Hedge fund managers have been looking far and wide for a good bet in the past several months. With most funds underperforming the S&P 500 and many funds facing significant crises of asset base as investors withdraw funds in record numbers, the entire industry has been in need of a secure way to bring return levels up. As the first of the 13-F reports are filed with the SEC, revealing the investment holdings of major funds in the United States (those with at least $100 million in assets under management), analysts have already started to spot trends in investment decisions from the last quarter. One of the hottest companies among hedge funders seems to be Warren Buffett's Berkshire Hathaway (BRK.A) (BRK.B). (Related: Warren Buffett's Genius Celebrated in Adorable HBO Documentary)
Strong Year for Berkshire Hathaway
To say that Berkshire Hathaway had a strong 2016 is not giving the company sufficient credit. Berkshire has had a phenomenal past twelve months. The holding company, worth about $404 billion, has seen its gains in the area of 26.5%. This far outpaces the already-large market averages. At the same time, Berkshire stock prices have soared to record heights, and Buffett's reputation as a business leader and investor has continued to climb.
Berkshire's outperformance from 2016 has drawn the attention of many hedge fund managers that are eager for a company with excellent gains and a strong history of performance. Those early 13-f filers already reporting their holdings for Q4 in 2016 have already revealed additions of a net 1.65 million shares of BRK.B stock. In total, that accounts for approximately $217.3 million in new stock purchased, based on current stock prices, and that is not counting all of the remaining funds that have yet to file their reports with the SEC.
Diversity Key to Berkshire's Success
One key to the success that Berkshire experienced in the past year is the broad diversity of companies that it holds. The company owns a huge array of businesses in areas including insurance (Geico), private aircraft ownership (NetJets), railroad, and more. In total, insurance is a major portion of Berkshire's total value. In fact, a full 25% of the holding companies total profits for the past fiscal year are due to its holdings of Geico, Berkshire Hathaway Reinsurance and Berkshire Hathaway Primary Group, and General Re.
As insurance rates climb higher, Berkshire is one of the major recipients of additional profits. All that being said, there are reasons that investors have to be cautious as well. Buffett is likely to step down as CEO in the not-too-distant future, along with managing partner Charlie Munger. At the same time, though, the companies Berkshire owns are often run by self-sufficient managers capable of excellent leadership without great oversight by Buffett.