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Berkshire Hathaway’s Key Moves During Second Quarter

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Investing legend Warren Buffett‘s Berkshire Hathaway has recently filed its 13F for the quarter ended June 30, revealing a U.S. equity portfolio worth over $107.18 billion. Berkshire has always had low quarter-over-quarter turnover in its equity portfolio and second quarter of 2015 was no different with only 7% turnover rate. However, an important thing investors must always take into account, when dissecting the moves by super large funds like Berkshire Hathaway is that though the turnover might look small by hedge fund standards, in monetary terms, it means the fund did transactions worth almost $7 billion in a quarter, which is more than what many hedge funds can boast as assets under management. Another important thing to note is Berkshire runs a fairly concentrated portfolio for a fund of its size, which is why only eight positions accounted for those $7 billion worth of transactions during the second quarter. In this article we are going to focus on the one stock in which Berkshire initiated a stake during the second quarter, along with two stocks it increased its holdings in.

Warren Buffett portrait

Hedge funds and other big money managers like Warren Buffett tend to have the largest amounts of their capital invested in large and mega-cap stocks because these companies allow for much greater capital allocation. That’s why, if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, which shows that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, beating the market by 95 basis points per month. This was confirmed through backtests and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 123%, beating the broader market by over 65 percentage points through the end of April (see more details).

Warren Buffett
Warren Buffett
Berkshire Hathaway

Berkshire initiated a stake in coating systems manufacturer Axalta Coating Systems Ltd (NYSE:AXTA) by acquiring 20 million shares of the company. As of June 30, this stake was worth $661.60 million and represented Berkshire’s largest purchase for the April-June period. On August 4, Axalta Coating Systems Ltd (NYSE: AXTA) reported EPS of $0.35 on revenue of $1.10 billion for the second quarter, compared to EPS $0.30 on revenue of $1.10 billion that analyst were expecting. Robert Joseph Caruso‘s Select Equity Group, which was the largest shareholder of Axalta Coating Systems Ltd (NYSE: AXTA) among hedge funds we track at end of March, reduced its stake in the company by 3% to 5.38 million shares during the second quarter.

U.S. Bancorp (NYSE:USB) was among the only two companies in which Berkshire increased its stake during the April – June period and it continues to represent Berkshire’s seventh largest holding. Berkshire bought around 1.29 million shares of the company and as of June 30, holds over 85.06 million shares worth around $3.69 billion. At the end of July, U.S. Bancorp (NYSE:USB) and Zions Bancorporation (NASDAQ:ZION) announced a renewable-energy tax-equity syndication agreement, through which they will finance the Red Horse 2 wind and solar project near Tucson, Arizona, which is owned by an affiliate of David E. Shaw‘s D. E. Shaw Renewable Investments, L.L.C. For the second quarter of fiscal 2015, the company reported EPS of $0.80 and revenue of $5.04 billion, compared to analysts’ estimate of EPS of $0.80 on revenue of $5.05 billion. David E. Shaw’s hedge fund D. E. Shaw increased its stake in U.S. Bancorp (NYSE:USB) by 23% to almost 1.0 million shares disclosed as of the end of June.

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