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 hedge funds, which are rarely 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.
Q4 2010 update
Glenn Greenberg and partner John Shapiro founded Chieftain Capital Management in 1984, but because of differences, they split up in 2010. Shapiro started a new investment firm but kept the old name; Greenberg, a well-known value investor who holds a concentrated portfolio, renamed Chieftain as Brave Warrior Advisors. The total market value of Brave Warrior's disclosed equity holdings as of Dec. 31, 2010 -- the latest period for which data is available -- is $1.1 billion across 11 holdings. Here's a snapshot of the portfolio's industry allocations.
The position of the funds' 11 positions and associated changes in number of shares held as of Dec. 31 were:
(Nasdaq: FISV)-- increased 24.3%.
(Nasdaq: CMCSK)-- reduced 7.3%.
(Nasdaq: RYAAY)-- reduced 1.7%.
(NYSE: LH)-- reduced 5.9%.
(NYSE: USB)-- reduced 12.3%.
(Nasdaq: GOOG)-- reduced 40.9%.
(NYSE: MA)-- increased 23.4%.
(NYSE: BR)-- increased 57.4%.
(NYSE: HPQ)-- new.
Arch Capital Group
(Nasdaq: ACGL)-- increased 15.7%.
(NYSE: LMT)-- reduced 46.7%.
During the quarter, the fund sold out seven positions entirely: Dell, Bank of America, Crosstex, Tidewater, Comcast (class A -- ticker symbol: CMCSA), Nicholas Financial, and Approach Resources.
Following Brave Warrior
Is it worth paying attention to Brave Warrior's moves? Anyone who invested in Brave Warrior's 10 largest holdings at the time they were disclosed publicly each quarter would have returned 201.2% since 2000, versus 14.1% for the S&P 500 (including dividends) as of March 23. 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 13-F closes.
Selected Q4 2010 commentary
Brave Warrior's largest allocations are to the technology and financial sectors, which account for 36.3% and 24.5% of the portfolio, respectively. On a quarter-over-quarter basis, here's where the firm is winning and losing currently and making new bets:
US Bancorp and Comcast, both among the fund's top holdings, increased 25% and 22%, respectively, in the fourth quarter of 2010. US Bancorp is a large diversified bank holding company with a market cap around $50 billion that has a four-star rating in Motley Fool CAPS.
Comcast is the largest cable operator in the U.S. The company also provides home Internet service and has the third-largest home telephone service line. Comcast recently got more heavily into the programming game by buying out NBC Universal from General Electric. The stock trades for a P/E of 19 and also has a four-star rating in Motley Fool CAPS.
A fairly recent spinoff, Broadridge Financial provides back-office solutions to the financial industry. The stock price fell by 4% in the fourth quarter of 2010, but still retains its five-star rating (the highest) in Motley Fool CAPS.
Hewlett-Packard is the only new bet for Brave Warrior; the stock makes up 6.4% to the entire portfolio.
So there you have it, the blow-by-blow of Brave Warrior Advisors' latest moves, and why it can matter to your portfolio. Tell us what you think in the comments below.
Company data provide 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 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.
Google is a Motley Fool Inside Value choice and a Motley Fool Rule Breakers pick. LabCorp is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Bank of America, Broadridge Financial Solutions, Fiserv, Google, Lockheed Martin, and Tidewater; and through a separate account in its Rising Star Portfolios also has a short position in Bank of America. Motley Fool Alpha LLC owns shares of LabCorp. The Motley Fool has a disclosure policy.