Hedge Funds’ Obsession With Warren Buffett Hitting Their Pocketbook

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going even though the mainstream financial media journalists don’t agree with this approach. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market. Keeping this in mind, let’s take a look at whether Berkshire Hathaway Inc. (NYSE:BRK-B) is a good investment right now.

Berkshire Hathaway Inc. (NYSE:BRK-B) was in 113 hedge funds’ portfolios at the end of the fourth quarter of 2019. BRK-B investors should pay attention to an increase in enthusiasm from smart money lately. There were 111 hedge funds in our database with BRK-B holdings at the end of the previous quarter. Our calculations also showed that BRK-B ranked 14th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Warren Buffett’s Berkshire has consistently been among the top 30 hedge fund stocks since at least the fourth quarter of 2018. When it comes to Warren Buffett hedge funds are just like ordinary investors. They are blinded by Warren Buffett stellar reputation as a shrewd stock picker even though Buffett’s track record over the last 10 years is absolutely pedestrian. In general we believe hedge funds are great at stock picking, but we also noticed that Warren Buffett isn’t the same man who used to beat the market by 20-30 percentage points year in year out.

Warren Buffett of Berkshire Hathaway

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations We are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to check out the new hedge fund action encompassing Berkshire Hathaway Inc. (NYSE:BRK-B).

Hedge fund activity in Berkshire Hathaway Inc. (NYSE:BRK.B)

At Q4’s end, a total of 113 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in BRK-B over the last 18 quarters. 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 $11305.2 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $2317.9 million worth of shares. Gardner Russo & Gardner, Pershing Square, and Diamond Hill Capital 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 Bill & Melinda Gates Foundation Trust allocated the biggest weight to Berkshire Hathaway Inc. (NYSE:BRK.B), around 52.94% of its 13F portfolio. Punch Card Capital is also relatively very bullish on the stock, earmarking 52.7 percent of its 13F equity portfolio to BRK-B.

As aggregate interest increased, key hedge funds were breaking ground themselves. GQG Partners, managed by Rajiv Jain, created the most outsized position in Berkshire Hathaway Inc. (NYSE:BRK.B). GQG Partners had $229.9 million invested in the company at the end of the quarter. James Crichton’s Hitchwood Capital Management also initiated a $169.9 million position during the quarter. The other funds with new positions in the stock are Shane Finemore’s Manikay Partners, Mubadala Investment’s MIC Capital Partners, and Frank Brosens’s Taconic Capital.

Let’s also examine hedge fund activity in other stocks similar to Berkshire Hathaway Inc. (NYSE:BRK.B). We will take a look at The Procter & Gamble Company (NYSE:PG), Mastercard Incorporated (NYSE:MA), Exxon Mobil Corporation (NYSE:XOM), and AT&T Inc. (NYSE:T). This group of stocks’ market caps are closest to BRK-B’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PG 79 10725870 5
MA 125 14560784 0
XOM 63 2028251 8
T 50 1406918 -1
Average 79.25 7180456 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 79.25 hedge funds with bullish positions and the average amount invested in these stocks was $7180 million. That figure was $23616 million in BRK-B’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 50 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 lost 1.0% in 2020 through April 20th but beat the market by 11 percentage points.

Unfortunately BRK-B wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BRK-B were disappointed as the stock returned -16.7% during the same time period and underperformed the market. Berkshire Hathaway shares also underperformed the market by 15 percentage points since the end of 2018. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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