Quantitative funds grab shares in Warren Buffett’s Berkshire Hathaway

Hedge funds snapped up Berkshire Hathaway shares in the second quarter, with DE Shaw, Renaissance Technologies and Bridgewater Associates buying millions of shares of Warren Buffett’s conglomerate.

Berkshire’s list of shareholders adding to their positions during the quarter was dominated by quantitative funds, with some of the best-known names in the industry collectively buying shares worth more than $900 million at the end of June, filings of securities reviewed by the Financial Times show.

These computer-driven investment groups look for specific factors or trends to guide their bets, with some hoping to take advantage of a stock’s momentum when it’s up and others looking for stocks of companies that are less volatile than the market. market in general.

Berkshire meets many of the criteria for such funds and has emerged as a favorite this year, in part because its stock is relatively inexpensive based on its earnings compared to many other companies.

“The main factors that quants look at are value and momentum, which is buying winners and selling losers,” said Adam Gould, director of quantitative research at Fundstrat Global Advisors. “Berkshire seemed to favor both metrics for a while.”

Value investing has been a winner this year, according to Societe Generale models, with investors buying up slower-growing but stable companies as interest rates climbed. Berkshire, which is the largest component of the S&P 500 value index, fell 6% in 2022, far exceeding the 17% drop in the benchmark S&P 500.

Twenty hedge funds that did not own Berkshire in the first quarter added their names to the company’s shareholder register in June, according to research by Goldman Sachs. Only one Russell 1000 index company – data center operator Switch – has attracted a larger influx of new hedge fund investors, the investment bank found after analyzing deposits from 795 hedge funds that held $2.4 billion in gross equity positions.

Berkshire ranked among the 10 largest holdings for 22 hedge funds, while 98 of the fund managers tracked by Goldman disclosed a stake in the company. It stands out on a list of the most popular long bets that are otherwise dominated by tech companies such as Amazon, Microsoft, Apple and Facebook owner Meta.

The funds primarily bought Class B shares of Berkshire, which carry fractional economic and voting rights compared to A shares. The filings reviewed by the FT provide insight into a hedge fund’s activity and do not include not include positions that should not be disclosed, including those that could minimize the funds’ overall exposure to the conglomerate.

Richard Chilton, founder and chief investment officer of Chilton Investment Company, told the FT he decided to add Berkshire to the company’s holdings after Buffett acquired shares of Occidental Petroleum this year.

He said he believed Berkshire could eventually take control of Occidental, which would strengthen the company’s operating business and make it a major oil company in its own right.

“It was a very low risk buy for what we think is a pretty darn high reward,” he said of buying Berkshire stock. “It’s a value game. . . We analyze business models and invest in companies for the long term.

While mutual funds have also increased their positions in Berkshire in recent months, the stock remains relatively unloved by active managers, many of whom hold “underweight” holdings.

Hedge funds are used to betting on the Omaha-based company. Bill Ackman’s Pershing Square disclosed a stake in the company in August 2019, but sold out less than a year later.

While Berkshire shares have been popular with quantitative funds, long-short fund managers including Hudson Bay Capital Management and Bronte Capital also bought 745,000 and 365,649 shares, respectively, in the second quarter.

“If you’re a hedge fund and you’re trying to move from growth to value, it’s simple and as liquid as anything you could pivot to,” said Bill Smead, who manages an invested equity portfolio. in Berkshire Hathaway. “You can get a lot of money quickly and not mess up the price.”

Berkshire did not respond to a request for comment. The hedge funds declined to comment or did not respond to a request for comment.

The rise in hedge fund interest in Buffett’s company is ironic given that he has repeatedly lamented the industry’s record. In late 2007, he bet that a low-cost passive index fund would outperform hedge fund returns over 10 years, and he was right.

“There’s been a lot, a lot, a lot more money made by people on Wall Street from their selling abilities than from their investing abilities,” Buffett said at the company’s annual meeting in Omaha in 2016.

Quantitative funds grab shares in Warren Buffett’s Berkshire Hathaway

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