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Value Hedge Funds Dive Into Berkshire Hathaway

Berkshire Hathaway (BKR.A) (NYSE:BRK.B) is hugely undervalued -- that seems to be the primary take away from the actions of some of the world's most prominent value investors in the last quarter.

According to a roundup of 13F hedge fund filings, which show the equity investments of hedge funds with more than $100 million of assets under management every quarter, Berkshire Hathaway stocks were acquired by some of the most prominent names in the value investor community in the quarter ended September 2019.

Big buyers

The most significant movement came from the Bill & Melinda Gates Foundation Trust, which has just under 54% of its portfolio invested in Warren Buffett (Trades, Portfolio)'s investment vehicle. This is by far the Foundation Trust's largest position.

Despite this fact, the firm increased its ownership of Berkshire by 16.6% in the third quarter of 2019. The position is now worth 11.4 billion dollars, and the Trust owns just under 55 million shares in Berkshire. This makes Bill Gates (Trades, Portfolio)' investment vehicle one of the largest owners of Berkshire stock after Buffett himself.

The trading activity by the Foundation Trust is even more notable because between the fourth quarter of 2018 and the second quarter of 2019, it had been reducing its holdings of Berkshire stock.

Value investor Allan Mecham of Arlington Value Capital was also increasing his holding of Berkshire during the third quarter of 2019. Arlington Value boosted its holdings by 15.73%, giving the stock a 31.6% portfolio weight.

Mecham and his team have been steadily increasing their holdings in the conglomerate since the first quarter of 2018. Since then, they have more than doubled their position.

Glenn Greenberg (Trades, Portfolio)'s Brave Warrior Advisors was also increasing its position in Berkshire during the third quarter. Berkshire is a new addition to the Brave Warrior portfolio, but Greenberg's pace of buying seems to suggest that he believes the stock is severely undervalued.

From no holding at all in the first quarter of 2019, Greenberg has acquired 1.5 million shares in the conglomerate during the six months between the end of March and end of September, giving it a 16.6% portfolio weight. It is now the second-largest position in the $1.9 billion portfolio after Google's parent company Alphabet (GOOGL).

Bill Ackman (Trades, Portfolio), who published a lengthy document explaining why he believed Berkshire is undervalued earlier this year, was also increasing his holding in the conglomerate during the quarter.

Ackman's Pershing Square increased its holdings of the stock by 14.3% to just over four million shares. The position now makes up 13.3% of the portfolio weight ($835 million of total assets under management). According to the hedge fund's third-quarter 13F, Ackman reduced his holdings in other critical positions by between 3% to 4%. possibly to unlock cash to invest with Buffett.

Another big name buyer that was increasing his position in Berkshire in the third quarter was Thomas Gayner of Markel Asset Management. The firm now owns around 1.5 million B shares and 1,100 A shares. Together, these holdings make Berkshire the most substantial investment in Markel Asset Management's portfolio, accounting for $700 million of the firm's $6.6 billion in assets under management.

Buffett's view

These hedge fund managers are not the only ones who think Berkshire stock is undervalued. It appears as if the Oracle of Omaha is also of the same opinion:

"In August, the group repurchased 64 Class A shares at an average per-share price of $300,166.13. And during the period, it also purchased 2,793,092 Class B shares, paying an average price of $197.68 per share.

Berkshire was also buying back stock in September, but at higher prices. It repurchased 149 Class A shares at an average price of $310,231.27 and 375,771 Class B shares at an average price of $206.50."

Buffett has said that he will only buy back shares in Berkshire when they are trading at a deep discount to his estimate of intrinsic value. These moves suggest he believes that such a situation has occurred.

Disclosure: The author owns shares in Berkshire Hathaway.

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This article first appeared on GuruFocus.