Mysterious Billionaire David Abrams Reveals Top Picks; Western Union Company (WU) Retains Top Spot

Billionaire David Abrams currently manages Abrams Capital Management LP, a Boston-based hedge fund he founded in 1999. Mr. Abrams has never been seen speaking at investment conferences or any other events open to the public, but he has generated “loud” returns for his investors over the years. The introvert hedge fund manager had worked at Seth Klarman’s Baupost Group LLC, one of the largest hedge fund vehicles in the world, before starting his own shop. Abrams Capital Management is effectively a one-man shop, as the multi-billion-dollar asset manager has only a few employees around. The firm’s investment strategy takes a value-oriented approach to investing, usually managing a concentrated portfolio for a long-term horizon without using any leverage. Abrams Capital is seen as a “quiet fund” that delivers “loud returns”, so the only way retail investors can get a glimpse into the fund’s investment strategy is by examining the firm’s quarterly 13F filings. So let’s have a look at Mr. Abrams’ five largest equity holdings as of the end of the first quarter of 2016.

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#5. Time Warner Cable Inc. (NYSE:TWC)

– Number of shares owned by Abrams Capital Management as of March 31: 661,000

– Value of Abrams Capital Management’s holding as of March 31: $135.25 Million

Abrams Capital Management owned 661,000 shares of Time Warner Cable Inc. (NYSE:TWC) at the end of the March quarter, which were valued at $135.25 million at quarter-end. This equity position did not suffer any adjustments during the first three months of the year and accounted for 6.4% of the hedge fund’s entire portfolio on March 31. Just recently, Charter Communications Inc. (NASDAQ:CHTR) announced the completion of its acquisition of Time Warner Cable and Bright House Networks LLC, which created the second-largest broadband provider in the U.S. and the third-largest pay TV provider. Time Warner Cable shareholders could choose to receive either $100 in cash and shares of New Charter Class A shares equivalent to 0.5409 shares of Charter Class A shares or $115 in cash and shares of New Charter equivalent to 0.4562 shares of Charter. The newly-formed company will have a tumultuous period ahead as it has to integrate three companies into one whole amid increased competition from online video services providers. John Armitage’s Egerton Capital Limited had 4.84 million shares of Time Warner Cable Inc. (NYSE:TWC) in its portfolio at the end of March.

#4. Manitowoc Foodservice Inc. (NYSE:MFS)

– Number of shares owned by Abrams Capital Management as of March 31: 11.26 Million

– Value of Abrams Capital Management’s holding as of March 31: $165.90 Million

The Boston-based hedge fund reported a new position of 11.26 million shares in Manitowoc Foodservice Inc. (NYSE:MFS) through the latest round of 13Fs, which was worth $165.90 million on March 31. Earlier this year, Manitowoc Company Inc. (NYSE:MTW) completed a tax-free spin-off of its former foodservice business into an independent company called Manitowoc Foodservice, so most shares of Manitowoc Foodservice owned by Mr. Abrams were received pursuant to the spin-off. Abrams Capital owned 8.74 million shares of MTW at the beginning of the year, as revealed by a 13G filing submitted in mid-January. Manitowoc Company shareholders received one share of MFS for each share of MTW. Nonetheless, the Boston-based asset manager sold out its entire stake in Manitowoc Company by the end of the March quarter, which makes us believe Mr. Abrams and his small-sized team were mostly interested in the foodservice business rather than Manitowoc’s Cranes business. Carl Icahn’s Icahn Capital LP owns 10.58 million shares of Manitowoc Foodservice Inc. (NYSE:MFS) as of March 31.

#3. Microsoft Corporation (NASDAQ:MSFT)

– Number of shares owned by Abrams Capital Management as of March 31: 4.98 Million

– Value of Abrams Capital Management’s holding as of March 31: $275.05 Million

David Abrams’ hedge fund left unchanged its equity position in Microsoft Corporation (NASDAQ:MSFT) during the first three months of 2016 at 4.98 million shares, which were valued at $275.05 million on March 31. The untouched position amassed 13.0% of Abrams Capital’s portfolio at the end of March. Earlier this week, Microsoft announced the sale of its feature phone business for $350 million to Foxconn’s subsidiary FIH Mobile Ltd. and HMD Global. The deal also involves the sale of Microsoft’s mobile manufacturing facility in Vietnam. Microsoft’s decision to abandon the cell phone unit may enable the Nokia brand to make a return to the mobile device market, after losing value in recent years. The tech giant acquired Nokia’s once-powerful business in 2014 for a stunning $7.2 billion, so the deal wasn’t overly successful considering the $350 million-sale price. Microsoft shares are down 8% since the start of 2016. Ken Fisher’s Fisher Asset Management is the owner of 18.22 million shares of Microsoft Corporation (NASDAQ:MSFT) as of the end of the first quarter.

#2. Franklin Resources Inc. (NYSE:BEN)

– Number of shares owned by Abrams Capital Management as of March 31: 7.95 Million

– Value of Abrams Capital Management’s holding as of March 31: $310.25 Million

Abrams Capital Management upped its position in Franklin Resources Inc. (NYSE:BEN) by 2.67 million shares or approximately 50% during the first quarter of 2016 to 7.95 million shares. The increased stake was worth $310.25 million on March 31 and constituted 14.7% of the fund’s portfolio. The financial performance of the global investment management organization has been hurt by a sustained decline in assets under management. The company’s AUM at the end of March were $742.6 billion, down 4% from the AUM figure recorded at the end of September and 16% lower year-over-year. Precisely, Franklin Resources has been impacted by rapidly-growing customer demand for low-fee passive investment products such as exchange-traded funds, which are favored by the investment community at the expense of Franklin’s and other firms’ mutual funds. Even so, Franklin Resources plans to expand its product portfolio to include ETF products as well. Shares of Franklin Resources are 3% in the red year-to-date. Ric Dillon’s Diamond Hill Capital reported ownership of 5.88 million shares of Franklin Resources Inc. (NYSE:BEN) in its latest 13F.

#1. The Western Union Company (NYSE:WU)

– Number of shares owned by Abrams Capital Management as of March 31: 21.61 Million

– Value of Abrams Capital Management’s holding as of March 31: $416.83 Million

The Western Union Company (NYSE:WU) retained the top spot as the largest equity holding in Abrams Capital’s equity portfolio. The Boston-based asset manager did not sell or buy any shares of Western Union during the March quarter, remaining with a stake of 21.61 million shares valued at $416.83 million on March 31. Mr. Abrams’ largest equity position accounted for 19.7% of his fund’s portfolio on March 31. The provider of money movement and payment services has seen its market value gain 6% since the beginning of the year. The company’s consolidated revenues for the first quarter of 2016 dropped 2% year-on-year to $1.30 billion. The decrease in Western Union’s top-line figure was mainly driven by the strengthening of the U.S. dollar against foreign currencies, which impacted the revenue figure by 5% despite having foreign currency hedges in place. The decrease was partly offset by higher number of transactions in the company’s Consumer-to-Consumer business. John W. Rogers’ Ariel Investments owned 7.77 million shares of The Western Union Company (NYSE:WU) at the end of March.

Disclosure: None