You may not realize it, but one of the most important data releases of the quarter occurred approximately two weeks ago.
On Nov. 15, institutional investors and hedge funds with at least $100 million in assets under management were required to file Form 13F with the Securities and Exchange Commission (SEC). A 13F provides Wall Street and investors with an under-the-hood look at what the smartest money managers were buying and selling in the previous quarter (i.e., the third quarter). Though 13Fs are a bit dated by the time they're filed with the SEC (holdings are as of Sept. 30, 2021), they still provide valuable clues of what's catching the attention of the world's most successful fund managers.
With the latest round of 13Fs, one thing stands out: billionaires were buying stocks hand over fist. However, they didn't necessarily buy the names you'd expect.
Ken Griffin (Citadel Advisors): Tesla Motors
Billionaire Ken Griffin is a wildly successful investor who's known for extracting big wins from his firms' options positions. But the big story from the third quarter is that Citadel made electric vehicle (EV) manufacturer Tesla Motors (TSLA 3.11%) its largest non-options holding. Griffin's fund bought close to 1.8 million shares of Tesla in the third quarter, increasing its position by 873% from the end of June.
Why Tesla? One logical explanation is that EVs are inevitable. Pretty much every major economic powerhouse worldwide is focused on reducing carbon emissions going forward. Perhaps the easiest way to make a dent in carbon emissions is to push a multi-decade vehicle replacement cycle.
A more likely explanation for Griffin's interest in Tesla is the company's first-mover advantage. Even with an ongoing semiconductor chip shortage, Tesla looks to be on pace to hit 800,000 (or more) EV deliveries in 2021. Further, it could reasonably pace 50% annual delivery growth over the next couple of years as new gigafactories come online. With no other automakers coming close (at the moment) to its combination of battery range, power, and capacity, Griffin likely feels he and his fund can ride this momentum higher.
Jim Simons (Renaissance Technologies): Coca-Cola
For a highly diversified fund known for its love of innovation, the shock of the quarter might just be that billionaire Jim Simons was buying beverage giant Coca-Cola (KO 1.93%) hand over fist. All told, Renaissance Technologies added a little over 6 million shares of Coke in the third quarter, which more than tripled its stake as of the end of June.
With the benchmark S&P 500 taking less than 17 months to double from its coronavirus bear-market bottom, Simons' substantially increased stake in Coke might be a means of playing it safe and hedging his funds' bets. Since Coca-Cola has a presence in all but two countries worldwide (Cuba and North Korea), and its portfolio sports more than 20 brands generating at least $1 billion in annual sales, it's a safe bet to generate modest returns -- or at worst hold up much better than the broader market if a crash or correction strikes.
Coca-Cola is also a relatively smart inflation play. The company is parsing out a hearty 3.1% yield, has raised its base annual dividend for 59 consecutive years, and its well-known brand makes it easy for the company to pass along higher costs to its customers.
David Tepper (Appaloosa): Macy's
In a market dominated by growth stocks, billionaire David Tepper headed to the retail counter in the third quarter and piled into department store Macy's (M 12.14%). Tepper's Appaloosa purchased 3.39 million shares, which lifted the fund's stake to an even 7 million shares.
Scratching your head as to why a successful money manager is buying into an old-school retailer? The answer looks to be Macy's, thus far, solid execution on its three-year Polaris strategy. In no particular order, this strategy includes:
- Closing underperforming stores and reducing corporate and store-level staff to cut expenses.
- Emphasizing digital sales channels, which are a high-growth opportunity for the company until the pandemic ends (and perhaps well after).
- Increasing customer engagement through its loyalty rewards program.
- Focusing its efforts of a small number of higher-margin private brands.
Although Macy's has challenges to overcome, such as continuing to pay down more than $6 billion in debt, the initial results show its digitization and branding efforts are paying off. The company ended September with 4.4 million new customers, up 28% from the comparable period in 2019 (i.e., before the pandemic). Additionally, 33% of net sales derived online, up from 23% in Q3 2019. If these arrows continue to point higher, Tepper may have found himself a bargain.
Israel Englander (Millennium Management): AT&T
Like Ken Griffin, billionaire Israel Englander is a big fan of utilizing put and call options to maximize returns for his fund, Millennium Management. However, the big buy in the third quarter was stodgy telecom giant AT&T (T -3.79%). Englander's fund bought up close to 11.2 million shares, which increased its stake by 165% from the sequential second quarter.
Similar to Coca-Cola, buying AT&T is a play on value and stability in a very pricey market. For the time being, it's paying out an inflation-topping 8.6% yield and can be purchased for a little north of 7 times Wall Street's estimated earnings per share this year.
But what might have wet Englander's whistle is AT&T's plan to spin off its content arm, WarnerMedia, and combine it with Discovery. Combining forces will save more than $3 billion in annual costs and vastly improve original and sports programming options for streaming customers. Most importantly, it'll allow AT&T to reduce its debt (and its dividend, as well) and focus on growing its wireless business with the ongoing rollout of 5G infrastructure.