For the first time in a year the quarterly investment managers filing from Warren Buffet’s Berkshire Hathaway contained little to excite investments – except the exit from its stake in General Electric.
But unlike reports for the same quarter last year, the September, December quarters of 2016, and the three months to March this year which revealed big new stake (still growing) in Apple and America’s four biggest airlines, the June quarter saw changes at the margin.
And reflecting the modest performance of Wall Street in the June quarter, the value of the portfolio was unchanged at June 30 from march 31 at $162 billion – but still up from $US148 billion at December 31.
The GE move was interesting – Buffett and Berkshire help steady GE in the GFC by backing it with one of their trade mark preferred share cash injections which were later converted to ordinary shares and sold off.
GE got into trouble because its huge financial services operation was hit hard by the GFC, especially its real estate, store credit card and big corporate financing businesses. For example GE was forced to wind back its Australian business in the wake of the GFC.
The store cards business was spun off and named Synchrony Financial in which Berkshire emerged with a 17.5 million share holding worth $US521 million at June 30. \.
Berkshire had no holdings of GE stock at June 30 after having reported a 10.6 million or $US315 million stake at March 31.
In effect Berkshire has signalled (perhaps not Buffett but perhaps his two investment managers, Todd Weschler and Todd Coombs) a move out of manufacturing and into consumer services (the airline holdings could also be seen in that light, along with the growing holding in Apple). Berkshire has significant manufacturing investments of its own, including the$US32 billion Precison Castparts acquired last year.
As previously announced Berkshire also bought 18.6 million shares in real-estate investment trust Store Capital Corp in the quarter. It is one of America’s bigger shopping mall operators, which specialises in small retailers and other companies, many of whom have services or products that do not sell well on the internet. It has very little exposure to the troubled department store sector.
Store and Synchrony were the only two new holdings added to the Berkshire portfolio in the quarter.
Berkshire also made small reductions in its stakes in American Airlines, Delta Air Lines and United Continental Holdings. while leaving its Southwest Airlines holding unchanged. Mr. Buffett bought stock in the four airlines in 2016.
Berkshire also stakes in International Business Machines Corp. and Wells Fargo & Co., moves that had also been previously disclosed. Buffett started cutting his IBM exposure in the previous quarter (one of his four core holdings) and selling Wells Fargo shares to remain under a 10% ownership threshold (Wells Fargo is another core holding). Berkshire first bought IBM stock in 2011, spending more than $US10 billion for 5.4% of the company.
More interesting was another boost to Berkshire’s Apple stake. As of June 30, he held 130.2 million shares in the iPhone maker, an investment valued at $18.75 billion at quarter’s end. That was up by around just over 834,000 shares ( a purchase that would have cost over $US600 million, a move that would tax many other managers over a full year).
Berkshire also cut most of its stake in Wabco Holdings Inc., which last month disclosed takeover talks with German car parts maker ZF Friedrichshafen AG.
In the current quarter, Berkshire is widely expected to make a major investment in bank of America once the bank’s latest dividend is paid at the end of September. That payment will happen because the value of the dividend is higher than the interest received on the 5 million preferred shares.
Those preferreds give Berkshire the right to buy 700 million shares worth more than $US17 billion. The conversion of the preferreds will see Berkshire invest $US5 billion in Bank of America, giving it a book profit of $US12 billion or more.
In the three months to June, Buffett and Berkshire continued their enthusiasm for bank stocks adding 17.2 million shares to its Bank of New York Mellon stake while maintaining positions in U.S. Bancorp and Goldman Sachs Group.
