The rush of hedge fund interest in Warren Buffett’s conglomerate is ironic given that he has lamented the industry’s record repeatedly. (AP Photo/Nati Harnik, File)Nati Harnik/The Associated Press
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Hedge funds snapped up Berkshire Hathaway Inc. BRK-B-N stock in the second quarter, with DE Shaw & Co. LP, Renaissance Technologies LLC and Bridgewater Associates buying millions of shares in Warren Buffett’s conglomerate.
The list of Berkshire shareholders adding to their positions during the quarter was dominated by quant funds, with some of the best-known names in the industry collectively buying shares that were worth more than US$900-million at the end of June, securities filings reviewed by the Financial Times (FT) show.
These computer-driven investment groups look for specific factors or trends to guide their wagers, with some hoping to ride the momentum of a stock when it’s rising and others looking for shares of companies that are less volatile than the broader market.
Berkshire meets many of the criteria for such funds and has become a favourite this year, in part because its shares are relatively inexpensive based on its earnings compared with many other companies.
“The primary factors quants look at is value and momentum, which is buying winners and selling losers,” says Adam Gould, director of quant research at Fundstrat Global Advisors LLC. “Berkshire has looked favourable on both those metrics for some time.”
Value investing has been a winning trade this year with investors buying up slower-growing but stable companies as interest rates have climbed, according to models from Société Générale SA. Berkshire, which is the largest component in the S&P 500 value index, has fallen 6 per cent in 2022, far outperforming the 17 per cent decline in the benchmark S&P 500.
Twenty hedge funds that did not hold Berkshire in the first quarter added their names to the company’s shareholder registry in June, according to research from Goldman Sachs Group Inc. Only one company in the Russell 1000 index – data centre operator Switch – attracted a bigger influx of new hedge fund investors, the investment bank found after parsing filings from 795 hedge funds that held US$2.4-trillion worth of gross equity positions.
Berkshire ranked among the 10 largest holdings for 22 hedge funds while 98 of the money managers tracked by Goldman Sachs disclosed a stake in the company. It stands out on a list of the most popular long bets that is otherwise dominated by technology companies such as Amazon.com Inc., Microsoft Corp., Apple Inc. and Facebook owner Meta Platforms Inc.
The funds have primarily purchased Berkshire’s class B stock, which carries fractional economic and voting rights compared with A shares. The filings FT reviewed provide a snapshot of a hedge fund’s activity and don’t include positions that don’t have to be disclosed, including ones that might minimize the overall exposure funds have to the conglomerate.
Richard Chilton, founder and chief investment officer of Chilton Investment Co. Inc., told the FT he decided to add Berkshire to the company’s holdings after Mr. Buffett snapped up shares of Occidental Petroleum Corp. this year.
He says he believes Berkshire could eventually take over Occidental, which would buttress the company’s operating business and make it an oil major in its own right.
“It was a very low-risk purchase for what we believe could be pretty darn high reward,” he says of buying Berkshire stock. “It’s a value play. ... We analyze business models and invest in businesses in the long term.”
While mutual funds have also been adding to their Berkshire positions in recent months, the stock remains relatively unloved among active managers, many of whom have holdings that are “underweight.”.
Hedge funds have a history of betting on the Omaha-based company. Bill Ackman’s Pershing Square Capital Management disclosed a stake in the business in August 2019 but sold out less than a year later.
While Berkshire stock has been popular with quant funds, long-short fund managers, including Hudson Bay Capital Management LP and Bronte Capital Management Pty Ltd. also bought 745,000 and 365,649 shares, respectively, during the second quarter.
“If you are a hedge fund and trying to make a pivot away from growth to value, [Berkshire] is simple and as liquid as anything you could pivot to,” says Bill Smead, who manages a stock portfolio invested in Berkshire. “You can get a lot of money in there quickly and not disrupt the price.”
Berkshire did not respond to a request for comment. The hedge funds either declined to comment or did not respond to a request for comment.
The rush of hedge fund interest in Mr. Buffett’s company is ironic given that he has repeatedly lamented the industry’s record. In late 2007, he wagered that a low-cost passive index fund would beat the returns of a hedge fund over 10 years – and was proved right.
“There’s been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities,” Mr. Buffett said at the company’s annual meeting in Omaha in 2016.
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