Tuesday, May 16, 2017

Berkshire Hathaway 1st Quarter 2017 13F-HR

The Berkshire Hathaway (BRKa1st Quarter 13F-HR was released yesterday. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.
(For a convenient comparison, here's a post from last quarter that summarizes Berkshire's 4th Quarter 13F-HR.)

There was both some buying and selling during the quarter. Here's a quick summary of the changes:*

Added to Existing Positions
Apple (AAPL): 72 mil. shares (125% incr.); stake = $ 18.6 bil.
Southwest (LUV): 4.5 mil. shares (10%); stake = $ 2.6 bil.
American Airlines (AAL): 3.7 mil. shares (8%); stake = $ 2.1 bil.
Bank of New York (BK): 11.3 mil. shares (52%); stake = $ 1.6 bil.

I generally include above only those positions that were worth at least $ 1 billion at the end of the 1st quarter. In a portfolio this size -- more than $ 301 billion (equities, fixed income, cash, and other investments including Kraft Heinz: KHC at fair value) according to the latest available filing with roughly half made up of common stocks** -- a position that's less than $ 1 billion doesn't really move the needle much.

Positions that were added to worth less than $ 1 billion include Sirius XM (SIRI) and Liberty SiriusXM Group (LSXMALSXMK).

New Positions
There were no entirely new positions added during the quarter.

Warren Buffett previously mentioned that Berkshire had purchased shares of Southwest Airlines during the 4th quarter.

Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.

Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.

Reduced Positions
IBM (IBM): 16.7 mil. shares (20% decr.); stake = $ 11.2 bil.
Delta Airlines (DAL): 5.0 mil. shares (8% decr.); stake = $ 2.5 bil.

That 20% decrease in IBM shares naturally only reflects what was sold in the 1st quarter. Warren Buffett previously mentioned that Berkshire had, in total, sold roughly a third of its shares in IBM during the 1st and 2nd quarter.

No other positions valued at more than $ 1 billion were partially sold off during the quarter. The only reduced position worth less than $ 1 billion was WABCO Holdings (WBC).

Sold Positions
Twenty-First Century Fox (FOXA)

Todd Combs and Ted Weschler are responsible for an increasingly large number of the moves in the Berkshire equity portfolio. These days, any changes involving smaller positions will generally be the work of the two portfolio managers.

Top Five Holdings
After the changes, Berkshire Hathaway's portfolio of equity securities remains mostly made up of financial, consumer, and technology stocks (primarily IBM and Apple).

1. Kraft Heinz (KHC) = $ 29.6 bil.
2. Wells Fargo (WFC) = $ 26.7 bil.
3. Apple (AAPL) = $ 18.6 bil.
4. Coca-Cola (KO) = $ 17.0 bil.
5. American Express (AXP) = $ 12.0 bil.

As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire also owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.

The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 367,000 employees (25 being at headquarters) according to the latest available annual report.

Here are some examples of Berkshire's non-insurance businesses:

MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.
(Among others.)

In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.

See page 116 of the annual report for a more complete listing of Berkshire's businesses.

Adam

Long positions in BRKb, WFC, AAPL, KO, and AXP established at much lower than recent market prices. Also, long position in IBM established somewhat above recent market prices. (In each case compared to average cost basis.)

* All values shown are based upon the last trading day of the 1st quarter.
** Berkshire Hathaway's holdings of ADRs are included in the 13F. What is not included are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. Investments in things like preferred shares (and valuable warrants, where applicable, as explained in the recent letters) are also not included in the 13F.
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