The third quarter of 2015 was arguably one of the tougher periods we've seen for US stock performance in quite some time, with the S&P 500 Index dropping 6% during the three-month period over concerns about growth in emerging and developing markets.
While the markets have rebounded nicely since the end of September, we're more interested in what our Ultimate Stock-Pickers were doing during the height of the market decline. With all of our top managers having reported their holdings for the most recent period, we've been able to take an early look at the types of purchases and sales our top managers were making.
In most cases, they were not only selling off shares of stocks trading close to or in excess of their estimates of fair value and ploughing the proceeds into existing positions, but were actually taking a stab at handful of new names with wide and narrow economic moats.
High-conviction selling was driven primarily by valuation last month. In most cases, managers were selling or trimming their holdings as share prices hit their estimates of fair value or where firms were the targets of acquirers, with the proceeds from these sales being ploughed back into existing positions in their portfolios or being used to satisfy ongoing investor redemptions; for the fund managers, that is.
Our Ultimate Stock-Pickers' Top Sells
As we noted in our last article, our primary goal with the Ultimate Stock-Pickers concept is to uncover investment ideas that not only reflect the most recent transactions of some of the top investment managers in the business but are timely enough for investors to get some value from them.
Based on that early read of the buying and selling activity of our top managers during the third quarter, we noted that the ongoing trend of high-conviction purchases of firms with economic moats trading at reasonable prices, as well as the trend of selling off portions of holdings that had met or exceeded estimates of intrinsic value, had continued during the period. Now that we have all of the holdings of our top managers under wraps, we can add more colour to our initial findings.
As for the top 10 stock sales we saw this time around, there continued to be a fair amount of outright selling, although most of it seemed to be focused on positions that have reached a fair value benchmark for our Ultimate Stock-Pickers or were the targets of acquirers.
Even with all of this buying and selling activity, as well as the changes that were made to the Investment Manager Roster during the first quarter of 2015, our top managers were underweight in Energy, Utilities, Communication Services, Healthcare and Real Estate relative to the weightings of those sectors in the S&P 500 at the end of September.
They also held overweight positions in the Financial Services, Consumer Defensive, Technology and Basic Materials sectors, with their exposure to Consumer Cyclicals and Industrials being more or less in line with the benchmark index.
