Each month, we screen for attractive “bond replacement” investment candidates by looking up the reports of investments purchased by “Superinvestors” covered by the Dataroma site. Dataroma follows 64 managers that are all using value-based strategies.
This month, we looked through the transactions of nine funds before we could find 10 covered call candidates. Three of the 10 call options in our target window (90-180 days) were relatively illiquid, having not yet traded today, and four out of 10 on the put side also had not traded. You will find, however, that due to recent market weakness, present prices for all assets listed on this month’s list are trading for less than the prices at which managers reportedly bought.
Here is a list of the funds at which we looked.
|Meridian Funds||Meridian Contrarian Fund||646mm||Link|
|Thornburg Investment Management||Thornburg Value||927mm||Link|
|Bill Nygren||Oakmark Select||5.8b||Link|
|Ruane, Cunniff & Goldfarb||Sequoia||3.9b||Link|
|Mason Hawkins||Longleaf Partners||2.5b||Link|
|Chuck Akre||Akre Capital Management||8.6b||Link|
|Stephen Mandel||Lone Pine Capital||19.4b||Link|
None of Chuck Akre’s transactions made it onto the list — most of them were sells and the buys he did make were too small to meet our criteria (see below).
The manager buying the most was Stephen Mandel at Lone Pine Capital. Mandel purchased Adobe ADBE, Google GOOGL, Electronic Arts EA, Canadian Pacific CP, and Wynn Casinos WYNN — all using transactions large enough to make it onto the list. We chose his three largest purchases (Adobe, Google, and Electronic Arts) but left off the other ones. Unfortunately, everything Mandel was purchasing has a high nominal value, making bond replacements difficult to transact in smaller portfolios.
In our screen, we looked for any transactions that met the following criteria:
- Stocks listed represented more than 2% of the portfolio’s value
- Stocks listed were a new purchase for the fund OR the position was increased by a material amount (+20% or more)
These conditions were designed to screen for the stocks in which the managers had demonstrated the most confidence (by portfolio weight) and about which they had made an active decision to invest. As we explain in our video introduction to “Bond Replacement” investments, we are using these portfolio managers’ actions as an indication of undervaluation.
You can find the spreadsheet here:
A PDF copy of the spreadsheet is embedded below. Please reach out if you have any questions about these materials!