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 are rarely in lockstep with the broader market, can be a particularly valuable source of insight.
Every quarter, fund managers managing 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 held by the manager at the end of the quarter. While the form does not disclose the manager's short positions or the manager's intra-quarter trades, it can shine a bright light onto 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
Charles Brandes is the founder and chairman of Brandes Investment Partners, a firm established in 1974. He manages equity and fixed-income assets for institutional and private clients worldwide. Brandes is a believer in value investing based on exhaustive company research, ascertaining the intrinsic value and setting a price target with a three-to-five-year horizon.
The total market value of Brandes Investment's disclosed equity holdings as of Dec. 31, 2010, was $15.1 billion across 171 holdings. Here's a chart showing the portfolio's industry allocations:
The fund's 10 largest positions by number of shares held and associated changes, as of Dec. 31, were:
(NYSE: TEL)-- reduced 8.1%
(NYSE: PFE)-- reduced 7.4%
Centrais Eletricas Brasileiras
(NYSE: EBR)-- reduced 2.1%
(NYSE: CX)-- reduced 0.6%
(Nasdaq: MSFT)-- increased 4.2%
(NYSE: VLO)-- reduced 6.5%
Telefonos De Mexico
(NYSE: TMX)-- reduced 1%
(NYSE: PBR)-- increased 21.5%
(NYSE: CHK)-- increased 17.1%
(NYSE: T)-- reduced 7.8%
During the quarter, the fund added to its positions in Microsoft, Petroleo Brasileiro, and Chesapeake Energy. On the sell side, the fund saw fair-sized reductions in Tyco Electronics, Pfizer, Centrais Eletricas Brasileiras, Valero Energy, and AT&T. Apart from these, there have been several other reductions in the portfolio.
Copying Brandes Investment
Is it worth paying attention to Brandes' moves? According to AlphaClone's backtest simulation, an investor who invested in Brandes Investment's 10 largest holdings at the time they were disclosed publicly each quarter would have returned 22.1% since 2000, versus 9.5% for the S&P 500 (including dividends) as of March 21. Here's a chart showing AlphaClone's backtest model:
The strategy above buys/sells its holdings each quarter, five trading days after the SEC's filing window for Form 13F closes.
Selected Q4 2010 commentary
Brandes Investment has a diversified portfolio with almost equal focus on the services, technology, and financial sectors. As per the latest filing, the services sector comprised 22.6%, technology 20%, and financials 17.1% of the portfolio. In 2010, Brandes steadily increased exposure to the energy sector, from 6.5% in the first quarter to 12.4% in the fourth quarter.
Among the top 10 holdings, Valero was the largest gainer, with a 32% quarterly rise in its stock as of Dec. 31. The stock comprises 2.5% of the total portfolio -- a good chunk given that there are 171 total positions. Valero operates as an independent petroleum refining and marketing company. In 2010, the company reported total revenue of $81.3 billion and a net profit of $324 million. The stock also has a top five-star rating in Motley Fool CAPS.
Cemex, 2.8% of the portfolio, was up 26% quarter-to-quarter as of Dec. 31. Cemex engages in the production, marketing, distribution, and sale of cement, ready-mix concrete, aggregates, and other construction materials. In 2010, the company reported total revenue of of $14.9 billion and has a four-star rating in Motley Fool CAPS.
Sumitomo Mitsui Financial Group
Some of the portfolio's other new bets include Ingram Micro, People's United Financial, The Jones Group, and China Mobile.
So there you have it: the blow-by-blow of Brandes Investment's latest moves, and why it can matter to your portfolio. Tell us what you think in the comments 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.
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.
Microsoft, Pfizer, and Tyco Electronics are Motley Fool Inside Value picks. China Mobile is a Motley Fool Global Gains recommendation. Petroleo Brasileiro is a Motley Fool Income Investor selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of China Mobile, Microsoft, and Petroleo Brasileiro. Motley Fool Alpha LLC owns shares of Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.