At The Motley Fool, we understand that it often pays to zig when Wall Street zags. Still, that doesn't mean we blithely ignore what leading fund managers are buying and selling. And hedge funds, which aren't always in lockstep with the broader market, can be a particularly valuable source of insight.
Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing SEC Form 13-F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets. To help us make use of 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that tracks hedge fund public disclosures and develops investment strategies based on them.
Q4 2010 update
Mason Hawkins is the chairman and CEO of Southeastern Asset Management, a firm established in 1975. Hawkins and his partners are value investors. Their investment decisions are based on strong balance sheets, capable management, and stocks trading for less than their intrinsic value. The total market value of Southeastern Asset Management's disclosed equity holdings for the quarter ended Dec. 31, 2010, was $24.5 billion across 43 holdings. Here's a snapshot of the portfolio's industry allocations.
The fund's 10 largest positions and associated changes in number of shares held as of Dec. 31 were:
- Chesapeake Energy (NYSE: CHK ) -- increased 0.9%.
- DirecTV Group (Nasdaq: DTV ) -- reduced 10.4%.
- Dell (Nasdaq: DELL ) -- increased 2.5%.
- Yum! Brands (NYSE: YUM ) -- reduced 8.5%.
- Cemex (NYSE: CX ) -- reduced 0.9%.
- Walt Disney (NYSE: DIS ) -- reduced 19.1%.
- Pioneer Natural Resources -- reduced 19.4%.
- Aon -- reduced 1.4%.
- Liberty Interactive -- reduced 2.1%.
- 0. Bank of New York Mellon -- increased 7.0%.
Aside from the top 10 holdings, during the quarter the fund added to its positions in Loews, Vulcan Materials, and Markel, among others. On the sell side, the fund reduced its exposure in Telephone & Data Systems, Ruddick, and Diageo (NYSE: DEO ) , and it sold out of two positions: Shanda Games and InterContinental Hotels.
Following Hawkins' lead
Is it worth paying attention to Mason Hawkins and his Southeastern Asset Management fund? According to AlphaClone's back-test simulation, anyone who invested in Southeastern's 10 largest holdings at the time they were disclosed publicly each quarter would have returned 90.5% since 2000, versus 9.4% for the S&P 500 (including dividends) as of March 23. Here's a look at AlphaClone's back-test model:
The strategy above buys and sells its holdings each quarter, five trading days after the SEC's filing window for Form 13-F closes.
Selected Q4 2010 commentary
Southeastern Asset Management has big chunks of its portfolio invested in the services, financial, and energy sectors, which make up 31.1%, 19.9%, and 13.1% of assets, respectively. Other significant sectors include technology (9.9%) and capital goods (9.8%). Following is where the firm is winning and losing currently and making new bets.
Current winner
Pioneer Natural Resources was up 33.5% in the fourth quarter of 2010. The stock comprises 4.5% of the total portfolio, a healthy allocation considering that the firm's No. 1 holding comprises 8.6% of the total. Pioneer operates as an independent oil and gas exploration and production company. With reported revenues of $1.8 billion in 2010 and a TTM price-to-earnings ratio around 20, the stock has a three-star (out of five) rating at Motley Fool CAPS.
Current loser
DirecTV Group was a loser last quarter, with a 4% decline in price. The company is one of the biggest providers of digital television entertainment in the United States and Latin America. DirecTV reported total revenue of $24.1 billion in FY 2010 and has a two-star rating in Motley Fool CAPS.
New bets
The largest new addition, News Corp., comprises 3.2% of the total portfolio. News Corp. is the world's second-largest media conglomerate. The company has a market capitalization of $45.6 billion, with revenues of $33.1 billion over the past 12 months. The stock is trading at a TTM price-to-earnings ratio of 14.3 and has a three-star rating at Motley Fool CAPS.
During the quarter, the fund also started new positions in Vail Resorts and Lockheed Martin.
So there you have it -- the blow-by-blow of Southeastern Asset Management's latest moves and why it can matter to your portfolio. Tell us what you think in the comments section below.
Company data provided by AlphaClone LLC, a San Francisco-based research and investment-management firm that tracks hedge-fund public disclosures. For more information on the firm's investment approach, visit AlphaClone.
IMPORTANT DISCLOSURES FOR BACKTEST PERFORMANCE RESULTS
Backtesting is the process of evaluating a core strategy by applying it to historical data. Backtested performance results are provided for purposes of illustrating historical performance had a core strategy had been available during the relevant period. Backtested performance results are hypothetical and have inherent limitations. AlphaClone makes no representation that any core strategy will achieve performance similar to any backtested performance results. Actual results could differ materially from backtested performance and future results could differ materially from backtested performance. Past performance is no indication or guarantee of future results.
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