High Intensity Players Flamed Out In Fourth Quarter

Lackluster portfolio performance was the common denominator for high energy operators past several months. Top picks among 10 largest positions, detracted, not added to value. Turnover remained on the high side (over 50%) which I regard as a sign of weakness. It didn’t matter much whether in a growth or value construct.

My guess is that March quarter results, again will disappoint. Too many upsets in mega-cap growthies like Netflix, Meta Platforms, Tesla, et al. Meanwhile, stodgy properties like Exxon Mobil are leggy, up some 35% since yearend and still yields 4.5%. Maybe, there’re a handful of widows and orphans still holders of this property.

Meanwhile, Rivian Automotive, the electronic truck maker backed by Amazon and players like George Soros, trades at a third of its 52-week high. It’s numero uno in the Coatue Management portfolio, a 16% weighting. Coatue shows a low static ratio for its portfolio, at 16%. Tesla is second largest holding in this $22.5 billion fund so 23% is tied to electronic vehicles. Volatility herein, which includes Moderna as third largest property, requires a stout heart and nerves of steel. Not my cup of tea. I’m a coward.

Let’s contrast Coatue with Berkshire Hathaway where portfolio turnover remains minimal. Apple reigns as a 42% position, but just 5.4% of Apple’s market capitalization. Berkshire’s static ratio at 65.9% for its portfolio remains consistently high. They’ve inventoried American Express, decade after decade (50 years?).

Few portfolios hold consistently high static ratios. One belongs to Icahn, over 57%, and Paulson & Co. at 72%, but this is just a $3.2 billion list. Pershing Square gets the palm at 83.3%. I like the way they manage money. Positions mainly in low volatility value names like Lowe’s, Hilton Worldwide, Chipotle, Restaurant Brands, Domino’s Pizza and Howard Hughes are all long-term holdings.

Tiger Management also hangs in with a 61% static ratio, but it’s in highly volatile properties that except for Microsoft are difficult to define and analyze. I’m talking here about JD.com, Sea Ltd., Northwest Natural Holdings, Snowflake and Door Dash. On a $46 billion portfolio, shrinkage for the December quarter ran over $6 billion. I need my 8 hours sleep so I pass on Tiger. Broadly, I pass on volatility unless you see a new bull market coming around the bend.

I’ve spent past several months tamping down on volatility. Alibaba is gone along with Meta Platforms, Amazon, Ford Motor and Goldman Sachs. I’m inventorying some Exxon Mobil and a bunch of high-yielding MLPs like Enterprise Products Partners, Energy Transfer Partners and Williams Companies. I threw U.S. Steel out the window and bought more UnitedHealth Group and Zoetis, recession resistant growthies.

Among Citadel’s top 5 holdings you find AT&T, Amazon, Meta Platforms, Alphabet and Nvidia, still 100 points below its 52-week high. Citadel’s portfolio turnover was close to 100%.

Berkshire Hathaway rises or falls based on its Apple position, 47.5% of assets and over 20% of assets concentrated in financials. Buffett’s 50-year record entitles him to act out, but past decade there have been 5-year stretches of underperformance. Nobody’s perfect. These days, a gutsy money manager with 5 years of underperformance would see his asset base badly eroded.

I’d note Appaloosa’s largest positions embrace Alphabet, Meta Platforms, Macy’s, Micron Technology, Amazon and Occidental Petroleum. I bought Macy’s in single digits then sold it in high twenties. It was no longer a ragamuffin in purgatory. Still a hot recovery spec. In our business you gotta be early or suffer the consequences.

I don’t know how they do it, but T. Rowe Price Associates which years ago was a toney growth stock house, turned over its entire portfolio past quarter. Top positions, 20% of assets are solely in big cap growthies starting with Microsoft, Amazon, Alphabet and Meta Platforms. At least they’re consistent but in a down market, inherent volatility in these issues could be a killer.

Millennium Management, a $90 billion house follows on the path of T. Rowe Price - Apple, Tesla, Amazon, et al. This portfolio keeps positions hardly over 1%, but its static ratio is just 4.7%. If as an investor I wanted this kind of portfolio mix, I’d buy the NASDAQ 100 Index and keep my fingers crossed. The issue, of course, is whether you’re bent on buying volatility now and overtrading.

What am I not seeing in such volatile portfolios? Well, nobody’s inventorying energy properties. Everyone except Buffett is light in financials. Nobody seems to have caught the year ago upturn in deep cyclicals like Alcoa, U.S. Steel, Freeport-McMoRan, et al.

For me, interest rates rest much too low for comfort because it raised price-earnings ratios into historic high ground. For me, the market doesn’t deserve its multiplier. Viscerally, I feel all of us face a valuation contraction that’s more than minimal.

Pershing Square gets my nod for its low-pressure value picks like Lowe’s and Hilton Worldwide. Top half dozen positions comprise nearly all its capital commitments. Let’s wish ‘em luck and pesetas on the Netflix buy, that streaming entertainment features isn’t overcrowded with high intensity operators.

My takeaways focus on where money managers may lose control. Many players look overweighted in highly volatile paper. Amazon, Tesla, Alphabet, for instance. Same guys pretty much missed playing the recovery in cyclicals last year, as well as oil stocks while futures doubled from $45 a barrel to $90 a barrel. Same guys are light in healthcare and pharma. Why?

Not the time to believe in America all 365 days out of the year.