Francis Chou’s Chou Associates Management has filed its latest 13F with the SEC, disclosing the positions held in its equity portfolio as of March 31, 2015. Based in Toronto, Canada, Chou Associates had modest returns of 2.7% for Series A units in 2014. That compared unfavorably to the returns of the S&P 500 Total Return Index, which returned 13.7% for the year. However the fund did benefit from the appreciation of the U.S dollar versus the Canadian dollar, with the latter rising by more than 9% against the former. That effectively bumped Chou’s returns to 12.1%. Still, it was a down year for Chou, whose Series A units returned 41.3% and 27.0% in 2013 and 2012 respectively. Chou’s fund utilizes a value-oriented approach to investing that focuses primarily on the long-term strength of the invested company. As the fund has a long-term investment philosophy, there is limited turnover in its portfolio from quarter to quarter, as we’ll see when we take a look at its top picks.
Chou Associates is just one of more than 700 hedge funds that we have in our database as part of our small-cap strategy. Even though most smaller investors consider that tracking 13F filings is a fruitless endeavor because they are filed with a delay of around 45 days after the end of the period of report, the results of our research prove otherwise. To be on the safe side, we used a delay of 60 days in our backtests that involved funds’ 13F filings between 1999 and 2012 and still managed to gain an annual alpha in the double digits. Moreover, since the official launch of our strategy in August 2012, we obtained returns of more than 137%, beating the S&P 500 Total Return Index by some 80 percentage points (see all the details).
Chou’s top pick remains Resolute Forest Products Inc (NYSE:RFP), as his fund maintained its 4.08 million share position in the Canadian-based, global pulp and paper manufacturing company, with operations in Canada, the U.S, and South Korea. The value of Chou’s holding declined slightly during the first quarter to $70.41 million as shares of Resolute Forest Products Inc (NYSE:RFP) dipped by 2.04% during the quarter. That was bad news for another prominent Canadian investor, Prem Watsa of Fairfax Financial, who suffered big Q1 losses due to his large exposure to Resolute Forest Products Inc (NYSE:RFP) and Canadian technology company BlackBerry Ltd (NASDAQ:BBRY). The two companies comprised more than 66% of Watsa’s equity portfolio as of the end of 2014.
Chou’s position in Berkshire Hathaway Inc. (NYSE:BRK.A) also remained unchanged from the previous quarter at 300 shares valued at $65.26 million (yes, that’s over $215,000 per share). The value of those shares was also down from the end of 2014 as they fell by 3.88%. Still, if there’s a safer long-term investment than in Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A), you’d be hard-pressed to find it. The meteoric rise in value of his holding company and its shares propelled Buffett into the enviable position of second-richest man in the world late in 2014, behind only Microsoft Corporation (NASDAQ:MSFT) founder Bill Gates, though he’s since been overtaken for the position by Carlos Slim. Speaking of Gates, the Bill and Melinda Gates Foundation Trust remained the largest shareholder of Berkshire Hathaway Inc. (NYSE:BRK.A) thanks to a series of donations of shares to the fund by Buffett.
Chou’s position in Nokia Corporation (ADR) (NYSE:NOK) was also unchanged during the first quarter at an even 5.0 million shares. As with the previous holdings, his Nokia Corporation (ADR) (NYSE:NOK) holding also decreased in value, to $37.90 million. The Finnish smartphone manufacturer’s shares slid by 3.56% during the first quarter. Shares have rebounded thus far in the second quarter however, up by 5.5% after Nokia Corporation (ADR) (NYSE:NOK) announced the purchase of Alcatel Lucent SA (ADR) (NYSE:ALU) for $16.6 billion, a French telecommunications equipment company. Nokia is also reportedly trying to sell its HERE location-based maps business to Apple Inc. (NASDAQ:AAPL). Nokia has several bullish investors with large positions including billionaires Rob Citrone, David Einhorn, and Jim Simons.
While Chou’s position in Sears Holdings Corp (NASDAQ:SHLD) was yet again unchanged from the prevous quarter, it’s the first of his top picks that had a strong first quarter, rising by 25.47%, easily erasing the losses of the previous three holdings. Chou’s position of 896,088 shares increased to $37.08 million in value, nearing catching Nokia for third after trailing it by just under $10 million entering the first quarter. The Sears Holdings Corp (NASDAQ:SHLD) windfall was naturally good news for its biggest investor, who also happens to be the company’s chairman and CEO, ESL Investment’s Edward Lampert, who crushed the market in Q1 thanks to his The Sears Holdings Corp (NASDAQ:SHLD) position.
Chou’s final top pick we’ll look at goes back to his previous trend of being unchanged for the quarter and seeing its value decline. His position in Citigroup Inc (NYSE:C) stood at 410,000 shares valued at $21.13 million, down from a value of $22.19 million at the end of 2014 as Citigroup Inc (NYSE:C)’s shares dipped by 4.77%. Citigroup Inc (NYSE:C) was one of the many American companies ditched by billionaire David Tepper heading into the first quarter, though several other billionaire investors remained quite bullish on the financial services holding company, including Ken Fisher, Andreas Halvorsen, and Ken Griffin.
Disclosure: None
