Quant funds hoover up shares in Warren Buffett’s Berkshire Hathaway

Hedge funds hoovered up Berkshire Hathaway stock in the second quarter, with DE Shaw, Renaissance Technologies and Bridgewater Associates buying millions of shares in Warren Buffett’s conglomerate.

The list of Berkshire shareholders adding to their positions during the quarter was dominated by quant funds, with some of the best-known names in the industry collectively buying shares that were worth more than $900mn at the end of June, securities filings reviewed by the Financial Times show.

These computer-driven investment groups look for specific factors or trends to guide their wagers, with some hoping to ride the momentum of a stock when it is rising and others looking for shares of companies that are less volatile than the broader market.

Berkshire meets many of the criteria for such funds and has become a favourite this year, in part because its shares are relatively inexpensive based on its earnings compared to many other companies.

“The primary factors quants look at is value and momentum, which is buying winners and selling losers,” said Adam Gould, the director of quant research at Fundstrat Global Advisors. “Berkshire has looked favourable on both those metrics for some time.”

Value investing has been a winning trade this year with investors buying up slower-growing but stable companies as interest rates have climbed, according to models from Société Générale. Berkshire, which is the largest component in the S&P 500 value index, has fallen 6 per cent in 2022, far outperforming the 17 per cent decline in the benchmark S&P 500.

Twenty hedge funds that did not hold Berkshire in the first quarter added their names to the company’s shareholder registry in June, according to research from Goldman Sachs. Only one company in the Russell 1000 index — data centre operator Switch — attracted a bigger influx of new hedge fund investors, the investment bank found after parsing filings from 795 hedge funds that held $2.4tn worth of gross equity positions.

Berkshire ranked among the 10 largest holdings for 22 hedge funds while 98 of the money managers tracked by Goldman disclosed a stake in the company. It stands out on a list of the most popular long bets that is otherwise dominated by technology companies such as Amazon, Microsoft, Apple and Facebook-owner Meta.

The funds have primarily purchased Berkshire’s class B stock, which carries fractional economic and voting rights compared to the A shares. The filings reviewed by the FT provide a snapshot of a hedge fund’s activity and do not include positions that do not have to be disclosed, including ones that might minimise the overall exposure funds have to the conglomerate.

Richard Chilton, the founder and chief investment officer of Chilton Investment Company, told the FT he decided to add Berkshire to the company’s holdings after Buffett snapped up shares of Occidental Petroleum this year.

He said he believed Berkshire could eventually take over Occidental, which would buttress the company’s operating business and make it an oil major in its own right.

“It was a very low risk purchase for what we believe could be pretty darn high reward,” he said of buying Berkshire stock. “It’s a value play . . . We analyse business models and invest in businesses in the long term.”

While mutual funds have also been adding to their Berkshire positions in recent months, the stock remains relatively unloved by active managers, many of whom have holdings that are “underweight”.

Hedge funds have a history of betting on the Omaha-based company. Bill Ackman’s Pershing Square disclosed a stake in the business in August 2019 but sold out less than a year later.

While Berkshire stock has been popular with quant funds, long-short fund managers, including Hudson Bay Capital Management and Bronte Capital also bought 745,000 and 365,649 shares respectively during the second quarter.

“If you are a hedge fund and you are trying to make a pivot away from growth to value, it is simple and as liquid as anything you could pivot to,” said Bill Smead, who manages a stock portfolio invested in Berkshire Hathaway. “You can get a lot of money in there quickly and not disrupt the price.”

Berkshire did not respond to a request for comment. The hedge funds either declined to comment or did not respond to a request for comment.

The rush of hedge fund interest in Buffett’s company is ironic given that he has repeatedly lamented the industry’s record. In late 2007 he wagered that a low-cost passive index fund would over 10 years beat the returns of a hedge fund and was proved right.

“There’s been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities,” he said at the company’s annual meeting in Omaha in 2016.