Guru’s August 2016 Rebalance Report
- Between the most recent quarterly rebalances (May 25th and August 24th), Guru returned 4.83%, outperforming the S&P 500 by 21 basis points.1
- Guru’s August rebalance saw 3 stocks leave the fund and 6 new additions come in, representing 6% quarterly turnover, which is far below historical averages.
- GURU continues to maintain an overweight to the Consumer Discretionary (+9.66%) and Technology sectors (+7.09%) versus the S&P 500.
- The fund has shifted further into the Large Cap segment of the market, reaching its highest level since Q3 2014 (70%).
Guru’s Technology stocks performed well from the Q2 rebalance on May 25th to the Q3 rebalance on August 24th. They gained 10% on a strong earnings season and improved growth expectations.1 85% of Technology companies in the S&P 500 beat earnings expectations in Q2, by an average of 7.2%.2 Analysts also underestimated revenues for the Tech sector, with these companies reporting 1.8% higher sales than consensus estimates.2 The Tech sector made up approximately 25% of Guru’s portfolio, a 5% overweight versus the S&P 500, yet these holdings contributed 50% of the fund’s returns during this period.1
Guru’s Pharmaceuticals holdings rebounded 9% after a sharp selloff of nearly -55% from August 2015 through April 2016.1 The rebound is partly due to the normalization in pharmaceuticals valuations after regulatory concerns drove down share prices. In May 2016, Pharma companies traded at a Price to Earnings (P/E) ratio less than a third of July 2015’s figure.3
For GURU performance data current to the most recent month- and quarter-end, please click here.
Guru’s latest rebalance on August 25th saw the removal of 3 of the fund’s 47 components and the addition of 6 new holdings.
This quarterly turnover of 6% is much lower than historical averages, possibly indicating deeper conviction and longer holding periods for major hedge fund investments.
Cyclical sectors like Consumer Discretionary continued to stay in favor, with Guru maintaining a 9.66% overweight versus the S&P 500, while shying away from Defensive sectors like Health Care and Consumer Staples, which were underweight 4.73% and 4.10%, respectively.4 The fund also increased its allocation to Large Caps for the second consecutive quarter, rising to 70% of the fund’s portfolio.