"Tracking Jeremy Grantham’s GMO Capital Portfolio – Q4 2019 Update"
"Jeremy Grantham’s 13F portfolio value increased from $14.41B to $14.97B this quarter.GMO Capital increased Johnson & Johnson while decreasing Apple and Taiwan Semi.The largest three individual stock positions are Microsoft Corporation, Alphabet, and Apple and they add up to ~12% of the portfolio.This article is first in a series that provides an ongoing analysis of the changes made to GMO’s 13F stock portfolio on a quarterly basis. It is based on GMO’s regulatory  filed on 02/13/2020. Jeremy Grantham’s 13F portfolio value increased ~4% from $14.41B to $14.97B this quarter. The portfolio is diversified with recent 13F reports showing well over 500 different positions although most of them are very small. There are 44 securities that are significantly large (more than 0.5% of the portfolio each) and they are the focus of this article. The largest five stakes are Microsoft Corporation, Alphabet, Apple, UnitedHealth, and Oracle Corporation. They add up to ~17% of the portfolio.Jeremy Grantham founded GMO Capital in the early 70s. Their primary capital allocation mechanism relies on their internal prediction of market direction over the long term. The predictions are based on the philosophy that all asset classes and markets revert to mean. Over the years, this strategy has resulted in them vastly underperforming in bull markets and catching up when markets correct. In recent years, they have underweighted US equities and that has caused several years of relative underperformance. As of January 2020, their 7-year asset class real return forecast is for US Equity asset class to have a negative 4.7% annualized return on one end and Emerging Value asset class to have a positive 9.6% annualized return at the other extreme. The entire bond category is also forecasted to have negative annualized real returns over the next 7 years. The firm currently has $62B under management, a far cry from almost double that at the peak. The assets are distributed among separately managed, institutional, and mutual fund accounts. Their flag ship mutual fund is GMO Benchmark-Free Allocation Fund (GBMFX) which was incepted in 2003.New Stakes:Humana Inc. (HUM) and Lyft Inc. (LYFT): These are small new positions established this quarter. HUM is a 0.88% of the portfolio stake purchased at prices between $253 and $371 and the stock currently trades at ~$314. The 0.60% LYFT position was established at prices between $37.70 and $49.50 and it is now well below that range at $24.17.Stake Disposals:Altaba Inc. (AABA), iShares MSCI EAFE ETF (EFA), and SunTrust Banks (STI): These three positions were disposed during the quarter. The original AABA stake was from Q2 2017 and was frequently traded. Altaba made a pre-dissolution distribution of $51.50 per share in September and the stock is no longer traded.  Most of the 1.41% EFA position was purchased last quarter at prices between $61 and $67. It was disposed this quarter at prices between $63 and $70 and it is now at $52.91. STI was a 1.41% merger arbitrage stake built during Q2 & Q3 2019. SunTrust Banks merged with BB&T in an all-stock deal to form Truist Financial Corp (TFC) and that transaction closed in December.Stake Increases:Oracle Corporation (ORCL): The ~1% ORCL position is a very long-term stake. The position was already at around 14M shares in 2007. The next two years saw the stake built to a much larger 62M share position at prices between $15.50 and $24.50. Next few years saw selling at higher prices and by 2017 the stake was back at 14M shares. The five quarters thru Q2 2019 saw another ~45% selling at prices between $44 and $57. The stock is currently at $47.93. Last two quarters have seen minor increases.Alibaba Group Holdings (BABA): BABA is a 2.59% of the portfolio stake established during Q2 & Q3 2016 at prices between $76 and $108. Q1 2017 also saw a two-thirds increase at prices between $94 and $108. Since then, the activity has been minor. This quarter saw a ~3% stake increase. The stock currently trades at $194.Johnson & Johnson (JNJ): JNJ is a very long-term stake.  In their first 13F filing in 2005, the position was already at ~170K shares. The position size peaked at around 26M shares in 2009. The stake was sold down by ~40% in 2014 at prices between $88 and $109. 2016 saw another ~50% selling at prices between $97 and $125. The ten quarters thru Q2 2019 also saw minor selling almost every quarter. The pattern reversed in Q3 2019: 23% stake increase over the last two quarters at prices between $127 and $146. The stock currently trades at ~$134.Wells Fargo (WFC) and US Bancorp (USB): These two medium-sized positions were built in 2017. The 2.17% USB stake was purchased at prices between $50 and $56 and the stock currently trades well below that range at $37.10. The bulk of the 2.28% WFC position was purchased in Q3 2017 at prices between $49.50 and $56 and it is now well below that range at $30.89. Both positions have seen minor increases in the last two quarters.Texas Instruments (TXN): TXN is a 1.85% of the portfolio position. The majority of the stake was purchased in Q3 & Q4 2016 at prices between $63 and $75. The stock currently trades at ~$106. Last few quarters had seen minor selling while this quarter there was a ~10% stake increase.Eli Lilly (LLY): LLY is a very long-term 1.56% of the portfolio position. The stake was minutely small till 2008. The following year saw a ~3.5M share purchase at