ClearBridge Investments, an investment management company, released its “ClearBridge Select Strategy” second quarter 2022 investor letter. A copy of this letter can be downloaded here. In the second quarter, the fund underperformed its benchmark index. Stocks from IT, healthcare, industrials, and consumer discretionary posted losses during the quarter, however stocks from consumer staples and financials sectors contributed to the performance of the fund. To know about the fund’s best picks in 2022, please check its top 5 holdings.
In the letter, ClearBridge Investments discussed its portfolios. The firm holds stocks like Baker Hughes Company (NASDAQ:BKR). Baker Hughes Company (NASDAQ:BKR) is an oil field services company, headquartered in Houston, Texas. The stock of Baker Hughes Company (NASDAQ:BKR) closed at $25.23 per share on August 3, 2022. One-month return of Baker Hughes Company (NASDAQ:BKR) was -11.38% and its shares gained 20.95% of their value over the last 52 weeks. Baker Hughes Company (NASDAQ:BKR) has a market capitalization of $25.703 billion.
Here is what ClearBridge Select Strategy specifically said about Baker Hughes Company (NASDAQ:BKR) in its second-quarter investor letter:
“Energy has proved a recent source of new ideas. Here we target evolving opportunities, companies with specific drivers toward operating improvement trading at depressed valuations. Pioneer Natural Resources (PXD) fit that narrative in 2020 when we made the oil exploration & production company a core holding. Intra-quarter, it grew into the largest holding in the Strategy. We subsequently trimmed Pioneer to reduce our direct oil exposure and rotated into natural gas with new positions in leading producer Chesapeake Energy (CHK) and drilling, services and technology supplier Baker Hughes Company (NASDAQ:BKR). Energy remains one of the tighter commodity markets on the supply side and is experiencing a sea change from taking Russia out of the market. Europe will become more reliant on U.S. natural gas, which can be sold more profitably there than domestically.”
Baker Hughes Company (NASDAQ:BKR) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database 39 hedge fund portfolios held Baker Hughes Company (NASDAQ:BKR) at the end of the first quarter which was 35 in the previous quarter.
We discussed Baker Hughes Company (NASDAQ:BKR) in another article and shared ClearBridge Investments’ views about the company in the previous quarter. In addition, please check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other leading investors.
Disclosure: None. This article is originally published at Insider Monkey.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
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