How Did Bill Gates’ Portfolio Handle the Recent Market Turmoil?

The Bill & Melinda Gates Foundation Trust, which is managed by Michael Larson, is one of the best funds to follow if you are seeking steady long-term growth stocks, which have small chances of tanking, but which will also provide relatively modest returns. In its latest 13F filing, the Trust disclosed 17 positions, most of which represent large- and mega-cap companies, with Berkshire Hathaway Inc. (NYSE:BRK.B), as usual, amassing over half of the portfolio. Based on our calculations, these 17 holdings had a weighted average loss of almost 7% during the third quarter, so it looks like the market turmoil in August did not overlook even the most conservative of investors. One of the biggest contributors to the weak performance during the third quarter was Caterpillar Inc. (NYSE:CAT), whose stock slumped by over 22% during this period. Year-to-date, the return of the Trust’s 13F portfolio also stands at a loss of 14%, but in this article we will focus on the third quarter performance of its top five positions.

It is important to follow investors like Michael Larson, mainly due to their conservative approach, which often outperforms most index funds in periods of market turmoil and uncertainty. However, we are more interested in beating the market over the long-term and by a wider margin, which is why we have developed a strategy that is based on the sentiment of around 730 of the best-performing investors. We have determined that their top small-cap ideas are the best at providing the highest returns and since August 2012 we have been tracking a portfolio of the 15 most popular small-cap picks among the funds from our database in real-time. Our strategy returned 102% in this period, outperforming the S&P 500 ETF (SPY) by some 53 percentage points (see details here).

Without further ado, let’s take a closer look at how Mr. Larson’s top holdings performed between July and September, starting with Berkshire Hathaway Inc. (NYSE:BRK.B), which amasses over half of the Trust’s $17 billion public equity portfolio through a stake that contains 68.63 million shares. The class B stock of the company managed by Warren Buffett inched down by over 4% during the third quarter, and year-to-date has lost over 11% as a slowdown in global growth has been looming large over the company, which has vast international exposure. Overall, 71 funds held around 5.60% of Berkshire Hathaway Inc. (NYSE:BRK.B)’s outstanding stock at the end of June, with the Trust holding the largest position of those by a wide margin, followed by Boykin Curry’s Eagle Capital Management, which disclosed ownership of 10.34 million shares in its latest 13F.

Michael Larson’s second pick, Canadian National Railway (USA) (NYSE:CNI), in which the Trust owns 17.13 million shares, performed slightly better, with the stock losing just 1.3% in the third quarter. Being tightly-related to commodity markets, the company was also affected by economic headwinds leading to its stock falling by 13% since the beginning of 2015. Other funds that we track were more cautious towards Canadian National Railway (USA) (NYSE:CNI), as 21 funds amassed stakes equal to just 3% of the company. Moreover, it seems like smart money likes Canadian Pacific Railway Limited (USA) (NYSE:CP) more, because 51 funds among those that we follow held 21% of that company at the end of June. Canadian Pacific’s market cap is around half of Canadian National Railway (USA) (NYSE:CNI)’s, but its stock lost over 10% during the third quarter. Again, Bill & Melinda Gates Foundation Trust emerged as the top shareholder of Canadian National Railway, trailed by D. E. Shaw’s holding of 1.87 million shares.

See our discussion of the other three top picks of Mr. Larson on the next page.