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Behind Berkshire’s Major Investments amid Rising Valuations

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BRK.B’s major investments

Berkshire Hathaway’s (BRK.B) major investments have been in consumer, financials, technology, and product companies. The company has shown less inclination toward technology services companies and higher deployment outside of the US, and it tends to prefer growth companies with stable performances.

In 1Q17, Berkshire added stakes in Apple (AAPL) and Bank of New York Mellon (BK) and reduced its stake in IBM (IBM). The holding company giant has sold its entire stake in Twenty-First Century Fox (FOXA).

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Berkshire is sitting on the high liquidity of more than $90 billion, with a portfolio valuation of $163 billion as of March 31, 2017. Eventually, the company and its investment managers, Warren Buffett and Charlie Munger, will face pressure to either deploying funds in various investments or return the capital in the form of dividends and repurchases.

Concentrated investments

Berkshire’s top five investments form almost ~63% of the company’s total portfolio, which reflects concentrated holdings and performance. In 2Q17, its major holdings had the following performances:

  • Coca-Cola (KO): 5.7% rise
  • American Express (AXP): 6.5% rise
  • Apple (AAPL): 0.3% rise
  • International Business Machines (IBM): 11.7% fall
  • Wells Fargo (WFC): 0.5% fall
  • Kraft Heinz (KHC): 5.7% fall

Berkshire’s major competitors in terms of portfolio picking include traditional asset managers (XLF), mutual funds, and pension funds like BlackRock (BLK) and State Street (STT).

While Buffett has been focusing on active investments, he’s also been a vocal supporter of index funds and exchange-traded funds and is not in favor of hedge funds or the alternative fund industry. The company’s performance in coming quarters will depend largely on how it deploys its cash, the performance of its divisions, and the impact of interest rates on its businesses.

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