Mason Hawkins’ Southeastern Asset Management Keeps Portfolio Largely Unchanged; Made Major Moves in These Stocks

With around $35 billion in assets under management (AUM) (as of 2014), the Tennessee-based Southeastern Asset Management is considered one of the largest hedge funds on the Street. Founded in 1975 by noted value investor Mason Hawkins, Southeastern Asset Management became a global investment management powerhouse in the next three decades with offices in four cities across the world and clients including several reputed institutional investors.

As of December 31, 2016, Southeastern has an equity portfolio worth $10.36 billion, according to its latest 13F filing. According to the filing, during the fourth quarter the firm’s long US equity portfolio had a quarterly turnover of 6.45%, which is low by general hedge fund standards but normal for firms that follow a value-investing approach. Southeastern’s equity portfolio was considerably top-heavy going into 2017 with its top-10 holdings alone amassing 72.5% of the value. In this article, we are going to focus on the five major changes Southeastern Asset Management made during the fourth quarter and analyze the recent performance of those stocks.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 39.7%, topping the 24.1% gain registered by S&P 500 ETFs. Insider Monkey’s enhanced small-cap strategy registered gains of more than 45% over the last 12 months and outperformed SPY by more than 30 percentage points in the last 4.5 years (see the details here).

Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL)

– Shares Held By Southeastern Asset Management (as of December 31): 3.05 Million

– Value of The Holding (as of December 31): $48.46 Million

First up is Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL), in which Southeastern Asset Management lowered its stake by 58% during the fourth quarter. Shares of the Hong Kong-based casino operator have gone nowhere since Southeastern initiated its stake in the company in the fourth quarter of 2015, which can be one of the reasons for the firm to significantly lower its stake in the company. On February 13, prior to the company’s fourth quarter earnings release, analysts at Morgan Stanley upgraded Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL)’s stock to ‘Overweight’ from ‘Equal Weight’ while keeping their price target unchanged at $19. For its fiscal 2016 fourth quarter, the company reported EPS of $0.19, which was in-line with the consensus estimate, on revenue of $1.19 billion, which beat analysts’ estimate by $30 million.

Yum China Holdings Inc (NYSE:YUMC)

– Shares Held By Southeastern Asset Management (as of December 31): 9.04 Million

– Value of The Holding (as of December 31): $236.25 million

Southeastern Asset Management reported a stake in newly-listed Yum China Holdings Inc (NYSE:YUMC) during the fourth quarter. Since its listing in October 17, Yum China Holdings Inc (NYSE:YUMC)’s stock has appreciated by a meager 3.59%. On November 17, the company revealed that it’s in talks to buy Chinese food delivery startup Daojia.com for up to $200 million. Earlier this year, Yum China Holdings announced that its planning to re-launch Taco Bell in China after a decade as part of a plan to open 1,000 international outlets of the fast food chain by 2020. For fiscal 2016 fourth quarter, which was its first quarter as a separate publicly traded entity, Yum China reported EPS of $0.17 on revenue of $1.98 billion, versus analysts’ expectations of EPS of $0.12 on revenue of $1.88 billion.

T. Rowe Price Group Inc (NASDAQ:TROW)

– Shares Held By Southeastern Asset Management (as of December 31): 3.53 Million

– Value of The Holding (as of December 31): $265.44 million

T. Rowe Price Group Inc (NASDAQ:TROW) was also a new entrant in Southeastern Asset Management’s equity portfolio during the fourth quarter. The financial services holding company, like most other financial firms, saw its stock surge after billionaire Donald Trump won the presidential elections in November. However, the stock has given up most of those gains in the current quarter and is trading down 5.53% year-to-date at present. On February 16, the company announced a quarterly dividend of $0.57 per share, which was 5.6% higher than its previous dividend and translates into an attractive forward yield of 3.21% based on its current stock price. At the beginning of this month, analysts at Credit Suisse Group reiterated their ‘Hold’ rating on T. Rowe Price Group Inc (NASDAQ:TROW)’s stock while setting a price target of $62 on it, suggesting a potential downside of 14.67%.

Chesapeake Energy Corporation (NYSE:CHK)

– Shares Held By Southeastern Asset Management (as of December 31): 49.80 Million

– Value of The Holding (as of December 31): $349.61 million

Chesapeake Energy Corporation (NYSE:CHK) has been one of the oldest equity holdings of Southeastern Asset Management, having made its debut in the fund’s portfolio more than 10 years ago, in the second quarter of 2006. However, it seems like a lot of other investors Southeastern Asset Management has also been losing its patience on the beleaguered oil and natural gas producer. Though  Chesapeake Energy Corporation (NYSE:CHK)’s stock has seen a three-fold increase from the lows it made in February 2016, a lot of analysts are recommending investors to use this bounce to come out of the stock. According to them, the high debt levels on the company’s balance sheet coupled with lack of 2018 natural gas production hedge and large CAPEX budget will prevent the stock from appreciating further in the coming quarters.

Level 3 Communications, Inc. (NYSE:LVLT)

– Shares Held By Southeastern Asset Management (as of December 31): 27.95 Million

– Value of The Holding (as of December 31): $1.57 Billion

Southeastern Asset Management continued its practice of marginally reducing its stake in its top equity holding, Level 3 Communications, Inc. (NYSE:LVLT) and sold 228,279 shares of the company during the fourth quarter. Considering that Level 3 Communications, Inc. (NYSE:LVLT) is one of Southeastern Asset Management’s oldest equity holdings and that its stock has more than doubled since 2013, it’s a wise move by the fund to keep on taking some profits off the table. Moreover, after rumors hit that Centurylink Inc (NYSE:CTL) will acquire Level 3 in mid-October, shares of the latter have rose by almost 25%, but are still trading at a considerable discount to the $66.50 per share being offered by Centurylink. Hence, it would be prudent for a long-term investor to reduce the risk of the deal not going through. Currently, the 15 leading analysts and research firms on the Street who track Level 3 Communications have an average rating of ‘Hold’ and an average price target of $63.61 on it.

Disclosure: None