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Berkshire Hathaway Inc. (BRK.B): Hedge Funds Cashing Out

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Berkshire Hathaway Inc. (NYSE:BRK-B) and determine whether hedge funds skillfully traded this stock.

Berkshire Hathaway Inc. (NYSE:BRK-B) shareholders have witnessed a decrease in hedge fund interest recently. Nevertheless our calculations also showed that BRK-B ranked #16 among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

To the average investor there are a multitude of indicators shareholders use to grade stocks. A pair of the most useful indicators are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can outpace their index-focused peers by a very impressive amount (see the details here).

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out ideas like this under-the-radar stock to identify the next tenbagger. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a gander at the latest hedge fund action surrounding Berkshire Hathaway Inc. (NYSE:BRK-B).

What have hedge funds been doing with Berkshire Hathaway Inc. (NYSE:BRK.B)?

Heading into the third quarter of 2020, a total of 107 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 93 hedge funds with a bullish position in BRK-B a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in Berkshire Hathaway Inc. (NYSE:BRK.B), which was worth $7124.8 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $1526.3 million worth of shares. Gardner Russo & Gardner, Diamond Hill Capital, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Punch Card Capital allocated the biggest weight to Berkshire Hathaway Inc. (NYSE:BRK.B), around 41.15% of its 13F portfolio. Bill & Melinda Gates Foundation Trust is also relatively very bullish on the stock, dishing out 39.88 percent of its 13F equity portfolio to BRK-B.

Due to the fact that Berkshire Hathaway Inc. (NYSE:BRK.B) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there were a few funds that slashed their entire stakes last quarter. Intriguingly, Bill Ackman’s Pershing Square dumped the biggest investment of all the hedgies watched by Insider Monkey, valued at close to $997 million in stock, and Allan Mecham’s Arlington Value Capital was right behind this move, as the fund cut about $263.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 8 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Berkshire Hathaway Inc. (NYSE:BRK.B) but similarly valued. We will take a look at Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), Mastercard Incorporated (NYSE:MA), The Procter & Gamble Company (NYSE:PG), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and JPMorgan Chase & Co. (NYSE:JPM). This group of stocks’ market values are closest to BRK-B’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
V 154 17010420 -3
JNJ 94 4731250 12
WMT 60 5829223 5
MA 147 14350337 8
PG 73 9244143 -4
TSM 58 5209772 4
JPM 123 8732467 11
Average 101.3 9301087 4.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 101.3 hedge funds with bullish positions and the average amount invested in these stocks was $9301 million. That figure was $15634 million in BRK-B’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 58 bullish hedge fund positions. Berkshire Hathaway Inc. (NYSE:BRK.B) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BRK-B is 68.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 28.2% in 2020 through August 24th but still beat the market by 20.6 percentage points. Hedge funds were also right about betting on BRK-B as the stock returned 19.1% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.