Apple (Nasdaq:AAPL) is widely considered to be the most successful company of all time. Rising from the ashes, in 1998, when Steve Jobs retook the helm, Apple is also one of the most admired company’s on earth.
The high tech giant boasted a market cap of an astounding $622 billion in the spring of 2012, beating Exxon Mobil (NYSE:XOM) as the world’s most valuable brand.
The runaway success of its iPhone and iPad products combined with Steve Jobs careful succession planning is credited for these accomplishments. Basically, the company gave the public what it needs in an easy and even fun to use format.
Consumers flock to Apple’s products since they make everyone’s life easier, thereby enriching Apple beyond even Steve Jobs wildest dreams.
This uber success has earned Apple a monster pile of cash. Estimated to be nearly $120 billion, the company has its own subsidiary to manage its hoard of lucre. This subsidiary is named Braeburn Capital and is located in Reno, Nevada. Braeburn is considered the world’s largest hedge fund, dwarfing second place Ray Dalio’s Bridgewater Fund by $20 billion.
“Wow, this is great information!”, was my first thought. “All I need to do is review the 13F filings to find out how this seldom heard of behemoth is investing its money”.
I am a huge proponent of following the big money when it comes to investing and what could be bigger than Braeburn? Well, after much digging and asking around, I found out that Braeburn is not a typical money management company. It doesn’t file the expected forms such as 13Fs revealing its holdings. This is because Braeburn only has one investor, Apple. This fact is one reason it can skirt around some of the traditional fund regulations, namely revealing its specific holdings. Obviously, this made my mission much more opaque determining Braeburn’s investments.
Fortunately, we are not completely in the dark regarding Braeburn’s holdings. By studying Apple’s 10-K filing in fiscal year 2011 and comparing it to fiscal year 2012, light can be shown on how Apple is investing its massive mountain of cash. While the exact holdings are not revealed, based on what is in the 10k’s, it can be extrapolated how investors can follow Apple’s secret hedge fund’s primary investment themes.
The first thing to note is that Braeburn has grown from just under $80 billion in assets under management (AUM) to just under $120 billion over the last fiscal year. This is explosive growth no matter how you look at it.
However, it’s surprising how they chose to invest the money
Here are the primary investment themes of Braeburn and the best way to replicate these ideas in your portfolio.
1. Corporate Securities
Braeburn’s number one investing theme is corporate securities. The firm holds just over $46 billion of this asset class. Corporate securities are a broad sector. It can be bonds, stocks or derivatives. Braeburn increased its percentage owned of corporate securities by 31.5% from fiscal 2011 to fiscal 2012. Provided the size of Braeburn, it is likely that they are buying wide swaths of top rated, blue chip stocks and bonds. ETF’s such as SPDR S&P 500 (NYSE:SPY) for tracking equities and Vanguard’s Long-Term Corporate Bond ETF (NYSE:VCLT) likely fit this investment theme. It’s important to note that these ETF’s pay nearly 3% and just over 4% annual dividend yields making them potential candidates for Street Authority’s Carla Pasternak’s Retirement Savings Stocks.
Extrapolating further, we do know that Steve Jobs was a huge investor in Disney (NYSE:DIS). After his death, Job’s $4.6 billion worth of Disney shares were transferred to a trust administered by his wife Laurene Powell Jobs. Obviously, I don’t know for certain, but think it can be a safe bet that Braeburn also owns a large number of Disney shares, reflecting the investing spirit of Steve Jobs. The company just raised its annual dividend from $0.60 to $0.75 but it still just yields about 1.5%. Earnings are expected to grow to approximately $3.45 in 2013 and the company’s acquisition of comic book powerhouse Marvel has renewed the public’s interest in the entertainment giant. Technically, shares just jumped higher to heavy technical resistance at $52.50. This company looks good as a classic daily close break out buy strategy above $52.50.
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2. U.S. Treasury Securities
U.S. treasury securities make up just over 20% of Braeburn’s holdings. However, the fund ramped up its investment in U.S. treasury securities by nearly 80% between fiscal year 2011 and 2012. This asset class is secured obligations of the U.S. government. In other words, these securities are government debt. Anyone of the number of U.S. treasury bond ETF’s should more or less track Braeburn’s holdings. I like PIMCO’s 7-15 Year Treasury ETF (NYSE:TENZ) as a proxy for the debt of the U.S. government. The ETF has been uptrending on the weekly chart since April, 2010 but has recently hit technical resistance at $88. It trades very light volume, so be certain to always use limit orders to enter positions. It appears to be a solid pull back entry play right now with support at the 50 week moving average just under $86 per share. Entering now with stops at $84 makes technical investing sense.
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3. Mutual Funds, Money Market Funds, Commercial Paper
The firm doubled its exposure to mutual funds by increasing holdings from just over $1 billion to more than $2 billion. Despite this 100% increase, mutual funds still only account for the third smallest capital allocation. Money market funds and commercial paper account for the smallest and next to smallest allocations.
Risks to Consider
It’s critical to remember that I am only trying to replicate the overall investing themes of Braeburn. The fund does not reveal its exact holdings and I am only speculating on how investors can replicate its holdings based on the investing themes found in Apple’s 10K filing. Always use stops and position size wisely.
Action to Take
ETF’s make it easy for investors to replicate the themes of the world’s largest hedge fund. This fund is dealing with a tremendous amount of capital, forcing it to only invest into macroeconomic themes and the largest companies. Judging by Braeburn’s increase in U.S. treasury securities and Corporate securities, I think its a safe bet to say the fund is very bullish on the economic future of America.
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