Monday, May 16, 2016

Berkshire Hathaway 1st Quarter 2016 13F-HR

The Berkshire Hathaway (BRKa1st 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 4th Quarter 13F-HR.)

There was plenty of buying and selling during the quarter. Here's a quick summary of the changes:*

Added to Existing Positions
IBM (IBM): 199 thous. shares (<1% incr.); tot. stake $ 12.3 bil.
Phillips 66 (PSX): 14.1 mil. shares (22% incr.); tot. stake $ 6.54 bil.
Charter (CHTR): 45.2 thous. shares (<1%); tot. stake $ 2.09 bil.
Deere & Co. (DE): 5.83 mil. shares (1%); tot. stake $ 1.79 bil.

I've included above only those positions that were worth at least $ 1 billion at the end of the 1st quarter. In a portfolio this size -- more than $ 231 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. It's worth noting that a bunch of cash was put to use this past quarter to complete the Precision Castparts deal. So quarter over quarter that, along with the Duracell deal, shrunk the total portfolio somewhat.

Shares that were bought among positions worth less than $ 1 billion include Bank of New York Mellon (BK), Liberty Media (LMCK & LMCA), Liberty Global (LBTYA), and Visa (V).

One brand new position was also added during the quarter.

New Position
Apple (AAPL): 9.81 mil. shares; tot. stake $ 1.07 bil.

Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.

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.

Shares that were sold among positions worth more than $ 1 billion include the following:

Reduced Positions
Wal-Mart (WMT): 949 thous. shares (1% decr.); tot. stake $ 3.78 bil.

The other reduced positions include Procter & Gamble (PG) -- a direct result of the Duracell deal -- as well as Mastercard (M) and WABCO (WBC).

Sold Positions
Berkshire's position in AT&T (T) was sold outright. The position in Precision Castparts (PCP) is also naturally no longer showing up in the latest 13F as a result of the recently completed deal (where Berkshire purchased the company outright).

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.

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. Kraft Heinz (KHC) = $ 25.6 bil.
2. Wells Fargo (WFC) = $ 23.2 bil.
3. Coca-Cola (KO) = $ 18.6 bil.
4. IBM (IBM) = $ 12.3 bil.
5. American Express (AXP) = $ 9.3 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. The relatively new and very large stake in Kraft Heinz has, in fact, simply made the portfolio even more concentrated. 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 ~ 361,000 employees (with 25 being at headquarters) according to the latest letter. Numbers like these -- along with many other things of interest especially for Berkshire shareholders -- should be updated in the next annual report and 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, Berkshire Hathaway Automotive, and Oriental Trading Company.
(Among others.)

As mentioned above, Berkshire also recently added Precision Castparts as well as Duracell to it's expanding list of non-insurance businesses it owns outright.

In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.

See page 115 of the 2015 annual report for a more complete listing of Berkshire's businesses.

Adam

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

* All values shown are based upon the last trading day of the 1st 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.
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