Should investors follow quant funds by investing in Berkshire Hathaway?

Quant funds piled into Warren Buffett’s Berkshire Hathaway [BRK-B] in the second quarter. This reflects a shifting mindset as fund managers seek out better value options after growth stocks were decimated in the first half of the year.

The Berkshire Hathaway [BRK-B] share price is down just over 8% this year as of 16 September, compared with the S&P 500’s 18% decline. It’s this kind of resilience that has attracted quant funds to Warren Buffet’s conglomerate in what has been a dismal year for equity markets.

Quant funds dominated the list of Berkshire Hathaway shareholders in the second quarter, with some of the biggest names in the industry collectively contributing to $900m worth of stock purchases.

Top of the list was Renaissance, purchasing more than 1.7 million shares in the first six months of the year, representing around $489m. DE Shaw and Bridgewater Associates were among the other quant funds snapping up Berkshire Hathaway’s stock. These funds mainly bought less expensive B-class shares that carry fewer voting rights.

Why are quant funds buying Berkshire Hathaway stock?

Quant funds make buying decisions based on specific attributes or factors, such as momentum or stocks that are less volatile than the wider market. Some also target their investment strategies towards investing in value stocks. 

Value investing has come back into focus this year as investors shift to investing on stable companies perceived to be trading below their fundamentals. Berkshire Hathaway ticks the value box. The stock is inexpensive compared with its earnings, and it has also experienced less volatility compared with the wider S&P 500.

Richard Chilton at the Chilton Investment Company told the Financial Times that Berkshire Hathaway is a low-risk purchase for what could be a “pretty darn high reward”. Chilton Investment Company snapped up 96,537 Berkshire shares in the second quarter.

It’s not just the quant funds that were big on Berkshire Hathaway. According to Goldman Sachs research, Buffett’s firm is in the top 10 holdings for 22 hedge funds, with 98 out of 100 money managers tracked by Goldmans having a stake in the stock.

Analysts polled by Yahoo Finance have a median price target of $356.50 on Berkshire Hathaway, which would represent a near 30% upside on Friday’s closing price of $278.95.

What has Warren Buffett’s Berkshire Hathaway been buying?

Berkshire Hathaway’s 13F filings are often a good way to gauge where Warren Buffett sees the markets going. The biggest buy by far in the second quarter was Ally Financial [ALLY], with Berkshire Hathaway tripling its stake in the Delaware-based bank. Buffett is a known backer of US finance companies: both Bank of America and American Express are among the conglomerate’s top five holdings.

Amazon [AMZN] also grabbed Berkshire’s attention in the second quarter, with the firm adding 10 million shares in the ecommerce giant for a stake of almost 10.7 million shares. Buffett and his investment team also added to positions in oil majors Occidental Petroleum [OXY] and Chevron [CVX].

Buffett was less keen on Chinese electric car maker BYD [BYD]. A filing on the Hong Kong exchange revealed Berkshire Hathaway had sold 1.33 million shares in the second quarter. BYD’s share price tanked following the news.

The move had been feared ever since a 20.49% stake identical to its most recently reported position entered Hong Kong’s clearing system in July. Yang Liu, CIO at Atlantis Investment, told CNBC that it’s a sign Buffett might be nervous about Chinese consumer confidence. However, Kerry Goh at Kamet Goh told Bloomberg that the sale was “most likely profit taking” and it wasn’t Berkshire’s style to exit a position on speculation that “China was univestible”.

Berkshire Hathaway also cut its stake in General Motors [GM], taking its stake in the Detroit mainstay to just under 52.9 million shares worth less than $1.7bn.

Among the exits, Berkshire sold the last remnants of his stake in Verizon [VZ] and exited its position in Royalty Pharma [RPRX].