At the end of every quarter, fund managers overseeing more than $100 million must publicly disclose their current holdings through the Securities and Exchange Commission's Form 13-F. This form can help investors pick the brain of billionaire fund managers like Mohnish Pabrai, and get some insight on what the market may be missing.

About this investor
Investors primarily like hedge funds for their ability to stay one step ahead of the rest of the market. Pabrai, who often goes against the current, follows an investing strategy heavily influenced by Warren Buffett's career and writings. Pabrai has said that investing is not always about IQ, but about having the patience to wait.

"The only way one should buy stocks is if you understand the underlying business." Pabrai told Steve Forbes last year. "You stay within the circle of competence. You buy businesses you understand."

Since he founded it in 1999, Pabrai's concentrated fund has garnered impressive returns. Nonetheless, in the world of billion-dollar hedge funds, his is relatively small. It holds roughly $300 million in assets spread across 15 stocks, according to its latest government filing.

In April, Pabrai explained in a letter to investors why he had decided to stop accepting any new assets or investors. He wrote that he considered stocks expensive and didn't want to add new cash at a time when he felt like his good ideas were scarce.

Pabrai's portfolio
To better decipher this fund's 13-F data, we turned to Motley Fool partner AlphaClone, a research and investment-management firm that develops investment strategies based on hedge funds' public disclosures.

For the quarter ended March 31 -- the latest for which data is available -- Mohnish Pabrai's Pabrai Investment Funds made substantial changes to its portfolio, most notably by selling a major chunk of its holdings of steelmaker POSCO (NYSE: PKX).

Pabrai has a highly diversified portfolio. In terms of sectors, the biggest chunk of his top 10 holdings comes from basic materials (29% of the total portfolio). The services and financial sector also contribute handsomely. 

One of Pabrai's biggest successes came from International Coal Group, a coal-focused energy company. On June 15, Arch Coal (NYSE: ACI) announced that it had acquired International Coal for $3.4 billion. Arch bought all outstanding shares of ICG for $14.60 in an all-cash transaction, making it the second-largest U.S. metallurgical coal producer.

The fund also reaped large gains from Horsehead (Nasdaq: ZINC), the largest zinc producer, recycler, and maker of zinc-added products in the United States. In February, the company announced that it had completed a preliminary study to construct a zinc plant with the latest "green" technology.  For the last quarter, Horsehead reported net income of $14.8 million, up from $6.8 million for the same quarter in 2010.

Pabrai reduced his holdings in Air Transport Services Group (Nasdaq: ATSG), a provider of air cargo transportation based in Ohio, by about a third. The fund has steadily pared back its position in Air Transport Services every quarter since June 2010.

During the quarter, the fund also eliminated its position in Harvest Natural Resources, an oil and natural gas company focused on the acquisition, exploration, development, and disposition of natural resources.  In its most recent quarter, the company earned just $800,000, versus $24.6 million in the same period a year ago.

Here's where the firm is winning and losing at the moment:

  • Current winner: Prior to the Arch Coal buyout mentioned above, International Coal Group did well in the first quarter, rising 46% in the first quarter.
  • Current loser: Goldman Sachs fell more than 5% in the first quarter.

The fund's 10 largest positions (by value) and associated share-count changes as of March 31 were:

  1. PotashCorp (NYSE: POT) -- reduced 0.9%
  2. Brookfield Properties (NYSE: BPO) -- no change
  3. Brookfield Infrastructure (NYSE: BIP) -- no change
  4. International Coal Group -- no change
  5. Cresud (Nasdaq: CRESY) -- reduced 6.2%
  6. Horsehead Holding -- no change
  7. CapitalSource (NYSE: CSE) -- no change
  8. Goldman Sachs (NYSE: GS) -- new
  9. Terex (NYSE: TEX) -- reduced 35.0%
  10. Air Transport Services -- reduced 33.5%

How would you have performed following Pabrai?
According to AlphaClone's backtest simulation, any Fool who invested in Pabrai's 10 largest holdings upon their public quarterly disclosure would have returned 158.2% (including dividends) since 2005, versus 28.5% for the S&P 500. The simulation buys and sells the stocks disclosed in the 13-F five trading days after the SEC's filing window closes.

So there you have it -- the blow-by-blow of Pabrai's latest moves. To get more insight into this investing guru, check out this face-to-face interview with Pabrai. And be sure to tell us what you think in the comments section 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.

Michelle Zayed contributed to this report. Michelle doesn't own shares of any companies mentioned in this story. The Motley Fool owns shares of CapitalSource, Brookfield Infrastructure Partners, and Harvest Natural Resources. Motley Fool newsletter services have recommended buying shares of Horsehead Holding and Brookfield Infrastructure Partners. 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.