This article is part of a series that provides an ongoing analysis of the changes made to Gardner Russo & Gardner’s 13F stock portfolio on a quarterly basis. It is based on Russo’s regulatory 13F Form filed on 08/14/2017. Please visit our Tracking Gardner Russo & Gardner Portfolio series to get an idea of their investment philosophy and the last update for their moves during Q1 2017.
This quarter, Gardner Russo & Gardner’s 13F stock portfolio value increased ~5%, from $12.92B to $13.55B. The top three holdings are at 31.41% of the portfolio, while the top five holdings are at 47.50% of the assets: Berkshire Hathaway (BRK.A, BRK.B), Nestle (OTCPK:NSRGY, OTCPK:NSRGF), Philip Morris International (NYSE:PM), MasterCard (NYSE:MA), and Heineken Holding NV (OTCQX:HKHHF, OTCQX:HINKF). Recent 13F reports have shown around 100 positions, with around 20 stakes that are significantly large. The focus of this article is on the larger positions.
Note: Russo’s portfolio on its own should not be viewed as an overall asset allocation plan, as his clients look at his firm to allocate a portion of their assets to his focus area (global equities with consumer orientation).
Philip Morris International: PM is a large (top-three) position at ~9% of the 13F portfolio. It was acquired as a result of the spin-off of Philip Morris International from Philip Morris (now Altria (NYSE:MO)) in 2008. The last major activity was in 2013, when close to 2M shares were acquired in the high $80s price range. The stock currently trades at ~$116.
Note: In a WealthTrack interview last month, Russo said the following about PM’s “capacity to suffer”, a key attribute he looks in investments - "spent $1B on science to come up with IQOS (delivers nicotine without harmful effects) - other managements did not do it. OTOH, they did not commit to e-cigarettes - they did not trust it."
Heineken Holding NV: HKHHF was a fairly large ~5% portfolio stake (~2.5M shares) in their first 13F filing in Q1 1999. That original position was sold out in 2008. It was rebuilt back up to a 10.2M share stake in the 2011-2013 time frame at prices between $37 and $66. The current position is at 11.15M shares, and it is a large stake at 7.52% of the portfolio. The stock is now at $96.24. This quarter saw marginal trimming.
Compagnie Financiere Richemont (OTCPK:CFRHF, OTCPK:CFRUY): A large ~6.5M share stake was established in 2011 in the low $50s price range and was increased to 10.36M shares through incremental purchases in the following years. Q3 2015 saw a ~6% increase at prices between $73 and $86, and that was followed with a ~17% increase the following quarter at prices between $71 and $87. Q1 2016 saw a further ~17% stake increase at prices between $62 and $72. The stock is now at $84.86. It is currently a large position at 7.21% of the 13F portfolio. There was a marginal trimming this quarter.
Note: CFRHF has seen a previous round-trip in the portfolio: A fairly large 6.33% portfolio stake was purchased in 2001, and the position saw consistent buying till 2007. It was eliminated the following year.
Pernod Ricard S.A. (OTCPK:PDRDF, OTCPK:PDRDY): PDRDF is a fairly large 6.20% of the 13F portfolio position. The stake has seen consistent buying every year since the position was established in Q1 2011 in the low $90s price range. The past two years saw a ~17% combined increase at prices between $101 and $126. The stock is now at $138. There was marginal trimming this quarter.
Unilever NV (UN, UL, OTCPK:UNLNF): UN is a fairly large 6.17% of the portfolio stake first purchased in 2000. The bulk of the current ~15.12M shares stake was acquired during the 5-year period from 2010 to 2014 at prices in the high $20s to the low $40s. The stock is now at $59. There was marginal trimming in the last two quarters.
Wells Fargo (NYSE:WFC): WFC is a fairly large ~5% of the 13F portfolio position. It was already a ~2.5% stake in their first 13F report in Q1 1999. The majority of the current ~13.65M shares position was purchased in the 2011-2013 time frame at prices in the low $20s to the low $40s. The stock is currently at $52.02. The past three quarters saw a combined ~20% reduction at prices between $44 and $60.
Altria Group: MO is a ~3% of the portfolio stake. It was a fairly large 4.59% position (1.75M shares - Philip Morris at the time) in Russo’s first 13F filing in Q1 1999. The position size grew over the years: it doubled by 2005 and again doubled by 2008. Since then, only very minor adjustments have been made. The current stake is at ~5.4M shares. The stock is now at $63.71. The past six quarters have seen minor reductions.
Martin Marietta Materials (NYSE:MLM): MLM is a ~3% of the 13F portfolio stake. It had stayed steady at ~2M shares since 2004, but Q4 2016 saw a significant change: a ~12% selling at prices between $169 and $234. The stock price increased around five times over that period. It currently trades at $203. There was marginal trimming in the last two quarters.
The Swatch Group (OTCPK:SWGAY): SWGAY was a minutely small stake as of Q3 2015. The following quarter saw a ~600% increase to a significant 2.22% of the portfolio position at prices between $16.50 and $21. That was followed with a ~17% increase in Q1 2016 at prices between $15.50 and $18.50. Q2 2016 saw another ~12% increase at prices between $13.50 and $18. The stock currently trades at $19.31. The last two quarters had seen a combined ~7% stake increase, while this quarter saw a ~4% reduction.
British American Tobacco (OTCPK:BTAFF, BTI): A large ~3.75M share position in BTAFF was acquired in 2011 in the high $30s price range. There were minor purchases in the following years, and the current stake is at 5.08M shares (2.55% of the portfolio). The stock is now at $60.25. There was marginal trimming in the last two quarters.
