Sequoia fund (SEQUX) is known for its value investing strategy that is similar to famous value investor Warren Buffett. When Buffett dissolved his partnership in 1969, he referred Sequoia fund to his former clients. Sequoia fund was founded by William Ruane and Richard Cunniff. Buffett named Ruane as one of the super-investors of Graham-and-Doddsville.
Similar to Buffett's playbook, Sequoia fund holds a few concentrated stocks that they deem to be of durable business and solid growth perspective.
Here are the top ten holdings of the fund:
| Company | Symbol | % Assets |
|---|---|---|
| VALEANT PHARMACEUTICALS INTL IN | VRX | 13.75 |
| Berkshire Hathaway | BRK.A | 9.33 |
| TJX Companies, Inc. | TJX | 5.98 |
| Fastenal Company | FAST | 5.49 |
| IDEXX Laboratories, Inc. | IDXX | 4.83 |
| Mohawk Industries, Inc. | MHK | 3.6 |
| Advance Auto Parts Inc | AAP | 3.92 |
| Precision Castparts Corp. | PCP | 3.40 |
| O'Reilly Automotive | ORLY | 2.47 |
| Mastercard | MA | 2.05 |
Many of these companies are large manufacturers or suppliers. TJX Companies offers apparel and other houseware to many brand name merchants, thus allowing such brand name products to be cheaper. The company has few inventory problems, since it only resells the inventory carryovers from named brand suppliers. In an economy that is not doing so well, consumers tend to be more conscious of their spending and will go to more inexpensive retailers, such as the ones that sell TJX Companies products.
Fastenal supplies many products to industrial and construction companies, and also has its own retail stores in the U.S. and other countries. IDEXX Laboratories provides services and products, mostly medical and test equipment, for the veterinary and pet industry. Advance Auto Parts is a large retailer of automotive replacement parts and products. Sequoia also likes auto parts companies (Advance Auto Parts and O'Reilly Automotive) as these companies usually have a very low stocking costs while being able to charge higher markup to maintain high profit margin. Again, in this frugal economic environment, one can expect these companies will thrive.
The following are some key ratios for these stocks:
| Averages | SEQUX | Category Avg |
|---|---|---|
| Price/Earnings | 18.56 | 12.60 |
| Price/Book | 2.40 | 2.11 |
| Price/Sales | 1.57 | 1.52 |
| Price/Cashflow | 12.81 | 7.48 |
| 3 Year Earnings Growth | 7.07% | 6.84% |
As one can see, the stocks are expensive relative to the category average. SEQUX belongs to the Large Blend category (based on Morningstar). Again, this fits to what Buffett's investment philosophy: buying a good company with reasonable price instead of buying a lousy company with cheap price.
Let's see how these stocks have performed, compared with diversified ETF asset allocation portfolios.
Portfolio Performance Comparison
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Retirement Income ETFs Strategic Asset Allocation Risk Profile 0 | 3% | 15% | 4% | 12% | 3% | 6% |
| SEQUX | 11% | 71% | 4% | 14% | 3% | 11% |
| Retirement Income ETFs Tactical Asset Allocation Risk Profile 0 | 11% | 68% | 15% | 75% | 14% | 64% |
Three Year Chart
(Click to enlarge) See Detailed Portfolio Comparison
It is very impressive that the fund has a comparable performance against the strategic dividend ETF portfolio, especially considering the dismal stock market performance in recent years. When economy improves, one can expect the fund will be able to outperform this diversified ETF portfolio.
With extremely low (only 4%) annual turnover rate, Sequoia tends to hold their stocks for a long time. The above stocks thus make excellent solid choices for a long term investor who would like to purchase solid companies with reasonable prices. As stock markets are going to have more fire sales due to recent economic woes, patient investors should be able to find good entry points to purchase these good stocks.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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