This month, we screen for attractive “bond replacement” investment candidates using new holdings of the Sound Shore Investor fund (SSHFX), a $2.0 billion fund run by Harry Burn.

In contrast with other investors at whose transactions we looked, Harry Burn’s fund was buying in the second quarter (this was the most recent data available). Another buyer was Chuck Akre’s fund, Akre Capital Management, but the price of several of Akre’s picks had increased a good deal compared to the price at which he reported buying them, so we went with Burn’s fund instead.

We have selected only the top ten stocks that Burn reported purchasing in the second quarter of 2017 based on two criteria:

  1. Stocks listed represented more than 2% of the portfolio’s value
  2. Stocks listed had been bought by the fund in the reported quarter

These conditions were 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 the portfolio manager’s investments as an indication of undervaluation.

Of the companies Burn purchased, most have moved down since he reported, and the ones that have moved up, have done so only slightly. The effective buy price for the stock that moved up the most is only a shade more than 5% above Burn’s reported buy price.

Morningstar’s report on this fund may be found here, and the 2Q2017 investor letter for the fund may be found here. Morningstar likes the process the fund uses, and rates the fund as four-star / silver. It’s performance looks good compared to the Large Cap Value benchmark.

Figure 1. Source: Morningstar

Setting aside Allergan, the per-share prices of the remaining stocks are below $100 / share, making bond replacements using these shares possible for smaller portfolios.

Please reach out if you have any questions about this spreadsheet!