Hedge Funds Were Wrong About Piling Into Berkshire Hathaway Inc. (BRK-B)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Berkshire Hathaway Inc. (NYSE:BRK-B) based on those filings and determine whether the smart money was really smart about this stock.

Berkshire Hathaway Inc. (NYSE:BRK-B) was in 115 hedge funds’ portfolios at the end of the first quarter of 2020. BRK-B shareholders have witnessed an increase in hedge fund interest lately. There were 113 hedge funds in our database with BRK-B positions at the end of the previous quarter. Our calculations also showed that BRK-B ranked 13th among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bill Ackman Pershing Square

Bill Ackman of Pershing Square

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. With all of this in mind we’re going to take a peek at the fresh hedge fund action regarding Berkshire Hathaway Inc. (NYSE:BRK-B).

How are hedge funds trading Berkshire Hathaway Inc. (NYSE:BRK-B)?

Heading into the second quarter of 2020, a total of 115 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 $8211.4 million at the end of the third quarter. On the second spot was Eagle Capital Management which amassed $1846.2 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 Punch Card Capital allocated the biggest weight to Berkshire Hathaway Inc. (NYSE:BRK-B), around 50.31% of its 13F portfolio. Bill & Melinda Gates Foundation Trust is also relatively very bullish on the stock, setting aside 47.32 percent of its 13F equity portfolio to BRK-B.

As industrywide interest jumped, specific money managers have jumped into Berkshire Hathaway Inc. (NYSE:BRK-B) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the largest position in Berkshire Hathaway Inc. (NYSE:BRK-B). Two Sigma Advisors had $147 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $53.9 million position during the quarter. The other funds with new positions in the stock are Adam Peterson’s Magnolia Capital Fund, Renaissance Technologies, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now take a look at hedge fund activity in other stocks similar to Berkshire Hathaway Inc. (NYSE:BRK-B). We will take a look at Visa Inc (NYSE:V), Johnson & Johnson (NYSE:JNJ), Walmart Inc. (NYSE:WMT), and JPMorgan Chase & Co. (NYSE:JPM). This group of stocks’ market values resemble BRK-B’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
V 157 14390735 14
JNJ 82 5454317 -3
WMT 55 4887227 3
JPM 112 9730557 14
Average 101.5 8615709 7

View table here if you experience formatting issues.

As you can see these stocks had an average of 101.5 hedge funds with bullish positions and the average amount invested in these stocks was $8616 million. That figure was $18119 million in BRK-B’s case. Visa Inc (NYSE:V) is the most popular stock in this table. On the other hand Walmart Inc. (NYSE:WMT) is the least popular one with only 55 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 gained 13.3% in 2020 through June 25th but beat the market by 16.8 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 -2.2% during the same time period and underperformed the market. 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.

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