When was the last time you witnessed the head of a foundation publicly praising an employee for losing money? Probably never, but that's exactly what Bill Gates did in his 2008 annual letter to foundation stakeholders. Chief Investment Officer Michael Larson invested $12.35 billion on behalf of both the foundation and Gates' personal investment company, Cascade Investment. In 2008, the foundation's assets decreased by 20%, yet on page 17, Gates took the time to congratulate the money manager for a job well done in a difficult time. The S&P 500 dropped 38% last year and Larson beat the index by 18%. Let's take a look at some of the fund's top holdings. None will make for very good gossip at your next party - but these solid stocks have proved that slow and steady might just win the race in this tough marke.t
|Top Five Holdings - Bill and Melinda Gates Foundation - March 31, 2009|
|Company||Shares Held||Market Value|
|Berkshire Hathaway Class B (NYSE:BRK.B)||1,301,250||$3.67B|
|Health Care Select Sector SPDR (NYSE:XLV)||14,655,000||$354.8M|
|Schering Plough (NYSE:SGP)||14,957,200||$352.24M|
|Canadian National Railway (NYSE:CNI)||8,399,653||$297.77M|
Top Holding Isn't Surprising
For anyone familiar with Bill Gates and Warren Buffett, it won't come as a surprise that 43.3% of the foundation's holdings are in Berkshire Hathaway Class B shares. In June 2006, Buffett announced he was giving 10 million Class B shares to the Bill and Melinda Gates Foundation. The first amount (500,000 shares) went to the foundation that July. Every summer thereafter, 5% of the remaining amount goes to the foundation until all the shares are exhausted. To date, the Berkshire CEO has donated 1,426,250 shares. As of March 31, 2009, the foundation held 1,301,250 shares, selling 125,000 or 8.8% of the total gifted to date. While I'm not certain who made the decision to sell the shares, I'm sure CIO Larson had a say in the timing.
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Health Care Is a Big Priority
Solving global health issues is a major program for the foundation and as a result, it's not surprising that investments in health care companies play a big role in its holdings. The second and third largest are the Health Care Select SPDR (NYSE:XLV), an exchange traded fund (ETF) that owns 54 health care stocks; and Schering Plough, itself a large weighting in the ETF. The two holdings had a market value of almost $710 million as of March 31, 2009. Other medical-related stocks account for an additional $935 million, bringing the healthcare weighting to 19.4% of the portfolio. Add this to the Berkshire holdings and we're talking about 63% of the total. (Learn what those in-the-know look for when acquiring a company; read How The Big Boys Buy.)
Rounding Out the Top Five
The last two stocks in the top five holdings couldn't be more different if you tried. One is the world's largest fast food emporium, which in itself is strange considering how health-oriented the portfolio is; and the other is a North American-leading railway transportation company. McDonald's recently announced May same-store sales and overall they were good, with U.S. comps growing 2.8%, Europe 7.6% and Africa and Asia 6.4%. All of this translates into global same-store sales growth of 5.1%. While earnings should be slightly lower due to currency exchange, analysts estimate it will still earn $3.81 a share in 2009. With a forward P/E below 15 and arguably the best restaurant chain operating anywhere in the world, it's hard to question Larson's pick here. As for Canadian National, the foundation has owned its stock for a long time. Five years ago, it held 900,000 shares. Today, it holds 8.4 million. Canadian National is up 113% in the past five years and the S&P 500 is down 17.4%.
Bill Gates didn't become the world's richest person being lucky. Do you really think he'd give his money to just anyone? Forget so-called fund messiahs like Bill Miller and Ken Heebner and take a look at Michael Larson, who's handled the Microsoft (Nasdaq:MSFT) founder's investments since 1994. You'll be glad you did. (Learn more in The 5 Most Feared Figures In Finance.)