IBLN Index Q3 Rebalance: Consumer Staples and Healthcare in the Spotlight

Billionaire highlights from the third quarter.

 3Q2015 Market Highlights

Global equity markets struggled during the third quarter, as a result of the economic slowdown in China, another plunge in commodity prices and uncertainty from the Federal Reserve regarding monetary policy. These factors were reflective in the poor performance of the U.S. equity markets.

The S&P 500 declined 6.4%, the highest quarterly decline in four years.  Energy was the worst performing sectors with a return of -17%, while consumer staples and utilities stood up reasonably well and shown a return of -2% and +3.8% respectively. Most segments of the market struggled in Q3, but large-cap and growth-oriented areas held better relative to small-cap and value stocks.

IBLN New Sector Allocation

As a result of the latest index rebalance, we are seeing a shift from lagging sectors such as energy towards financial and consumer oriented stocks. Eight of the 30 stocks tracked by the IBLN Index changed. Healthcare, consumer discretionary and information technology remain the largest sectors represented in the Index going forward. Our allocation to consumer stables increased by 7%, information technology decreased by 7%, while the consumer discretionary exposure remained unchanged at 30%. The energy sector is no longer represented in the Index, as the energy stocks Williams Companies Inc (NYSE:WMB) and Consol Energy Inc (NYSE:CNX) exited.

Screen Shot 2015-11-19 at 3.07.14 PMBuffett and Loeb Bet on Consumer Staples

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 Warren Buffett rarely makes changes in his equity portfolio over one quarter. However, 3Q2015 was quite different. Financials is no longer the dominant sector in Berkshire Hathaway’s portfolio. The billionaire kept the exposure to financials high with 36% allocation, however consumer staples takes spot on top. The shift in sectors is a result of Warren Buffett’s new addition – Kraft Heinz (NYSE:KHC). Kraft is the billionaire’s largest new buy with 18% portfolio allocation. The stake is valued at almost $23 billion and represents 26% of Heinz’s outstanding shares.

Kraft Heinz is also Dan Loeb largest purchase in Q3 and the newest addition to the IBLN Index.

Kraft Foods and Heinz Holding Corporation merged this July in a deal orchestrated by Warren Buffett and 3G Capital. Berkshire’s third-quarter profit doubled as the Kraft-Heinz merger boosted the paper value of its stake in the company.

Dan Loeb Sees Healthcare Sell-Off as Buying Opportunity 

 Loeb writes in his 3Q2015  letter  to investors: “The conviction to keep and add to our core healthcare names during the sell-off enabled us to re-establish ourselves on positive footing this month.” 

Third Point’s most recent 13F filings show that almost 40% of the equity portfolio is allocated to healthcare and concentrated in three stocks alone: Baxter International (NYSE:), Amgen (NYSE:AMGN) and Allergan (NYSE:AGN).
Loeb’s highest conviction stock is Baxter with 16% allocation. The billionaire disclosed a 9.9% stake in the company in his 3Q letter to shareholders and said that he is planning to pursue an activist strategy .

Amgen (NYSE:AMGN) and Allergan (NYSE:AGN) are Third Point’s second and third largest positions. Loeb added more to both stakes during the third quarter. The billionaire has reportedly suggested that the companies consider a merger and the deal would create multiple avenues for growth. Loeb also noted that a potential merger between Allergan and Pfizer would create value.  Pfizer and Allergan confirmed that they’ve been discussing a  $150 billion deal (as reported by Bloomberg).

The Billionaires are Dropping Lagging Energy Stocks

Oil prices remain low as energy markets are still hurt by too much supply and weak demand. The billionaires are reducing their exposure to the sector, and as a result, two energy stocks exited the IBLN Index: Williams Companies Inc (NYSE:WMB) and Consol Energy Inc (NYSE:CNX).

In an August 2015 letter to investors, David Einhorn explained that Greenlight’s performance was mainly affected by his energy exposure. Dan Loeb also moved away from energy by selling all his Williams Companies Inc (NYSE:WMB) shares.

Carl Icahn Best on PayPal After eBay/PayPal Spin Off

When Carl Icahn recognized that eBay’s fast-growing payment unit PayPal was being undervalued, he acquired a $1.5 billion eBay stake and pushed for a slip between the two.
The companies finally parted ways in July, and Icahn swapped all his eBay shares for the same number of shares in PayPal. Icahn’s PayPal shares represent 3.8% of the company and PayPal is now valued at $45 billion compared to $34 billion for eBay.

The IBLN Index tracks the highest conviction S&P 500 stocks held by leading U.S. investment managers. The data is based on the managers’ regulatory filings with the SEC. The Index is comprised of long-only U.S. equities, it is equal weighted and rebalanced on a quarterly basis. Learn more…

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