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 08/13/2018. 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 2018.
This quarter, Gardner Russo & Gardner’s 13F stock portfolio value decreased ~4%, from $14.33B to $13.70B. The top three holdings are at ~34% of the portfolio, while the top five holdings are at ~49% of the assets: Berkshire Hathaway (BRK.A) (BRK.B), Mastercard (NYSE:MA), Nestle (OTCPK:NSRGY, OTCPK:NSRGF), Heineken Holding (OTCQX:HKHHF), and Compagnie Financiere Richemont (OTCPK:CFRHF, OTCPK:CFRUY). 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).
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 ~13%. 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 ~$206. There was marginal trimming in the last two quarters.
Mastercard Inc.: MA is currently the second-largest 13F stake at 12.42% of the portfolio. It was first established in 2008, with the bulk of the current stake 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 ~$204. There was a ~5% trimming over the last two quarters.
Note: In the WealthTrack interview in July 2017, Russo picked Mastercard as the one investment to own for everyone. The stock was trading at ~$127 at the time. The company invests way beyond others to be at the top of innovation, and it also has a product edge: focus on digital delivery of cash to beneficiaries, especially digitizing government payments.
Nestle SA: NSRGY is the third-largest 13F stake at 8.89% 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 $81.63. For investors attempting to follow Russo, Nestle SA is a good option to consider for further research. There was marginal selling in the last four quarters.
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 10.20M share stake in the 2011-2013 time frame at prices between $37 and $66. The current position is at 10.65M shares, and it is a large stake at 7.44% of the portfolio. The stock is now at $95.37. The last three quarters have seen marginal trimming.
Compagnie Financiere Richemont: 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 $87.29. It is currently a large position at 7.11% of the 13F portfolio. There was a marginal reduction this quarter.
Note: In an August 2017 podcast for MOI Global, titled "Investing and Mental Models in a Changing World", Russo said Cartier and other brands are all pressured by Alibaba (NYSE:BABA), Amazon (NASDAQ:AMZN), etc. He also hinted at possible anti-trust issues with the Echo product. (Amazon owns private-label brands that Echo recommends, which it also owns.)
Pernod Ricard (OTCPK:PDRDF, OTCPK:PDRDY): PDRDF is a fairly large ~7% of the 13F portfolio position. The stake was established in Q1 2011 in the low $90s price range. The two years through Q1 2017 saw a ~17% combined increase at prices between $101 and $126. The interim period had also seen purchases almost every quarter. The stock is now at ~$158. The last five quarters have seen minor trimming.
Unilever NV (UN, UL, OTCPK:UNLNF): UN is a fairly large ~6% of the portfolio stake first purchased in 2000. The bulk of the current ~15M 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 $56.37. There was a ~2% trimming this quarter.
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 12.27M 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 $58.07. The three quarters through Q2 2017 had seen a combined ~20% reduction at prices between $44 and $60. There was marginal trimming in the last two quarters.
Martin Marietta Materials (NYSE:MLM): MLM is a 3.25% of the 13F portfolio stake. It had stayed steady at ~2M shares since 2004, but Q4 2016 saw a significant change: ~12% selling at prices between $169 and $234. The stock price increased around five times over that twelve-year period. It currently trades at ~$203. There was a ~15% stake increase in Q3 2017 at prices between $196 and $228. This quarter saw a marginal reduction.
Diageo plc (DEO, OTCPK:DGEAF): DEO is a 2.52% of the portfolio 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. Since then, the activity has been minor. The current stake is at ~8.4M shares. The stock is now at $143. There was a ~12% reduction over the last three quarters.
Brown-Forman Corp. (BF.A, BF.B): BF.B is a 2.48% 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 was a ~23% increase last quarter at prices between $50.50 and $56.50. The stock is now at $53.65. This quarter saw a ~3% trimming.
Note: The stock prices and the share counts quoted above are adjusted for the 2-for-1 stock split in August 2016.
Altria Group (NYSE:MO): MO is a 2.30% 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 ~5.54M shares. The stock is now at $59.21. There was a ~2% reduction this quarter.
JC Decaux SA (OTCPK:JCDXF, OTC:JCDXY): JCDXF is a small ~2% of the portfolio stake that has seen consistent buying since the stake establishment in 2011. 2015 saw a ~240% increase at prices between $34 and $44, while the following year saw another ~40% increase at prices between $25 and $44.50. The stock is currently at $29.65. Q1 to Q3 2017 also saw a ~12% stake increase at prices between $29.50 and $36.50. There was marginal trimming in the last two quarters.
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 (~1.70% of the portfolio) and the stock is at $35.39. There was a marginal increase reduction this quarter.
Note: The prices and share counts quoted above are adjusted for the 2-for-1 stock split in February.
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 incremental purchases in the following years, and the stake was at 5.29M shares (2.14% of the portfolio) as of last quarter. The position was sold down by ~75% this quarter at prices between $47.40 and $60. The stock is now at $53.16.
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.
Philip Morris International (NYSE:PM): PM is a large position at 6.13% of the 13F portfolio. It was acquired as a result of the spin-off of Philip Morris International from Philip Morris (now Altria) 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 $82.31. This quarter saw a marginal increase.
Note: “Capacity to suffer” is a key attribute that Russo looks for - the $2.5B Philip Morris International has spent so far on IQOS (delivers nicotine without harmful effects) is an example.
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. Q4 2015 saw another ~25% increase at prices between $106 and $130. The stock is now at $97.71. The last ten quarters have seen a ~25% increase at prices between ~$93 and ~$131. For investors attempting to follow Russo, BUD is a good option to consider for further research.
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.
The Swatch Group (OTCPK:SWGAY): SWGAY was a minutely small stake as of Q3 2015. The following quarter saw a ~600% increase at prices between $16.50 and $21. 2016 also saw a ~40% stake increase at prices between $12.75 and $17.90. There was another ~7% increase in Q3 2017 at prices between $18 and $21, and that was followed with a similar increase in the following quarter at around the same price range. The stock currently trades at $21.97, and the stake is at ~4% of the portfolio. There were marginal increases in the last two quarters.
Visa Inc. (NYSE:V): The very small 0.60% V stake saw a ~10% increase this quarter at prices between $118 and $136, and the stock is currently just above that range at $140.76.
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 are stakes that are between 0.1% and 0.5% of the portfolio each: Alphabet Inc. (NASDAQ:GOOG), American Express (NYSE:AXP), and Fomento Economico Mexicano ADR (NYSE:FMX).
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 2018:
Disclosure: I am/we are long PM. 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.