Monday, August 17, 2015

Berkshire Hathaway 2nd Quarter 2015 13F-HR

The Berkshire Hathaway (BRKa2nd Quarter 13F-HR was released yesterday. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.*
(For a convenient comparison, here's a post from last quarter that summarizes Berkshire's 1st Quarter 13F-HR.)

Added to Existing Positions
U.S. Bancorp (USB): 1.3 mil. shares (1.5% incr.); tot. stake $ 3.69 bil.
Charter (CHTR): 2.5 mil. shares (42%); tot. stake $ 1.46 bil.

I've included above only those positions worth at least $ 1 billion at the end of the 2nd quarter. In a portfolio this size -- roughly $ 244 billion (equities, fixed income, cash, and other investments) as of the latest available filing with roughly half made up of common stocks** -- a position that's less than $ 1 billion doesn't really move the needle much.

One brand new position was also added during the quarter.

New Position
Axalta (AXTA): 20 mil. shares; tot. stake $ 662 mil.
(Previously announced.)

Not all of the activity has been disclosed. In the 2nd quarter of 2015, apparently some activity was kept confidential. Berkshire's latest filing says: "Confidential information has been omitted from the public Form 13F report and filed separately with the U.S. Securities and Exchange Commission."

Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.

Reduced Positions
Positions that were reduced somewhat but not sold outright include WABCO (WBC), Chicago Bridge & Iron (CBI), and Viacom (VIAB) with each worth less than $ 1 billion.

Sold Positions
Positions that were sold include National Oilwell Varco (NOV) and Phillips 66 (PSX).

Todd Combs and Ted Weschler are responsible for an increasingly large number of the moves in the Berkshire equity portfolio. These days, any changes involving smaller positions will generally be the work of the two portfolio managers.
(Though some of the holdings they're responsible for have become more substantial over time.)

Top Five Holdings
After the changes, Berkshire Hathaway's portfolio of equity securities remains mostly made up of financial, consumer and, to a lesser extent, technology stocks (mostly IBM).

1. Wells Fargo (WFC) = $ 26.4 bil.
2. Coca-Cola (KO) = $ 15.7 bil.
3. IBM (IBM) = $ 12.9 bil.
4. American Express (AXP) = $ 11.8 bil.
5. Wal-Mart (WMT) = $ 4.28 bil.

As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.

The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 340,000 employees (25 being at headquarters) according to the latest letter.

Here are some examples of Berkshire's non-insurance businesses:

MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, and Oriental Trading Company.
(Among others.)

In addition, the insurance businesses (BH Reinsurance, General Re, GEICO etc.) owned by Berkshire have naturally provided plenty of "float" for their investments over time and continue to do so.

See page 125 of the 2014 annual report for a full list of Berkshire's businesses.

Adam

Long positions in BRKb, KO, WFC, AXP, USB, WMT, and PSX established at much lower than recent market prices. Also, long position in IBM established at slightly higher than recent market prices. (In each case compared to average cost basis.)

* All values shown are based upon the last trading day of the 2nd quarter.
** Berkshire Hathaway's holdings of ADRs are included in the 13F. What is not included are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. Investments in things like preferred shares (and valuable warrants, where applicable, as explained in the recent letters) are also not included in the 13F. The same has been true for not only the Heinz (now Kraft Heinz) preferred shares, but also the common shares. A deal to combine Kraft and Heinz was announced earlier this year and closed on July 2nd, 2015. So, as a result, Berkshire will now own roughly 26.9% of the combined Kraft Heinz Company (KHC) with the stake being accounted for using the equity method. See Note 7 of in Berkshire's latest 10-Q for additional details. The investment will now represent one of Berkshire's largest positions.
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