13Fs: Nobody, Anymore, Makes Love In The Primary Position
Dozens of portfolios run by high energy overachievers, again left me cold in their results. Not that the market dwelled on Easy Street. Tech houses were treated with no respect. GDP properties like autos, chemicals and other industrials churned lower and financials flamed out.
Best call was hiding in noncyclicals like drugs, healthcare and food purveyors. UnitedHealth Group, biggest weighting in the Dow Jones 30, was a buoyant property. Banks like JPMorgan Chase took gas along with prime industrials such as Caterpillar. Why should it be easy to manage money in a setting of high inflation, rising interest rates and a Federal Reserve Board still late getting into its tightening posture?
Unless you were overweighted in energy, chances of outperforming the market were nil. Since yearend, Exxon Mobil, the prime energy play, has moved up from $60 to mid-nineties. You didn’t need a computer geek to analyze it, either. Just make a call on oil pricing, collect your dividends. I rest in my bed filled with oil stocks like Exxon, selling at 10 times earnings.
Let someone else figure out Meta Platforms, Amazon, Alphabet, Tesla and Netflix. The analyst fraternity following such tech pretties missed on second quarter earnings calls but sticks stubbornly committed to their picks. But, in every down-market going back to the 1960s tech as a stock group got destroyed. Actually, any property selling at 2 times the market multiplier was cut in half or worse. I’m going back to the deep recession period of 1973 - ‘74 when even polite stocks like McDonald’s, Walt Disney, Hewlett-Packard, Coca-Cola and Merck witnessed sizable shrinkage in valuation, more than 50%.
Appaloosa Management is a good place to start because it’s big, bold and indicative of how a major operator can lose its way. This is a $1.5 trillion house which showed almost total portfolio turnover in the June quarter. Poor performance is consistent with high turnover. Currently, Alphabet, Meta Platforms and Amazon comprise a third of portfolio assets, too.
Actually, I like a couple of their holdings, particularly Macy’s and Energy Transfer Partners which I own, too. But, the portfolio rises or falls on 3 internet properties which I find impossible to model.
If Warren Buffett does over-concentrate why not anyone else? Properties concentrated in Berkshire Hathaway’s portfolio, namely Apple and Occidental Petroleum, range over 60% of assets but at least are readily analyzable. Still, better be right or suffer dire consequences in performance. The static ratio for Berkshire’s portfolio remains very high, over 72%. Nearly 60% of assets rest in 3 stocks, with Apple over 40%. They don’t teach you such asset allocation in MBA school.
Citadel Advisors, a $70 billion house is at the other end of the turnover spectrum, nearly 100% for the June quarter. This is a trader house that seems problem ridden. I can’t find any theme here, starting with Meta Platforms, a 1% position. Maybe it’s just growth-at-any-price orientation.
Lemme cite one portfolio, of $1.3 billion, with a moderate turnover ratio, namely, Greenlight Capital. Hardly recognize any portfolio positions. Top 3 are Green Brick Partners, Brighthouse Financial and Atlas Air Worldwide Holdings. This is another world for me. I’m busy deciding weighting for energy plays. Should it be a 30% or 40% concentration? They’re in a different business so I wish ‘em luck and pesetas.
More familiar ground, Carl Icahn’s holdings, always a high static ratio at 62.5%. Carl is a confirmed value player, holding several energy stocks. I own Occidental, too, but know next to nothing about Cheniere Energy, CVR Energy and FirstEnergy. I pass on Xerox, Newell Brands, Welbilt and Dana. For anyone wanting an aggressive value player with a great long-term record - go to Carl.
I’m seeing a much-repeated portfolio construct in Lone Pine Capital, a $10 billion asset house. Put 30% of assets in 3 or 4 big cap tech names and then diversify into value paper like Visa, MasterCard, and UnitedHealth Group. Gives you good coverage in growth and value sectors. But, note their static ratio is just 20%. Where’s the conviction to be a long-cycle player?
What I’m not seeing, aside from Icahn, is anyone concentrating heavily in oil, financials, even healthcare. There are a bunch of huge houses like Millennium Management with no more than 1% positions, low static ratios and no perceptible theme embracing their holdings. Tesla and Apple, for example, comprise just 1% of portfolio assets, Microsoft at 0.37%. Are these guys traders or serious long-cycle players?
At least, in Pershing Square Capital Management you know what you’re looking at. This is a non-tech portfolio with 24% of assets in Lowe’s and most else in the food service sector, namely Chipotle Mexican Grill, Restaurant Brands International and Domino’s Pizza. As far away from technology paper as you can get. No new positions here. Lowe’s could be dead paper if mortgage rates keep rising.
Soros Fund Management I find notably diversified, but 10% of assets remain in Rivian Automotive, the emerging electric car play still a couple of years away from profitability. This is the kind of stock where you stick close to management, hopeful they’ll give Tesla a run for the money. They’re bankable while gearing up production capacity next couple of years, an unfolding story stock.
How manage a goliath like T. Rowe Price Associates, around practically forever with nearly $800 billion in assets? I wouldn’t do much so differently. They’ve got over 20% of assets in big cap technology. Names are familiar - Microsoft, Amazon, Alphabet and Apple at 18% of assets, but a somewhat lesser weighting than the technology sector in the S&P 500. Rowe looks light in financials but covers healthcare. UnitedHealth Group is its 5th largest position, a big winner. As a passive investor you could feel relatively comfortable with T. Rowe’s portfolio management construct.
Is Third Point Management allergic to technology? This $3.7 billion portfolio is pretty much a defensive construct. PG&E and Danaher, a bio pharma play, comprise 33% of assets with UnitedHealth another 7.8%. This is aggressive money management with concentration in non-cyclicals. If the economy goes downhill, a good place for capital to rest in.
Tiger Global Management’s still turning over its portfolio with a static ratio of just 17%. JD.com, its biggest position, at 16% of assets, traded over par not so long ago, but now ticks in mid-fifties, tracing a classic bearish head-and-shoulders pattern past 18 months. I pass on Tiger - still a gunslinger.
Finally, stolid Exxon Mobil pops up in Renaissance Technologies’ portfolio. This $84 billion portfolio is basically a quant operation with total turnover and just a handful of positions at 1% of assets, including Apple and Microsoft. Not my cup of tea.
Overall, most portfolios still overweighted in technology and the internet. You don’t need a portfolio manager if this is your bias. Just buy the NASDAQ 100 Index. Reciprocally, almost all managers turned up their noses on energy. Exxon Mobil for example is practically a double past 12 months. Aside from Icahn and now Warren Buffett with his 20% plus position in Occidental Petroleum going to 50%, nobody got oil aggressive. Occidental is also a double. These operators need to re-learn how to make love in the primary position. Good for your health.