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 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
Chuck Akre is the founder of Akre Capital Management. Chuck is extremely selective about his stocks and his strategy for selecting companies is focused on the classic value approach. He selects companies with strong business models, consistent earnings growth, and have sound corporate governance.
The total market value of Akre Capital Management's disclosed equity holdings for the quarter ended Dec. 31, 2010, was $457 million across 33 holdings. Here's a chart showing the portfolio's industry allocations:
The fund's 10 largest positions and associated changes in share counts as of Dec. 31 were:
(NYSE: AMT)-- increased 20%
(Nasdaq: LAMR)-- increased 0.1%
(NYSE: MKL)-- increased 0.4%
(Nasdaq: ESGR)-- increased 17.1%
(Nasdaq: ROST)-- new
(Nasdaq: DLTR)-- increased 0.4%
(NYSE: MA)-- increased 133.1%
(Nasdaq: ORLY)-- new
(NYSE: KMX)-- increased 0.1%
Factset Research Systems
(NYSE: FDS)-- no change
On the sell side, the fund sold out of five stocks -- WR Berkley, Carters, Greenlight Capital, ExxonMobil, and Franklin Street Properties.
Copying Akre Capital Management
Is it worth paying attention to Akre Capital Management's moves? According to AlphaClone's back-test simulation, anyone who invested in Akre Capital Management's 10 largest holdings at the time they were disclosed publicly each quarter would have returned 279.4% since 2001, versus 15.2% for the S&P 500 (including dividends) as of March 23. Here's a chart showing AlphaClone's back-test model:
The strategy above buys/sells its holdings each quarter, five trading days after the SEC's filing window for Form 13-F closes.
Selected Q4 2010 commentary
Akre Capital focuses primarily on the services sector, which constitutes 59% of the total portfolio. At 35%, financials make up most of the rest of the portfolio. Here's where the firm did well in the fourth quarter, and where it's making big new bets.
Lamar Advertising increased 25% in the quarter ended Dec. 31. Lamar Advertising provides outdoor advertising services in the United States, Canada, and Puerto Rico. This single company makes up 10.8% of Akre's portfolio. Lamar reported revenue of $1.1 billion for 2010. The Fool investing community isn't behind Lamar, though; it has a one-star rating (out of five) in Motley Fool CAPS.
Ross Stores is the biggest new addition to the portfolio (7.8% of total). Ross, which runs off-price retail and home accessory chains, notched 2010 sales of $7.86 billion. The stock is trading at a price-to-earnings ratio around 16 and has three-star rating in Motley Fool CAPS.
O'Reilly Automotive, a specialty retailer of automotive aftermarket parts and more, is the second-largest addition, comprising 6.3% of the portfolio. O'Reilly has more than 3,500 stores in 38 states. In January, the company successfully refinanced its debt. The community's sentiment is mixed on O'Reilly; it has a three-star rating in Motley Fool CAPS.
The other significant new bets include another discount retailer, TJX Companies, as well as gaming stocks Penn National and WMS Industries.
So there you have it: the blow-by-blow of Akre Capital Management's latest moves, and why they 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, click here to 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.
Markel is a Motley Fool Inside Value recommendation. American Tower and FactSet Research are Motley Fool Rule Breakers picks. Enstar Group is a Motley Fool Global Gains recommendation. The Fool owns shares of Markel, ExxonMobil, and W.R. Berkley. The Motley Fool has a disclosure policy.