Note: A minutely small stake in BTAFF was in the portfolio in their first 13F filing in Q1 1999. That position was eliminated in the 2008-2009 time frame.
Diageo plc (DEO, OTCPK:DGEAF): DEO is another ~2.5% very long-term stake that was sold down in 2008 but built back up from Q1 2011. Over 6M shares were acquired that quarter in the high $70s price range. The following two years also saw significant buying. The current stake is at ~9.6M shares. The stock is now at $133. The last two years have seen only marginal activity.
Comcast Corp. (NASDAQ:CMCSA): CMCSA is another very long-term position that has been in the 13F portfolio since their first filing in Q1 1999. The last major activity was between 2008 and 2011, when the original position was reduced by half (from ~20M shares to ~10M shares) at ~$10. The current position is at 7.08M shares (~2% of the portfolio), and the stock is at $40.65. The past seven quarters have seen minor trimming.
Note: The prices and share counts quoted above are adjusted for the 2-for-1 stock-split in February.
Scripps Networks Interactive (NYSE:SNI): SNI is a very small 0.58% of the 13F portfolio position that has been in the portfolio since its IPO in July 2008. The IPO was the result of the spin-off of the E.W. Scripps Company’s (NYSE:SSP) cable TV division as Scripps Networks Interactive. Russo had a ~3.2M share position in E.W. Scripps Company, and he received an equivalent number of SNI shares. The SSP position was almost sold out the following year. SNI also saw reductions: 2010 saw a ~1M share reduction in the high $40s price range, and the following 4 years also saw selling at higher prices. The stock is now at $85.81. The last several quarters have seen marginal reductions, and the position is now at ~1.15M shares.
Berkshire Hathaway: BRK.B has been consistently maintained as the largest stake in the portfolio since their first 13F filing in Q1 1999. At the time, the sizing was at 5.78%, compared to the current allocation of 12.22%. The last major activity was in 2012, when around 400K shares were acquired in the low $80s price range. The following year also saw an increase at higher prices. The stock is now at $180. There was a marginal stake reduction this quarter.
Nestle SA: NSRGY is the second-largest 13F stake at 10.36% of the portfolio. It was a ~3% portfolio stake (~460K shares) in Q1 1999. The position size increased to ~4M shares by 2007 but was sold out the following year. The majority of the current ~16M shares stake was purchased in 2011 in the mid-$50s price range. The following two years also saw a combined ~45% increase at higher prices. The stock is currently at $84.76. This quarter saw a marginal increase. For investors attempting to follow Russo, Nestle SA is a good option to consider for further research.
Note: In the WealthTrack interview in July, Russo said the following about Dan Loeb’s (Third Point) activism at Nestle: “It is jam today vs. jam tomorrow - Dan is in the former camp - the 20B repurchase required special permission from the SEC of Switzerland - today is a fine time to borrow, and so it should overall be fine.”
MasterCard Inc.: MA is a large (top-three) 8.39% of the portfolio position first purchased in 2008. The vast majority of the current stake was purchased in 2010 in the low $20s price range. 2011-2013 also saw significant buying at higher prices. Since then, it has been kept almost steady. The stock is now at $133. There was a marginal increase this quarter.
Note: In the WealthTrack interview last month, Russo picked MasterCard as the one investment to own for everyone. The desirable attributes he mentioned were: a) a lot more international diversification than Visa (NYSE:V), b) a wonderful CEO, and c) investing way beyond others to be at the top of innovation. Product edge: focus on digital delivery of cash to beneficiaries, especially the government - migration for payment systems to digital by the government has the benefit of more taxpayers coming into the system.
Anheuser-Busch Inbev SA (BUD, OTCPK:AHBIF): BUD is a large ~6% of the 13F portfolio position. The majority of the current position was purchased in 2010 and 2011 at prices between $45 and $64. The following two years also saw significant buying at higher prices. Since then, the position was kept relatively steady. Q4 2015 saw a ~25% increase at prices between $106 and $130. The stock is now at $116. The past six quarters have also seen marginal increases.
Note: Anheuser-Busch was a small ~1% of the portfolio position during their first 13F filing in Q1 1999. That stake was eliminated in 2008.
Brown-Forman (BF.A, BF.B): BF.B is a 2.16% of the 13F portfolio position that has been in the portfolio since their first 13F filing in Q1 1999. The last significant activity was in 2012, when around 1M shares were purchased in the $26-35 price range. There have only been very minor changes since. The position was at ~5.8M shares at EOY 2012, and the current stake is at ~5.9M shares. The stock is now at $50.53. The last two quarters have seen marginal increases.
Note: The stock prices and the share counts quoted above are adjusted for the 2-for-1 stock split in August 2016.
JC Decaux SA (OTCPK:JCDXF, OTC:JCDXY): JCDXF is a small 1.74% of the portfolio stake that has seen consistent buying since the stake was established in 2011. 2015 saw a ~240% increase at prices between $34 and $44, while last year saw another ~40% increase at prices between $25 and $44.50. The stock is currently at $33.55. This quarter also saw a marginal increase.
As a percentage of the portfolio, the remaining positions are all below 0.5% of the portfolio each, and so have limited portfolio performance impact. Below is a list of stakes that are between 0.1% and 0.5% of the portfolio each: American Express (NYSE:AXP), Exxon Mobil (NYSE:XOM), Fomento Economico Mexicano SAB ADR (NYSE:FMX), and Visa Inc.
Note: Some of the securities in this report are OTC stocks with very low liquidity in the US markets. As such, it is best to use limit orders and/or use orders in their native markets.
The spreadsheet below highlights changes to Gardner Russo & Gardner’s 13F stock holdings in Q2 2017:
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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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