Few investors command as much respect on Wall Street as Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%) CEO Warren Buffett. Although he's not infallible, he's crushed the benchmark S&P 500 on a head-to-head basis, including dividends paid, since taking the reins for Berkshire Hathaway in 1965. Through the end of 2021, Berkshire's Class A shares (BRK.A) had delivered an aggregate return of 3,641,613%, which is over 120 times greater than the 30,209% total return of the S&P 500 over the same stretch.
Suffice it to say that following Berkshire Hathaway's 13F filings with the Securities and Exchange Commission (SEC) and riding the Oracle of Omaha's coattails has been a moneymaking proposition for over a half-century.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
However, not all of Berkshire Hathaway's holdings can be found in its quarterly 13F filing with the SEC. Thanks to the acquisition of reinsurance giant General Re 25 years ago, Buffett's company also owns specialty investment firm New England Asset Management (NEAM). Even though Buffett isn't involved in the investment decisions of this $5.9 billion fund, NEAM is, nevertheless, owned by Berkshire Hathaway. This makes New England Asset Management Warren Buffett's secret portfolio.
What's particularly interesting about Warren Buffett's hidden portfolio is that it's concentrated very similarly to Berkshire Hathaway's investment portfolio. All told, 89% of Warren Buffett's secret portfolio is invested in just five stocks.
Apple: 48.13% of invested assets
If you thought Buffett's investment portfolio at Berkshire Hathaway was heavily concentrated in tech stock Apple (AAPL 1.27%), wait until you get a closer look at his hidden portfolio via NEAM. As of Sept. 30, 2022, Apple accounted for more than 48% of New England Asset Management's nearly $5.9 billion in assets under management.
The lure of Apple is that it's an undeniable moneymaker. It's generated more than $122 billion in operating cash flow over the trailing-12-month period, with exceptional customer loyalty and top-tier innovation acting as the company's lead drivers. Apple's iPhone is its top revenue producer and accounts for about half of all U.S. smartphone share.
Meanwhile, CEO Tim Cook is overseeing a successful shift to a subscription-driven operating model. This services segment offers sustained double-digit annual growth potential throughout the decade.
Additionally, Apple's capital-return program is unrivaled. It's paying out approximately $14.6 billion in dividends each year and has repurchased a whopping $554 billion worth of its common stock over the past decade. These buybacks have had a tangibly positive impact on Apple's earnings per share.
Bank of America: 11.69% of invested assets
Just like Berkshire Hathaway's core investment portfolio, Buffett's secret portfolio has Bank of America (BAC -0.13%) as its second-largest holding.
The reason Warren Buffett and his team love bank stocks so much is because they're perfectly positioned to take advantage of long periods of U.S. economic expansion. Even though recessions are a normal part of the economic cycle, they don't last very long.
As the U.S. economy expands, money-center giants like Bank of America are able to benefit from what I like to call the "bread-and-butter of banking": loan and deposit growth. It may not be sexy from a business standpoint, but growing loans and deposits is what generates a profit for banks and allows them to return capital to shareholders via buybacks and dividends.
Bank of America is also well positioned for the Federal Reserve's aggressive rate hikes. Among large banks, BofA has the highest sensitivity to shifts in the yield curve. With the nation's central bank having no choice but to combat historically high inflation, Bank of America is benefiting from a sizable jump in net interest income.
Image source: U.S. Bank.
U.S. Bancorp: 11.37% of invested assets
Regional banking giant U.S. Bancorp (USB 1.56%) is the third-largest holding in the Oracle of Omaha's hidden portfolio. The company, which is the parent of the more familiar U.S. Bank, accounts for more than 11% of NEAM's investment portfolio.
If there's one factor that helps U.S. Bancorp stand out from the crowd of publicly traded bank stocks, it's the company's digital engagement trends. As of the end of August, 82% of U.S. Bancorp's active customers were banking digitally, with 62% of total sales completed online or via mobile app.
Digital transactions cost banks just a fraction of what in-person or phone-based interactions run. Not surprisingly, this digitization push has helped U.S. Bancorp consistently produce above-average return on assets.
U.S. Bancorp's other secret to success has been its financial discipline. Unlike most money-center banks, U.S. Bancorp has predominantly avoided the riskier derivative investments that sacked its larger peers during the financial crisis. I'll say it again: By focusing on the bread-and-butter of banking, it's been able to consistently outperform.
Chevron: 10.85% of invested assets
Energy stock Chevron (CVX 0.44%) was the biggest buy in 2022 for Warren Buffett's secret portfolio. As of the end of the third quarter, Chevron stacked up as a 10.85% weighting.
Investors currently bullish on Chevron are likely betting on crude oil and natural gas prices to remain elevated for years to come. When Russia invaded Ukraine, it put Europe's supply of these energy commodities into limbo. But the bigger issue might be that the COVID-19 pandemic substantially reduced capital investments in drilling, exploration, and infrastructure for years. This makes it difficult to increase the global oil and gas supply anytime soon, and should provide a relatively safe floor beneath the spot prices of energy commodities.
Another key point with Chevron is that it's an integrated operator. Though it generates its juiciest margins from drilling, Chevron also operates pipelines, chemical plants, and refineries. Chemical plants and refineries are downstream assets that benefit when crude oil prices fall. In other words, Chevron's integrated model allows it to successfully navigate any economic environment.
HP: 6.99% of invested assets
The fifth sizable holding in Warren Buffett's secret portfolio is computing and printing solutions company HP (HPQ 1.55%). As of the end of September, HP accounted for roughly 7% of New England Asset Management's invested assets.
There's no denying that HP's growth heyday is in the rearview mirror. Nonetheless, selling personal computers and printing solutions tends to generate very predictable profits and operating cash flow from one quarter to the next. Further, with HP valued at 8 times Wall Street's forecast earnings in fiscal 2023 and 2024, the argument can be made that there's a safe floor beneath HP's share price.
Mature businesses also have a tendency to put rewarding shareholders at the top of their list. HP returned $5.3 billion to its shareholders in fiscal 2022 (ended Oct. 31, 2022) in the form of dividends and share buybacks. The company, which recently announced a modest increase to its quarterly dividend, is doling out a market-topping 3.8% yield.
