Warren Buffett Has A ‘Hidden’ $6.3 Billion Wallet: Here’s What’s In It
Berkshire Hathaway (BRK.A 0.66%)(BRK.B 0.88%) CEO Warren Buffett has a knack for making money. Since taking the reins as CEO in 1965, he has created more than $690 billion in value for shareholders (himself included) and overseen an aggregate return of 3,641,613% for class equities. A of the company (BRK.A), as of December 31. 2021. That’s a 20.1% annualized return over 57 years, for those of you keeping score at home.
Given the Oracle of Omaha’s success as an investor, it should come as no surprise that Wall Street and Main Street are keeping a close eye on the stocks he buys and sells.
Investors eagerly await Berkshire Hathaway’s 13F (but it doesn’t tell the whole story)
Just over two weeks ago (May 16) marked the deadline for fund managers with at least $100 million in assets under management to file Form 13F with the Securities and Exchange Commission (SEC ). A 13F provides a detailed look at what some of Wall Street’s most successful fund managers were buying, selling and holding over the past quarter. Despite the downsides (for example, the 13Fs provide a 45-day portfolio snapshot), the 13Fs can offer insight into stocks and trends that attract the attention of successful asset managers.
When Berkshire Hathaway filed its 13F on May 16, we saw that approximately $51 billion in capital had been deployed by the Oracle of Omaha and its investment team during the first quarter. The sharp pullback in the broader market forced Buffett to be greedy while other investors were scared, prompting the purchase of eight new stocks, as well as additions to seven existing holdings.
As of last weekend, Berkshire Hathaway held more than four dozen stocks in its mostly focused portfolio — the top five holdings representing 72% of Berkshire’s $351.4 billion in invested assets. But what you might be surprised to learn is that Berkshire’s 13F doesn’t tell the whole story of every stock in which Warren Buffett’s company holds positions.
Warren Buffett has an under-the-radar investment portfolio of $6.3 billion
Almost 24 years ago, on June 19, 1998, Berkshire Hathaway announced its intention to acquire global reinsurance company General Re for $22 billion. While General Re’s reinsurance segment was the shining star of the company that encouraged Buffett to make the acquisition, it also had a specialist investment services segment known as New England Asset Management (NEAM). .
When the all-stock deal closed in December 1998, General Re and all of its components, including NEAM, were folded into Berkshire Hathaway. The 38-year-old investment firm has continued to grow and manages more than enough assets to require it to file a 13F on a quarterly basis.
At the end of March, NEAM’s SEC filing showed the company had $6.31 billion in assets under management invested in 161 securities. I say “securities” and not stocks because some of these 161 investments include index funds, exchange-traded funds, and preferred stocks.
Although Warren Buffett is not involved in New England Asset Management’s investment decision-making process, whatever NEAM buys, parent company Berkshire Hathaway ultimately owns it. So, Warren Buffett has a “hidden” $6.3 billion investment portfolio that technically is in plain sight for the world to see.
New England Asset Management oversees a highly concentrated portfolio
The $64,000 question is, what’s in New England Asset Management’s $6.3 billion portfolio? Although there are, as noted, 161 distinct investments, NEAM’s investment portfolio is even more concentrated than that of Warren Buffett. Just three stocks accounted for 86.4% of invested assets as of March 31, 2022.
It is perhaps no surprise to learn that Apple (AAPL 1.68%) is the largest holding, by far. NEAM ended the first quarter with nearly 20.5 million Apple shares, equivalent to 56.6% of invested assets.
Apple, which has held NEAM continuously for nine years, checks all the appropriate boxes fund managers look for when putting money to work. It’s a well-known brand, has an extremely loyal customer base and has relied on all types of innovation to drive sales and profits to record highs. Apple produces the most popular smartphone in the United States, and its CEO, Tim Cook, oversees a multi-year transition focused on a variety of subscription services.
The second largest holding in New England Asset Management’s portfolio is another company close to Warren Buffett’s heart: American bank (USB 0.83%). NEAM held at the end of March just over 17.7 million shares in the parent company of US Bank, or 14.9% of invested assets.
What makes regional banking giant US Bancorp so special is its conservative management team and aggressive digitization initiatives. Avoiding riskier derivative investments and focusing on the bread and butter of banking (i.e. loan and deposit growth) has allowed US Bancorp to generate one of the strongest asset returns high among the big banks. Couple this operational conservatism with significantly higher digital engagement trends than other major banks, and you have a recipe for highly effective banking stock.
The third major farm is Bank of America (BAC 0.66%)which also represented 14.9% of New England Asset Management’s investment portfolio at the end of the first quarter.
Besides benefiting from long-running economic expansions, Bank of America’s secret sauce is its sensitivity to interest rates. As the Federal Reserve prepares to aggressively raise interest rates to keep inflation under control, no bank is poised to see a bigger increase in net interest income than BofA. According to the company, a parallel shift of 100 basis points in the interest rate yield curve should yield $5.4 billion in additional net interest income over 12 months.
Whenever 13Fs are deposited, be sure to take a closer look at Warren Buffett’s “hidden” investment portfolio, New England Asset Management.