Chief Investment Strategist
Summary: Berkshire Hathaway have recently increased its inflation protection by buying a stake in the world's largest gold miner and buying natural gas pipelines and storage facilities. Over the weekend it announced 5% stakes in five Japanese investment companies which looks like a bet on the commodities sector and the JPY. Warren Buffett wants less of the US and more of the world. Every investor should consider the same action.
Berkshire Hathaway announced over the weekend that it has acquired a stake of more than 5% in five Japanese trading companies, although they are more like conglomerates, which would have cost Berkshire Hathaway around $5-6bn to acquire. The amount fits close to the amount of JPY the company has raised through bonds in September 2019 and March 2020.
The five Japanese companies are Mitsubishi, Mitsui & Co, Sumitomo, ITOCHU and Marubeni. Shares in these companies were up between 4-10% in today’s session. In JPY terms these stocks have not been super compounders except for ITOCHU which is up 113% over the past five years equivalent to 16.3% annualized. Marubeni is the worst performing stock of the group up only 6% over five years.
When you look at the five investment companies, they are not the typical Warren Buffett company. They have distinct brand or strong competitive advantage judging from their low return on invested capital (ROIC) and low operating margin (EBITDA margin). They are all engaged in a wide range of businesses across energy, commodities, power plants, mining, infrastructure, shipping etc. However, these sprawling investment companies come with a low valuation as the average free cash flow yield on these companies is 6.6% which is far above the overall equity market and the current offered interest rate in corporate bonds. The bet on these companies look most of all a currency bet and then a “safe” way to invest in a complex foreign economy like the Japanese where Berkshire Hathaway probably does not feel it has an analytical advantage.
| Name | Ticker | Market cap. (USD, mn.) | ROIC (%) | EBITDA margin (%) | FCF yield (%) |
| Mitsubishi Corp | 8058:xtks | 35,246 | 1.5 | 5.1 | 6.0 |
| Mitsui & Co Ltd | 8031:xtks | 31,031 | 1.8 | 6.3 | 3.4 |
| Sumitomo Corp | 8053:xtks | 16,239 | 1.4 | 5.1 | 5.1 |
| ITOCHU Corp | 8001:xtks | 40,756 | 4.4 | 7.3 | 9.1 |
| Marubeni Corp | 8002:xtks | 10,496 | -2.8 | 0.6 | 9.2 |
Source: Bloomberg and Saxo Group
The main message last week from the Fed announcing their new average inflation targeting is that the Fed would like to see a structurally weaker USD over time driven by higher inflation. Warren Buffett has been warming up for that message over the past year and seems to have put Berkshire Hathaway onto a new trajectory diversifying its assets across more geographies and currencies. Besides these five Japanese investment companies Berkshire Hathaway recent bought a large stake in the world’s largest gold miner Barrick Gold and in July it bought natural gas pipelines and storage facilities from Dominion Energy. All these bets are direct ways to get the portfolio ready for higher inflation and any investor should probably also think about ways to create inflation hedges in their portfolios. The energy, agriculture and gold have typically done well during inflationary periods.
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)