With endowments exceeding $44 billion at the end of 2014, the Bill & Melinda Gates Foundation Trust is the largest charitable organization in the world. Some of that money is invested by Michael Larson on behalf of the foundation, with a focus on the public equity and fixed income markets. The trust’s equity portfolio carries a market value of approximately $16.6 billion and consists of only 18 stocks, one of them accounting for 59% of the portfolio. Insider Monkey calculates a fund manager’s stock picking ability by looking at the weighted average returns of his or her long positions in companies with a market cap that exceeds $1 billion, based on the size of those positions at the beginning of each quarter. According to this metric, the Bill & Melinda Gates Foundation Trust’s qualifying stocks registered a loss of 11.8% in 2015, while Jeffrey Ubben‘s ValueAct Capital, whose equity portfolio carries a similar value, managed a positive return of 1% during the same period. In this article we’ll take a look at the changes Michael Larson has made to the Trust’s portfolio in an effort to return it to positive gains in 2016.
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There were only two changes made to the Trust’s equity portfolio during the fourth quarter with one of them being the closing of its stake in BP plc (ADR) (NYSE:BP). As of the end of the third quarter, the Trust reported ownership of 6.13 million shares of the oil giant, then valued at a little over $187 million. Like most every other oil company, BP plc (ADR) (NYSE:BP) was harshly affected by the current weakness in the oil market, having reported a loss of $2.2 billion for the fourth quarter. Revenue fell by 35% to $49.2 billion, while adjusted earnings stood at $0.06 per share. In October 2015, the U.S. Department of Justice slapped BP plc (ADR) (NYSE:BP) with a $20.8 billion fine for the 2010 Deepwater Horizon oil spill, taking the reparations “bill” for the disaster to more than $54 billion.
The other portfolio change consists of the sale of 5.00 million shares of Berkshire Hathaway Inc. (NYSE:BRK.B), which have been regularly donated by Warren Buffett as a form of contribution to the Bill and Melinda Gates Foundation. The investment trust now holds roughly 74.4 million class B shares of Buffett’s holding company, worth $9.82 billion at the end of 2015. Being managed by Warren Buffett did not help Berkshire Hathaway Inc. (NYSE:BRK.B) avoid the recent market selloffs, with the stock having ended 2015 down by roughly 13% and contributing greatly to the Trust’s poor stock picking performance for the year. Berkshire recently completed the acquisition of Precision Castparts, a maker of aerospace and other parts, after regulators from the European Union gave it the green light. Including the company’s debt, the deal is valued at approximately $37.2 billion, the largest acquisition in the history of Berkshire Hathaway Inc. (NYSE:BRK.B). This is the latest step in Buffett’s strategy of broadening the company’s horizons and diversifying beyond the financial and insurance businesses.
Thanks to its relatively good stock performance, Waste Management, Inc. (NYSE:WM) is now the Trust’s second-largest position. The Gates Foundation Trust continues to hold 18.60 million shares worth approximately $994 million. Waste Management, Inc. (NYSE:WM) released its fourth quarter financial figures today, providing mixed results. Revenue fell by 3.3% to $3.25 billion, below the Street’s expectations of $3.28 billion. Adjusted earnings came in at $0.71 per share, surpassing analysts’ estimates of $0.68 per share. Although Waste Management, Inc. (NYSE:WM) opened lower today, it quickly regained the lost ground and is currently trading around the $95 level, up by 4.5% year-to-date.
Despite a lousy year and a 19% slide in value, Larson and his team left their investment in Canadian National Railway (USA) (NYSE:CNI) untouched. The investment trust holds 17.1 million shares, valued at $957 million at the end of December. One reason for holding the stock might be Canadian National Railway (USA) (NYSE:CNI)’s recent plans to buy back its stock. At the end of October 2015, the company’s Board of Directors approved the buyback of up to 33 million shares, approximately 5% of the total number of shares outstanding. Canadian National Railway (USA) (NYSE:CNI) also pays an annual dividend of $0.97 per share, providing shareholders with a yield of 1.70%.
Larson and his team seem to have been confident that Caterpillar Inc. (NYSE:CAT) was poised for a comeback, having refrained from altering their position in the company, which amounts to 11.30 million shares worth $765 million at the end of 2015. Similar to the other stocks discussed above, Caterpillar Inc. (NYSE:CAT) pays shareholders an annual dividend, amounting to $3.01 per share, providing a juicy 4.5% yield. The recent slump in commodity prices and slow economic growth have reduced demand for the company’s heavy machinery, as sales dropped by 23% during the fourth quarter to $11.03 billion. Caterpillar Inc. (NYSE:CAT) also reported a loss of $87 million for the period. However, when adjusted for restructuring costs, earnings stood at $0.74 per share, above expectations of $0.69 per share. Those numbers provided a boost for the stock, with it having rallied by 15% since the earnings report was issued.