prices between $30.50 and $38. The position has wavered. Recent activity follows: Q1 2019 saw the position almost sold out at prices between $107 and $116. The stake was rebuilt next quarter at prices between $111 and $129. It currently trades at ~$139.Coca-Cola (KO): KO is a very long-term 1.24% of the portfolio stake. The position was already a large 7M share stake in 2005. That original stake was built to 23.7M shares during the 2007-2008 timeframe at price between $20 and $32. The sizing peaked at almost 39M shares in 2012. The next five years saw the position sold down by ~90% to a ~3.7M share stake at prices between $37 and $47. Since then, the activity has been minor. The stock is now at $48.50.Abbott Labs (ABT), Becton Dickinson (BDX), British American Tobacco (BTI), Cypress Semiconductors (CY), Honeywell International (HON), MasterCard (MA), Visa Inc. (V), Wellcare Health Plans (WCG), and Wabco Holdings (WBC): These very small (less than ~1% of the portfolio each) stakes were increased during the quarter.Stake Decreases:Microsoft Corporation (MSFT): MSFT is currently the top position in the portfolio at 4.20%. It is a very long-term stake. The 2007-2008 period saw the stake built from ~5.6M shares to over 59M shares at prices between $19 and $35. The position size peaked in 2011 at ~68M shares. The next four years saw the stake sold down by ~80% at prices between $28 and $56. Since then, the position has wavered. Recent activity follows: last two years saw ~60% selling at prices between $87 and $159. The stock currently trades at $159. GMO is harvesting huge long-term gains.Alphabet Inc. (GOOGL): GOOG is a top three 4.12% position. The long-term stake was built during the 2007-2014 timeframe at low prices. The position size peaked at ~2.6M shares in 2014. Last five years have seen the stake reduced to ~460K shares at prices between $510 and $1362. The stock currently trades at $1214.Apple Inc. (AAPL): AAPL is a top three 3.48% long-term stake. It was a fairly large stake in 2005 but was sold down next year. The position was rebuilt in 2007 but was again sold down next year. Similar trading pattern continued over the next several years. 2014 saw a ~60% stake increase at prices between $71 and $119 while the following year saw a ~45% selling at prices between $106 and $129. Last four years have seen another ~75% reduction at prices between $93 and $298. The stock is now at $278.Medtronic Inc. (MDT), Merck & Co. (MRK), and UnitedHealth Group (UNH): These three medium-sized stakes saw minor trimming this quarter. All three have been in the portfolio for over 15 years. MDT & MRK stakes were reduced to minutely small stakes in 2014. The MRK stake was sold down at prices between $50 and $62. It was rebuilt in H1 2018 at prices between $53 and $63. Last few quarters have seen only minor adjustments. The stock currently trades at $76.76. The ~3% of the portfolio stake in UNH was already a very large ~18M share position in 2005. The position size peaked in 2007 at over 20.5M shares. Last five years have seen a ~75% selling at prices between $102 and $296. The stock is now at $272. The MDT stake was sold down in 2014 at prices between $56 and $76. It was built back up next year at prices between $66.50 and $80. Last five years have seen minor adjustments every quarter. The stock currently trades at $88.82.3M Company (MMM): The bulk of the original ~4.5M share stake was purchased in 2007 at prices between $74 and $94. The period thru 2014 saw minor adjustments most quarters but the sizing remained remarkably steady. Since then, the position was reduced. 2017 saw a ~80% selling at prices between $175 and $241. It was rebuilt next year at prices between $184 and $259. Last four quarters have seen only minor adjustments. The stock is currently at ~$142 and the stake is at ~2% of the portfolio.American Express (AXP): AXP became a significant part of the portfolio during the three quarters thru Q2 2016 when around 6.5M shares were purchased at prices between $59.50 and $66. Next year saw a ~50% selling at prices between $52.50 and $75. Last two years have seen only minor adjustments. The stock currently trades at $99.60 and the stake is at ~2% of the portfolio.Accenture plc (ACN): ACN became a significant part of the portfolio during the 2013-2014 timeframe when around 3.8M shares were purchased at prices between $69 and $85. Last five years have seen a combined ~50% reduction thru minor selling most quarters. The stock currently trades at $167 and the stake is at 2.19% of the portfolio.Anthem Inc. (ANTM): ANTM position was first purchased in 2014. The bulk of the current ~2% portfolio stake was established in 2017 at prices between $144 and $232. The stock currently trades at $270.Booking Holdings (BKNG), Carvana Inc. (CVNA), Cisco Systems (CSCO), Cognizant Technology (CTSH), Costco Wholesale (COST), Facebook Inc. (FB), iShares Core MSCI Emerging Market ETF (IEMG), Philip Morris (PM), Royal Bank Canada Montreal (RBKDF), STMicroelectronics (STM), TJX Companies (TJX), Taiwan Semi (TSM), Toronto Dominion (TD), and United Technologies (UTX): These small (less than ~1% of the portfolio each) stakes were reduced this quarter.Kept Steady:iShares iBoxx Investment Grade Corporate Bond ETF (LQD): The very small 0.65% stake was kept steady this quarter.Below is a spreadsheet that shows the changes to Jeremy Grantham's GMO Capital 13F portfolio holdings as of Q4 2019:--- below are OFB updates – first FA article in Q4 2019 ---"