Despite Weak Q3 Performance, You Should Follow Ken Fisher’s Favorite Picks

Ken Fisher is one of the billionaire investors that we follow as part of our small-cap strategy. Even though we mainly focus on his picks in the small-cap space, we think it’s also important to look at some investors’ top picks and their performance. Mr. Fisher prefers to hold a diversified equity portfolio via his firm Fisher Asset Management, which contained over 600 positions with an aggregate value of $51.45 billion at the end of June. Out of these holdings, 424 positions are in companies with a market cap of over $1.0 billion and they had a weighted average negative return of 6.86% in the third quarter, about par with the loss of the market. Overall, Fisher’s holdings in companies with market caps over $1.0 billion have lost 4.1% year-to-date. In this article, we will take a look at five of Fisher’s favorite holdings that most affected the performance of his equity portfolio between July and September.

Emulating hedge funds is one of the easiest ways to identify profitable stocks, mainly because these investors spend a lot of resources while picking their next target. Their long-term focus also allows investors to ignore the delays in their filings, as it was also proven by our backtests that used a 60-day delay instead of the maximum 45-day delay after filings are released, just to be on the safe side. Our backtests covered the period between 1999 and 2012 and showed that the 50 most popular stocks among hedge funds slightly underperformed the market, by seven basis points per month on average. On the other hand, their 15 most popular small-cap picks returned nearly 1.0 percentage point above the market. Our strategy based on these 15 small-cap stocks returned 102% in the last three years, outperforming the S&P 500 ETF (SPY) by some 53 percentage points (see more details here).

Apple Inc. (NASDAQ:AAPL) represented Mr. Fisher’s top pick, with his fund holding 11.01 million shares of the tech giant at the end of June. However, due to a high level of portfolio diversification, the $1.38 billion position amassed only 2.68% of the fund’s equity portfolio. Nevertheless, the 11.66% drop of the stock during the third quarter has definitely affected Fisher Asset Management’s returns. Overall, Apple currently trades flat year-to-date, as the company’s dependence on a single product, the iPhone, is showing its effects amid a slowdown of the economy in China, which represents one of the company’s largest markets. Still, Apple Inc. (NASDAQ:AAPL) sold a record number of its new iPhone models in their first weekend of sales and it has around $200 billion in cash on hand, which it can use to buyback shares, pay dividends, and even enter new markets, such as automotive. So all-in-all, investors have a lot of reasons to like Apple Inc. (NASDAQ:AAPL), which is why it ranked as the second-most popular stock among the funds from our database, although the 144 funds that held long positions in the company held stakes equal to just 2.90% of its shares at the end of June, which might suggest that smart money is underweight the stock. Billionaire Carl Icahn remains a big fan of Apple, holding 52.76 million shares.

Fisher Asset Management’s stake in Amazon.com, Inc. (NASDAQ:AMZN) was its fourth-most valuable, with a holding that contained 2.49 million shares. Amazon was one of the few companies whose stock remained relatively unaffected by the August sell-off, as its shares advanced by almost 18% during the third quarter. Amazon.com, Inc. (NASDAQ:AMZN)’s stock has surged by over 83% since the beginning of the year as the company managed to impress the markets with its performance. In its last quarterly financial results, the company showed EPS of $0.19, beating the consensus by an impressive $0.34. During the second quarter, Amazon saw an increase in popularity among investors, as among the funds we track, the number of them with long positions went up by seven to 103, while they held stakes equal to 5.20% of the company’s worth at the end of June. Fisher was the top shareholder of Amazon.com, Inc. (NASDAQ:AMZN) in our database, followed by Andreas Halvorsen‘s Viking Global, which initiated a stake of 2.28 million shares during the quarter.

Three more of Fisher’s most notable stock positions are discussed on the following page.

Visa Inc (NYSE:V) was another winning pick for Fisher during the third quarter, as the stock appreciated by 3.9%. The investor held 14.54 million shares valued at $977 million, which put it on the eighth spot of its portfolio. Aside from Fisher, 13 other billionaire investors were bullish on Visa Inc (NYSE:V) heading into the third quarter, including Warren Buffett, Stephen Mandel and Ken Griffin. They were right to hold that sentiment, as the stock is currently 15% in the green year-to-date, surpassing the credit services industry by over 12 percentage points. Earlier this month, both Guggenheim and Cowen and Company initiated coverage on Visa Inc (NYSE:V), with ‘Buy’ and ‘Outperform’ ratings, respectively, while Guggenheim set a price target of $85.00 per share.

In Walt Disney Co (NYSE:DIS), Fisher reported a stake of 8.45 million shares as of the end of June, while the stock lost 9.9% during the following quarter. Despite the decline in August, the company is optimistic about its future performance as it took advantage of the dip to buy back over $2.0 billion worth of stock. Walt Disney Co (NYSE:DIS) has a diversified portfolio of businesses, collecting profits from theme parks, toy licensing, TV advertising, and more. However, hedge funds are collectively cautious towards Walt Disney, as only 60 funds reported stakes as of the end of June with an aggregate value equal to just 2.30% of the company’s outstanding stock. Fisher was also the top shareholder of Walt Disney Co (NYSE:DIS) in our database, followed by Lansdowne Partners with a stake of 8.32 million shares.

Microsoft Corporation (NASDAQ:MSFT) ranked on the 16th spot in Fisher’s equity portfolio, the fund holding a stake of 17.99 million shares. The stock remained flat during the third quarter, inching up by 0.9% during the period. The stock has advanced by another 10% since the beginning of the month however, as investors are excited about how well the company’s Windows 10 OS has been received by consumers and the selling out of its new Surface Book laptop, among other news. Microsoft Corporation (NASDAQ:MSFT)’s stock also sports a dividend yield of 3.03%, which allowed it to be ranked among the favorite dividend picks of billionaire investors (see the full list), and trades at some 14.7 times forward earnings, slightly below the S&P 500 average. Jeff Ubben’s ValueAct capital is the largest shareholder of Microsoft Corporation (NASDAQ:MSFT) among the funds from our database, with a stake of 75.27 million shares.

Disclosure: None