What do you think of when someone mentions the name Bill Gates? You instinctively think: Microsoft. You think MS Office, Outlook and Cloud computing. So, what are we doing talking about a computer genius (geek!) in a column about Guru investors?
Well, in addition to his prowess with all things computing-related, Bill Gates and his wife Melinda also run a very charitable (and profitable!) foundation called the Bill & Melinda Gates Foundation (the Trust). As of the end of December 2017, the Trust owned over $50 billion in assets. And, it owns and manages an equity portfolio that’s valued at nearly $300 million (Dec 31, 2017).
Anyone that can take a personal net worth of $72B (September 2013), and turn it into $90B (Mar 2018) in less than 5 years certainly qualifies as a Guru. This Guru is definitely worth following and learning from!
The Foundation has a local (U.S-focused) and world-wide mandate, and its primary goal is to “…reduce inequity across the globe”. The key emphasis of the Foundation is to alleviate hunger and promote good health amongst the under-privileged, and help children succeed in their educational endeavors.
These are truly charitable intentions indeed, far removed from the business of investing, trading and making money. So, what could we learn from an institution that, at its core, is all about giving away money?
Well, before we talk about investments and portfolios, lets understand one thing: We are not suggesting that Mr. Gates is himself sitting behind a trading terminal and planning these investments. He probably has a team of 6-figure salaried investment gurus to advise him on that. However, at the heart of the portfolio is a philosophy that has “Bill Gates” written all over it: Boring yet brilliant!
So, a few things thing that we learn from studying this Guru’s portfolio are that he likes investments that:
- Are conservative businesses, and not necessarily trading opportunities
- Have strong moats around them, and are not start-ups
- Mostly pay a dividend (making him a dividend investor…sort of!)
- Range from financial companies and telecoms, to retail, food and beverage, transportation, health care and consumer discretionary names
If you wanted to build a portfolio that mimics that of the Trust, here are three words to get you started: Focused (small number of holdings). Diversified. Conservative.
So, what types of investments would a Boring yet brilliant portfolio comprise of? Well, unsurprisingly, it would be something like that which another “real” investment Guru would create – Warren Buffett. It’s not surprising then that the Oracle of Omaha advises the Trust, and one of the Trust’s biggest holdings is in Mr. Buffett’s company.
A look at these names will tell you that this Guru loves dividend-payers (a teachable for all you who aspire to invest like the Gates Foundation).
As at Q1-2018, the entire portfolio comprises of 19 holdings valued at $just under $24.5B ($24,452,281,000). The top-10 positions however represent 95% of the entire portfolio. Berkshire Hathaway | $BRK.B | still represents nearly half (47.78%) of the Top-10 holdings. This is down slightly from Q4-2017 (50.16%) largely due to tax obligation-related selling in this particular position.
Not surprisingly, the Q1-2018 portfolio remains almost unchanged from that in Q4-2017. And that’s yet another “teachable” for building a Gates-like portfolio: Don’t mess with it if it’s working.
On a sectorial basis, unsurprisingly, Financials seem to dominate the Top-10. That’s because of the overweight in BRK.B. Of the two other meaningfully-weighted sectors, Industrials seems to be a beloved theme. However, within the sector, the Trust has it’s holdings diversified across several industries, including Construction Equipment | $CAT |, Waste Management | $WM |, Railroads | $CNI |, and Integrated Shipping and Logistics | $FDX | and | $UPS | .
It’s no surprise that the Trust’s exposure to Technology is represented primarily by non-other than $MSFT!
So, what should you learn from the Trust’s portfolio construction? Well, the one thing that you can tell, just by looking at the Top-10 portfolio holdings, is that all of these companies are pretty much Blue-Chip names. So, with Gates, stability and maturity counts.
Finally, another takeaway is that Gates loves value and growth in his picks, along with income. Over the past year or so, the Top-10 positions have yielded a return of over 14% – and that’s without factoring the dividend (which most of this Guru’s holdings pay).
Author does not have investment in stock discussed in this article. Sign-up for our newsletter so you don’t miss any hot investment opportunities. Also download our recently published Best Blockchain Stock To Invest In Right Now or Volatility Survival Guide report absolutely free.