Equities almost certainly will continue to outperform cash and bonds over the long haul, as they hav...
Investing with Some Savvy Fund Managers
09/28/2018 5:00 am EST
Participating in some of the savviest investment funds often requires a minimum investment of $5 million or more, a commitment to tie up one’s money for years and a tolerance for less than full disclosure about the fund’s holdings, explains George Putnam, editor of The Turnaround Letter.
These funds are essentially out of reach to all but a few large investors. However, some funds offer alternative ways to participate, available to investors in the form of publicly traded equities. Several offer direct access to the funds, while others wrap the investment component inside an insurance company.
Given their unusual nature, these equities usually don’t pay a dividend and are valued relative to their per-share book values, often termed net asset value, or “NAV.” For offshore-based equities, investors may want to take special notice of the potentially complex tax treatment.
Listed below are six stocks that can provide access to some of the smartest fund managers, in several cases at meaningful discounts to the underlying NAV.
Berkshire Hathaway Class B (BRK.B)
Led by Warren Buffett, who many consider the greatest investor of all time, this company is in effect a private equity fund.
Its small headquarters staff of about 25 oversees a vast and diversified portfolio of self-managed companies including Geico Insurance, Burlington Northern railroad, Duracell batteries and dozens of others. Some of the company’s $300 billion in surplus cash is invested in public securities, including a 5% stake in Apple (AAPL).
While the shares have barely edged the S&P500 over the past decade, their long-term returns have been extraordinary. Buffett’s shareholders letters are legendary, and he doesn’t appear to be losing any steps despite his 87 years of age (although he does have a solid succession plan in place).
Greenlight Re (GLRE)
Based in the Cayman Islands, Greenlight Re operates a specialty property and casualty insurance business. Like any insurance company, it hopes to profit from correctly pricing its underwriting against the risk of major losses.
With its assets, Greenlight Re invests along the lines of its namesake hedge fund, managed by David Einhorn, a long-tenured and highly respected hedge fund manager. Its website provides regular insight into the fund’s returns, largest positions and other details on the hedge fund.
Greenlight Re shares have struggled due to lackluster underwriting results while the investment results have severely lagged the stock market in recent years. New leadership is working to improve the insurance operations. Better overall results should help close the 20% discount to NAV.
Icahn Enterprises L.P. (IEP)
Icahn Enterprises is a master limited partnership that acts as a holding company for a diversified group of businesses in the railcar, investment, automotive, energy and other industries. The company is 91%-owned by the legendary Carl Icahn, who uses it as his primary investment vehicle.
IEP shares can be volatile, having traded between 50 and 130 several times in the past 20 years. Meanwhile, the underlying businesses continue to make progress. IEP shares are expensive relative to NAV although a high dividend yield provides some cushion.
Markel Corporation (MKL)
Headquartered in Richmond, Virginia, Markel Corporation is in many ways a mini-Berkshire Hathaway, even to the extent of holding its annual gathering in Omaha on the same weekend as Berkshire’s.
Markel underwrites insurance on a global basis, yet also invests in a wide range of manufacturing and service companies in its Markel Ventures division. Founded in 1930, it is still largely owned and operated by the Markel family, retaining their emphasis on high quality, efficiency and market leadership.
The company's website provides readers with considerable detail about Markel's diverse business lines, insightful annual letters and its unique “Markel Style” culture.
Pershing Square Holdings (PSHZF)
Investors can ride side-by-side with controversial hedge fund manager Bill Ackman through this closed-end fund based in the Netherlands. The PSHZF shares have decent U.S. trading volume and require no minimum investment.
Like its peers, Pershing Square Holdings’ website has a trove of information about the hedge fund and its activist campaigns. Ackman’s recent move to a more methodical approach is encouraging, which has produced better returns in April and May. Ackman has also been buying PSHZF shares to help close the discount to NAV.
Third Point Re (TPRE)
Similar to Greenlight Re, Third Point Re underwrites property and casualty reinsurance while managing its assets on substantially the same basis as the Third Point hedge fund, led by successful investor Dan Loeb.
Investors get Loeb on the cheap, as the reinsurance company pays the hedge fund lower annual and performance fees than other investors. Underwriting conditions appear to be improving after driving years of losses.
Third Point Offshore Investors (TPNTF)
This U.K. registered closed-end fund invests directly in Dan Loeb’s Third Point hedge fund, providing access to its returns without the lockups or investment minimums.
ebsite disclosures offer monthly insight into positions and strategies while each quarter the company publishes its thoughtful investor letter. The TPNTF shares have thin volume and trade on Nasdaq’s OTC market.
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