At The Motley Fool, we understand that it often pays to zig when Wall Street zags, but that doesn't mean that we don't pay attention to what leading fund managers are buying and selling. And mutual funds that 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 Securities and Exchange Commission 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.
Q2 2011 update
Chuck Akre founded Akre Capital Management in 1989. This value investor licks his lips during market slumps like these. Here's how he described his ideal investment in a 2007 shareholder letter: "When a high-quality management team is coupled with a high-return business with ample reinvestment opportunities, we have what we have described over the years as a 'compounding machine' -- a business that can compound our capital for long periods of time at an above average rate."
Is Akre really worth following, though? Well ... yeah. According to AlphaClone's backtest simulation, anyone who invested in Akre Capital Management's 10 largest long positions at the time they were disclosed publicly each quarter would have returned 290% since 2001, versus 7% for the S&P 500 (including dividends) as of Sept. 6.
The total market value of Akre Capital Management's disclosed equity holdings as of June 30, 2011 -- the latest quarter for which data is available -- was roughly $540 million across 31 holdings. The fund company's 10 largest positions and associated changes in number of shares held as of June 30, 2011 were:
American Tower (NYSE: AMT ) -- reduced 4.2%.
MasterCard (NYSE: MA ) -- increased 16.5%.
Ross Stores (Nasdaq: ROST ) -- reduced 0.1%.
Enstar Group (Nasdaq: ESGR ) -- increased 2.2%.
Dollar Tree (Nasdaq: DLTR ) -- increased 0.8%.
Markel (NYSE: MKL ) -- reduced 0.4%.
Lamar Advertising (Nasdaq: LAMR ) -- increased 26.4%.
O'Reilly Automotive (Nasdaq: ORLY ) -- increased 21%.
CarMax (NYSE: KMX ) -- increased 61.8%.
FactSet Research Systems (NYSE: FDS ) -- reduced 0.1%.
During the quarter, Akre Capital Management also increased its position in stocks such as Aeropostale and CSX (NYSE: CSX ) . CSX and other railroad companies are drawing investor interest lately as more freight traffic shifts from trucks to less costly trains. In particular, CSX has been posting strong numbers, partly thanks to a big bump in coal volume driven by increased Asian demand.
Akre Capital reduced its exposure to Penn National Gaming, among other stocks, and entirely sold out of others such as NuStar Holdings and Kimberly Clark. Penn has been a strong company, performing well in a tough environment, but Akre likely sees better bargains elsewhere.
Selected Q2 2011 commentary
Akre Capital Management has close to 60% of its assets in the services sector, with financials comprising another 36% of the portfolio, and other sectors barely registering. The allocations haven't changed too markedly over recent quarters.
Here's where the firm is winning, losing, and making new bets now:
Recent winner
MasterCard was a big winner for the company, rising 20% in the quarter. It has been delivering great results over the past year, seeing strong growth in international debit card usage. A recent encroachment onto Visa territory via debit-card hosting deals with SunTrust Banks and Banco Santander (NYSE: STD ) has also proved lucrative. MasterCard has a three-star (out of five) rating at Motley Fool CAPS.
Recent loser
WMS Industries didn't do so well for Akre, dropping more than 13% in the quarter. Demand for its slot machines has flagged, as the gambling industry has been pressured by our struggling economy. WMS plunged more than 20% in the month of August, taking a charge related to a 10% downsizing. The company has a two-star rating in Motley Fool CAPS.
New bets
The largest new addition, Assured Guaranty, comprises less than one percent of the total portfolio. The company surged in April on news of a settlement with Bank of America, but the Motley Fool CAPS community remains skeptical, rating it just two stars.
During the quarter, the company also started new positions in Diamond Hill Investment and Primo Water.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13-F forms can be great places to find intriguing candidates for our portfolios.
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