Investment Guru Joel Greenblatt’s Gotham Asset Management, LLC filed its SEC 13F returns for Q2-2018 on August 14th, 2018. According to the company’s declared strategy, this Guru uses a Long-Short, Long-Only and Market Neutral approach to pick positions based on valuation. In the vast majority of cases, Gotham does not believe in holding an individual position for more than 2 to 3 years. The portfolios usually comprise of over 300+ names, and are not equally-weighted holdings.
So, what can we learn from a review of Greenblatt’s Q2 portfolio?
The total value of Greenblatt’s Q2 portfolio stood at $6.9B, with the Top-10 holdings ($652M) amounting to nearly 9.5% of the portfolio. Although, as a percentage, the Top-10 holdings have increased slightly (compared to 8.75% previously), the overall value of the portfolio declined by 3.21% ($7.15B).
The number of holdings too have declined by 7.10% (863 vs. 929), with the portfolio holding 66 fewer names compared to the previous quarter. While there were additions to existing names, position closures and new positions added, the vast majority (644) – 74.62% – of the names remained the same as the previous quarter. This tells us that Guru Greenblatt is convinced that most of the holdings in his portfolio are working for his fund.
An analysis of the Top-5 names, from the Top-10 holdings, reveals some interesting facts as well, in addition to highlighting that the value of these holdings (as a percent of the total portfolio) has increased (9.42% vs. 8.75%). Apple Inc (AAPL) and Micron Technologies (MU) still remain entrenched in the number 1 and 2 spots in the Top-10. Cisco Systems (CSCO) made a dramatic ascent from the previous quarter (#25), to take third-spot in this quarter’s Top-10 list. Guru Greenblatt increased his stake in the technology giant by 47.4%, which accounted for an almost 50% increase in the value of his Cisco holdings.
Walmart (WMT)rose from its previous rank of #17 in the portfolio, to take 4th-place in the current portfolio. Gotham upped it’s stake in the retail giant by over 35% during the current quarter. Raytheon (RTN), which had stood at #4 in the previous Top-10 list, slipped lower by a notch to #5. This despite a slight (nearly 3%) increase in the stake of this giant of the Aerospace/Defense industry. The value of its holding slid by almost 8% to drag it down to fifth place.
A total of four new names, Intuit (INTU), Oracle (ORCL), Estee Lauder (EL) and Kimberly Clark (KMB), which were absent from the portfolio in the previous quarter, managed to rank in the Top-10 at #6, #7, #9 and #10 respectively.
A look at the Top-10 pie above shows that individual names in the top-10 holdings account for anywhere between 9% and 14% of the top names. However, when we look at each of those names on an overall portfolio perspective, only Apple and Micron account for more than 1% in value, with the remaining eight names accounting for between 0.82% and 0.93% of the portfolio’s value.
So, what can be glean from reviewing the sectorial allocations of the Top-10 holdings? Well, for anyone looking to build a portfolio based on Guru Greenblatt’s Top-10 holdings, you probably want to go heavy on Technology, because Gotham’s Top-10 account for 54% in that sector. Next, with 27% of the Top-10 weighed to it, you should take a closer look at Consumer defensive names. Industrials and Consumer cyclical names account for 10% and 9% of the Top-10 holdings.
Gotham Asset Management oversees three funds:
- Gotham Absolute Return Fund (GARIX) – which is a Long-Short fund
- Gotham Enhanced Return Fund (GENIX) – which is a 100% net long fund
- Gotham Neutral Fund (GONIX) – which is a market neutral fund
Over the past 1-year, the funds have delivered +6.74%, +13.40% and -0.29% returns to their respective investors.
If there is one dominant theme in all three of Gotham’s funds, it has to be Technology, with each of the three funds’ heavily weighted in that sector. Our analysis of Guru Greenblatt’s Q2 portfolio bears that out too. Other sectors that this Guru likes include Consumer Discretionary, Health Care and Industrials, with these themes prevalent across the three funds that he manages.
Investors wishing to mimic a portfolio based on (though not similar to – not by a long shot!) the Q2 portfolio reviewed above, might do well to just start by picking names from the Top-10 list provided above. However, it might be simpler to buy into one of the three funds highlighted instead. Be advised though, that the MER’s for these range anywhere between 2.81% and 3.55% – which is rather steep by most standards.
Author does not have investment in stock discussed in this article.