.48% 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 $124. Last two quarters have seen a combined ~17% reduction at prices between $84 and $116.

FedEx Corporation (NYSE:FDX): FDX is a very long-term position that has been in the portfolio since 2000. Currently, it is the third-largest position at 11.16% of the portfolio. Recent activity follow: Q3 2015 saw a ~24% increase at prices between $141 and $172. Last quarter saw a ~14% trimming at prices between $170 and $201, and that was followed with a marginal reduction this quarter. The stock currently trades at ~$195.

Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL): GOOG is a large (top five) ~8% 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. Q3 2016 saw an about turn: ~11% increase at prices between $692 and $787. There was a ~13% trimming last quarter at prices between $736 and $813. The stock currently trades at $970. There was a marginal reduction this quarter.

United Technologies (NYSE:UTX): The bulk of the current ~6.5% UTX position was purchased in Q4 2015 at prices between $88 and $101. Q1 2016 saw a ~30% increase at prices between $85 and $100. The stock currently trades at ~$122. There was a ~13% selling last quarter at prices between $99 and $111 and that was followed with a very minor ~2% trimming this quarter.

Scripps Networks Interactive (NYSE:SNI): SNI is a large ~6% of the portfolio position first purchased in 2011. The bulk of the current stake was purchased in Q3 & 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 $67.21. Last quarter saw a ~6% trimming, and that was followed with a ~23% selling this quarter at prices between $72 and $82.50.

Note: Southeastern controls ~8% of the business.

Graham Holdings (NYSE:GHC): GHC is a 4.67% of the portfolio stake first purchased in 2013. Q2 & Q3 2014 saw a ~30% increase at prices between $286 and $360. The stock currently trades at $594. There was minor trimming in the last two quarters.

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) & CNVRTS: CHK is a ~3% 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. Q2 2016 saw another ~60% selling at prices between $3.50 and $7. The following quarter saw an about turn: ~250% increase at prices between $4 and $8. There was a ~45% reduction last quarter at prices between $5.31 and $7.72, and that was followed with a marginal trimming this quarter. The stock is now at $5.18.

CNH Industrial N.V. (NYSE:CNHI): CNHI is a 2.46% 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 $11.31. This quarter saw a ~24% selling at prices between $8.50 and $10.

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 $249. There was a ~20% selling this quarter at prices between $216 and $239. Southeastern is realizing gains.

E I du Pont de Nemours (NYSE:DD): DD was a 2.57% of the portfolio stake as of last quarter. It was established in Q3 2015 at prices between $47 and $64. Q3 2016 saw the position reduced by one-third at prices between $62 and $71. The position was almost sold out this quarter at prices between $72.50 and $82. The stock currently trades at $77.39. Hawking realized 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.

Ralph Lauren (NYSE:RL): RL was a 2.73% portfolio position (5.6% of the business) purchased in Q2 2016 at prices between $84.50 and $97. The position was almost sold out this quarter at prices between $76 and $91. The stock is now at $66.52.

Franklin Resources (NYSE:BEN), Melco Crown Entertainment (MPEL), and Seacor Holdings (NYSE:CKH): These very small (less than ~1% of the portfolio each) stakes were reduced this quarter.

Stake Increases:

Consol Energy (NYSE:CNX): CNX is a top-five 8.61% of the 13F portfolio stake. The original position is from 2012 when ~25M shares were purchased in the low-$30s. Q4 2014 & 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 $15.95. Last quarter saw a ~10% trimming, while this quarter saw a ~13% increase at ~$17.50 per share.

ViaSat Inc. (NASDAQ:VSAT): The 3.45% 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 a ~16% increase this quarter at prices between $63 and $70. The stock currently trades at $66.89.

Note: Southeastern controls ~9.2% of VSAT.

T. Rowe Price Group (NASDAQ:TROW) and Yum China Holdings (NYSE:YUMC): These two stocks were first purchased last quarter. The 2.79% TROW position was established at prices between $63 and $79, and the stock is now at $69.66. YUMC is a 2.72% stake purchased at prices between $24 and $30 and it is now well above that range at $37.78. TROW & YUMC stakes were increased 14% and 9% respectively this quarter. For investors attempting to follow Southeastern, TROW & YUMC are good options to consider for further research.

Note: Yum China Holdings is a November 2016 China unit spinoff from Yum Holdings (NYSE:YUM). It has returned ~50% since (40% just in the last two months).

Sonic Corporation (NASDAQ:SONC): SONC is a 1.66% portfolio stake established in Q3 2016 at prices between $25.50 and $29.50. Last quarter saw a ~23% increase at prices between $22 and $28.50, and that was followed with a ~40% increase this quarter at prices between $22.50 and $27.50. The stock is now at $29.27.

Note: Southeastern controls ~15% of Sonic Corporation.

Baidu Inc. (NASDAQ:BIDU), Eastman Kodak (NYSE:KODK), and Vipshop Holdings (NYSE:VIPS): These very small (less than ~1.5% of the portfolio each) stakes were increased this quarter. The positions are still too small to indicate a clear bias.

Note: Southeastern controls 22.1% of Eastman Kodak (most of the 11.9M shares are in preferreds, which are not listed in the 13F report).

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 $31.60. Q3 2016 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 ~5% of Liberty Media Formula One.

Actuant Corporation (NYSE:ATU), Deltic Timber (NYSE:DEL), and Intrawest Resorts (NYSE:SNOW): These very small (less than ~1.5% of the portfolio each) stakes were left untouched this quarter.

Note: Southeastern controls ~10% of Actuant Corporation and ~15% of Deltic Timber. For investors attempting to follow Southeastern, these two stocks are good options to consider for further research.

The spreadsheet below highlights changes to Hawkins's US stock holdings in Q1 2017:

Disclosure: I am/we are long CNX, VSAT.

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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