Earlier this week, I wrote about Berkshire Hathaway’s equity portfolio results for Q1 2009.  I based this analysis on the positions listed in the Form 13F report that institutional investment managers must file with the SEC each quarter.  Form 13F includes shares of foreign issuers only if those shares are held as ADRs that trade on a United States stock exchange.  Shares that trade on foreign exchanges are not reported on this form.  See question 40 on the Form 13F FAQ for additional details.  It turns out that three major Berkshire holdings are not included on Form 13F because they trade on foreign exchanges.  Let’s take a look at how these holdings performed in Q1. 

POSCO

POSCO is a steelmaker based in South Korea and its shares trade on the Seoul Stock Exchange.  Berkshire reported holding 3,947,554 shares of POSCO on December 31, 2008.  While POSCO ADRs also trades on the New York Stock Exchange under symbol PKX, it is apparent from the number of shares held and the market value on 12/31/08 that Berkshire holds the shares traded on the Seoul exchange which explains why the position is not listed in the Form 13F report. 

Date Shares *  Price (Won)  Value (Won) Won/USD Value (USD)
12/31/2008    3,947,554         380,000  1,500,070,520,000          1,262     1,188,645,420
3/31/2009    3,947,554         364,500  1,438,883,433,000          1,383     1,040,332,176
4/3/2009    3,947,554         387,500  1,529,677,175,000          1,339     1,142,786,728
Exch Rates from x-rates.com ;  Share price from posco.com; *assume constant share count

Assuming that Berkshire’s position in POSCO did not change during the quarter, we can see that the value expressed in US Dollars appears to have declined by $148 million.  Much of this decline is due to a strengthening of the US Dollar against the Won during this period.  We can see that in the first three days of Q2, POSCO’s share price moved up and the Won strengthened against the US Dollar resulting in a $102 million advance in the market value of the position expressed in US Dollars.  (Note that the $1,188 million figure I came up with on 12/31/08 differs from the $1,191 million figure in the annual report;  I am unsure why the difference exists but assume that a slightly different exchange rate may have been used in the annual report.)

Swiss Re

I wrote about Berkshire’s recent investment in Swiss Re convertible preferred securities last month.  Prior to this recent investment, Berkshire already held a significant stake in Swiss Re through a purchase of common stock in January 2008 which amounted to 3.2% of Swiss Re’s equity.  Berkshire reported ownership of 11,262,000 shares of Swiss Re common stock as of December 31, 2008.

Date Shares *  Price (CHF)  Value (CHF) CHF/USD Value (USD)
12/31/2008   11,262,000              50.30              566,478,600        1.0673        530,758,550
3/31/2009   11,262,000              18.64              209,923,680        1.1386        184,376,476
4/3/2009   11,262,000              22.02              247,989,240        1.1349        218,511,975
Exch Rates from x-rates.com ;  Share price from swissre.com *assume constant share count

We can see that Berkshire’s holdings in Swiss Re fell significantly in dollar terms during the quarter due mainly to the decline in share price in Swiss francs with the strengthening dollar contributing as well.  As I wrote in March, the decline in Swiss Re shares had much to do with a poor report for 2008 and the need for the company to raise additional capital.  Berkshire’s investment in the convertible preferred security paying 12% per annum and convertible into Swiss Re common stock at CHF 25 was a direct result of Swiss Re’s need to raise capital.  So, while there is no sugar coating the fall in the value of Berkshire’s existing Swiss Re stake, there is some consolation in the fact that Swiss Re’s difficulties have led to the new investment which appears to have highly favorable terms for Berkshire.

Tesco plc

Berkshire reported holding 227,307,000 shares of Tesco plc on December 31, 2008.  Tesco is a leading global retailer based in the United Kingdom. 

Date Shares *  Price (£)  Value (£) £/USD Value (USD)
12/31/2008   227,307,000              3.600              818,305,200        0.6840     1,196,280,925
3/31/2009   227,307,000              3.330              756,932,310        0.6994     1,082,214,649
4/3/2009   227,307,000              3.330              756,932,310        0.6773     1,117,543,473
Exch Rates from x-rates.com ;  Share price from tescoplc.com *assume constant share count

During Q1, the market value of Berkshire’s holdings in Tesco declined by approximately $114 million mostly due to a decline in Tesco’s share price along with a slight weakening of the British pound.  In the past three days, there has been a recovery in market value expressed in US Dollars due to a strengthening of the British pound.  Note that the figure shown above for December 31, 2008 in US Dollars differs from the $1,193 million shown in the Berkshire annual report.  As with the POSCO variance, I assume that this small difference is due to the use of a slightly different exchange rate in the Berkshire annual report compared to the data that I retrieved.

Impact of Foreign Holdings on Q1 Results

Assuming that Berkshire held all of the shares in POSCO, Swiss Re, and Tesco plc throughout the quarter, it appears that the US Dollar market value of these holdings declined by approximately $609 million.  It should be noted that there was a recovery of approximately $172 million in the first three days of the second quarter.

Warren Buffett does not focus on short term results when evaluating investment performance and neither should Berkshire Hathaway shareholders.  However, it is worth following the performance of the equity holdings as part of an attempt to understand the numbers that will be reported on the first quarter 10Q that will be released in early May. 

I’d like to thank “bellinghouse” from the Guru Focus forums for pointing out the omission of Berkshire’s significant foreign holdings from the Form 13F analysis.  Clearly, the performance of the foreign holdings in Q1 are very material to the overall results that will be reported on the Q1 quarterly report.

Berkshire’s Q1 Foreign Equity Performance
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