Learnings from Q2 2023 US Fund Manager 13F Filings
Here are my key learnings from Q2 2023 13F filings of concentrated US fund managers with a proven track-record of outperformance vs. the market.
Introduction
13F season is one of my favourite periods of the year.
Once a quarter (45 days after the end of the previous quarter), US fund managers with at least $100m AUM are required to disclose their US public stock holdings and all changes from the prior quarter. Of course, there is a 45-day lag between the previous quarter close and when these 13F reports are filed, but it nonetheless provides insight into the investment activity of the best fund managers in the US.
In this short article, I highlight my key learnings from 13F filings in Q2 2023 for a range of “super-investors” I follow closely. All of these superstar fund managers share three common traits:
They run a concentrated portfolio (generally <30 stocks) with their top 3 largest holdings accounting for >20% of their total portfolio value.
They are long-term investors with an average holding period measured in years, not days or weeks.
They have a solid long-term track-record of outperformance vs. relevant benchmarks.
Super-Investor Q2 2023 Portfolio Moves
In the below tables, I’ve presented portfolio updates for 23 fund managers that meet the above criteria.
I’ve ranked these investors based on their portfolio concentration; in other words, the percentage of their portfolio attributable to their 3 largest holdings.
I find investors that run more concentrated portfolios provide much higher “signal” compared to investors that run a more diversified portfolio.
Note: You may need to view the below tables on computer to read them.
Key Takeaways
Here were my main takeaways from the above investor activity:
There seemed to be much less buying and selling activity relative to the past few quarters. This is likely due to a relative calming of markets as volatility has decreased, shares have rebounded sharply off 2022 lows, and investors have begun to accept the inevitability of higher interest rates.
Most investors seemed to reduce their exposure to “big tech” and FAANG companies. These companies have driven almost all of the index returns so far in 2023, so I’m not surprised to see shrewd investors booking some profits.
Dev Kantesaria (Valley Forge) buying ASML Holding and selling out of big tech (Adobe and Autodesk). I think Dev is one of the best fundamental investors on the planet, so I monitor his portfolio changes closely.
Brad Gerstner (Altimeter Capital) and Seth Klarman (Baupost Group) both initiating new positions in Amazon. Given that Amazon has been a core holding of mine for the past 18-24 months, it’s reassuring that sophisticated value-conscious investors (particularly Seth Klarman) still see value in Amazon after the sharp price appreciation through the first 6 months of 2023.
Chris Hohn (TCI Fund Management) initiating a position in Ferguson (supplier of plumbing and heating products) and continuing to up his stake in General Electric (diversified US conglomerate). TCI has by far the largest portfolio of any of the above investors ($33.7b AUM) and only has 10 stocks in their portfolio, so I place “very high signal” on any of their portfolio moves.
Terry Smith (Fundsmith) initiating a position in Exponent (science and engineering consulting firm).
Several investors sold out of Micron Technology (semiconductor manufacturing business) in Q2, including Mohnish Pabrai, Li Lu, and Sequoia Fund.
Mohnish Pabrai initiating a position in Alpha Metallurgical Resources (a US coal supplier).
Companies Added to Watchlist
Based on these Q2 13F filings, I’ve added several new companies to my watchlist to learn more about over the coming months:
ASML Holding (bought by Dev Kantesaria of Valley Forge) - manufactures lithography machines for semiconductor chipmakers (e.g., NVIDIA). Market cap of $268b, so it’s a large cap company. From my understanding, ASML has a natural monopoly on this market globally and commands extreme pricing power, with individual machines costing up to $200m. LTM revenue is around $28b with 51% gross margins and 34% EBITDA margins. Shares trade for a 31x forward P/E multiple or 24x forward EBITDA. Definitely one to look into as the multiple isn’t outrageous.
Ferguson (bought by Chris Hohn of TCI Fund Management)- supplier of plumbing and heating products in the US and Canada. Market cap of $31.7b. LTM revenue is almost $30b with 30% gross margins and 11% EBITDA margins. Growth is unlikely to smash it out of the park but should fall consistently in the 5-10% range. Shares look inexpensive at a 17x forward P/E multiple and 12x forward EBITDA. An intriguing opportunity for value investors hunting for boring, old-school industrial businesses.
Exponent (bought by Terry Smith of Fundsmith) - science and engineering consulting firm. Market cap of $4.5b. LTM revenue is $486m with 37% gross margins (as expected for a consulting business) and 26% EBITDA margins. At first glance, the multiple looks rich at a 41x forward P/E multiple and 30x forward EBITDA. Might be worth digging into this one to see what catalyst the Fundsmith team sees.
Alpha Metallurgical Resources (bought by Mohnish Pabrai of Pabrai funds) - coal supplier with operations in Virginia. Market cap of $2.7b. LTM revenue is $3.5b with 33% LTM EBITDA margins (although these have fluctuated a lot in recent years). This looks to be a cyclical “deep-value” play with the business producing strong free cash flow and aggressively returning excess cash to shareholders via share buybacks. Probably outside my circle of competence but one I’ll consider digging into if I have some spare time over the next month.