Charles Brandes Portfolio

HFA Padded
HFA Staff
Published on
charles brandes portfolio

Charles Brandes founded Brandes Investment Partners in 1974 which at its peak managed over a $100 billion AUM. He stepped down from the chairman position in 2018. The CEO of the company between 2013 and 2024 was Brent Woods, while Oliver Murray will fill this position from May 1. Charles Brandes’s portfolio stocks are currently valued at $7.07 billion.

The largest holding in the portfolio is Embraer S.A. followed by Wells Fargo & Co and Bank Of America Corp (BAC). A recent addition to the portfolio is Smith & Nephew Plc (LON:SN). The portfolio is highly diversified along 182 holdings, while the largest one takes 6.5%.

Brandes Investment Partners is at its core a value investing company, that offers a wide variety of investment strategies from global equity, emerging markets equity, and a global balanced approach. Stay with us while we discuss and analyze Brandes’s investment career, portfolio, and future outlook.

Key Holdings

Embraer S.A. (BVMF:EMBR3) with 6.46% of the portfolio

This Brazilian multinational plane manufacturer has been an important part of Brandes’s portfolio for over a decade. The company currently owns 17.6 million stocks and they are the biggest stake owner in the company. Their stake is valued at $456 million, while they invested in it about $410 million. This holding brought a gain of 11%. Currently, the stock is at $26 which is the highest value in the last five years.

Wells Fargo & Co (NYSE:WFC) with 3.43% of the portfolio

Wells Fargo is another long-term investment made over a decade. Brandes is the 5th largest stakeowner, with 4.21 million shares. During 2023, Brandes Investment Partners increased this position for an additional 1.4 million stocks. The current value of the holding is $242 million, while the investment is at a reported $158. The holding generated a 53% gain for the investors. In 2024 the stock price saw an increase from $49 to $58.

Bank Of America Corp (NYSE:BAC) with 2.45% of the portfolio

Bank of America is an investment made while Charles Brandes was still the CEO of the fund, more than a decade ago. They started big by acquiring over 14 million shares at a low $12 a share. The fund presently owns 4.59 million shares valued at $173 million. The price of stock is on the rise, and its value in 2024 moved above $35.

Micron Technology (NASDAQ:MU) with 2.30% of the portfolio

By Brandes Investment standards this is a newer investment, dating back to 2020. Since then they have been increasing their position to a current 1.33 million shares. They invested in them $83.4 million, while the value skyrocketed to $163 million, generating a gain of 95%. Micron Technology stock saw a steep rise in 2024, due to the increased need for their products. At the beginning of 2024 the price was at $82 while now it is $122.

McKesson Corporation (NYSE:MCK) with 2.26% of the portfolio

Since the initial investment in 2016, MCK has proven to be one of the most lucrative deals made by the fund. They own 303 thousand shares valued at $160 million. They invested $18.2 million, resulting in a gain of 232%. Since the beginning of 2022, the stock price has been on a constant rise, from $250 to the current $527.

Citigroup Inc. (NYSE:C) with 2.24% of the portfolio

In more than a decade of trading Citigroup stocks, the fund generated a gain of 31%. Their investment is measured at $121 million, while their current stake of 2.57 million shares is valued at $159 million. In 2023 the fund increased its position in this holding by an additional 700k stocks. In Q4 2023 the stock fell to its minimum value of $38 while in the last quarter, it showed potential for better results raising its price to $61.

Cemex SAB de CV ADR (NYSE:CX) with 2.22% of the portfolio

Cemex is a Mexican multinational building material company based in Monterrey. Their stock price has fluctuated in the last decade between $4 and $12, while its present value is $9. Brandes has kept it as a regular and significant part of the portfolio for more than 15 years. In that period the company invested $127 million while its current 17.9 million shares stake is valued at $157 million. This investment brought a gain of 23% for the investors.

Cigna Group (NYSE:CI) with 2.16% of the portfolio

Cigna Group is a health insurance company based in Bloomfield Connecticut. Brandes Partners have been investing in it since 2018 when they first brought about 240 thousand shares. Their stake has grown since then to 427 thousand shares with a value of $153 million. The company invested in the holding of $95.2 million generating a gain of 60% so far. In 2023 while the price moved between $250 and $300 they bought an additional 120 thousand shares, with the price gaining value in 2024 and reaching $357.

Halliburton Co. (NYSE:HAL) with 2.09% of the portfolio

Halliburton is an oil service company responsible for the majority of the world’s fracking operations. In the 5 years of investing in this company, Brandes generated a gain of 83%. They own 3.6 million shares and are the largest stake owners in the company. The value of the holding is $148 million while they invested in it $80.9 million. In 2023 the fund increased its position by roughly 1 million shares.

Merck & Co. (NYSE:MRK) with 2.02% of the portfolio

This pharmaceutical giant has been a regular part of Brandes’s portfolio for more than 15 years. The 1.13 million shares stake is worth $143 million, and when we compare it to the investment in the holding equaling $62.4 million, we get a gain of 129% for the investors. In 2023 they increased their position for an additional 250 thousand stocks, to see their price rise in 2024 from $107 to $126.

Sector Allocation

Brandes Investment Partners are always monitoring and adjusting their position sizing, and keeping their portfolio diversified amongst sectors. Their portfolio is almost perfectly spread amongst the crucial sectors which can be seen from this list:

  1. Finance with 25% of the portfolio valued at $1.76 billion
  2. Industrials with 20.8% of the portfolio valued at $1.47 billion
  3. Technology with 18.9% of the portfolio valued at $1.34 billion
  4. Healthcare with 14.7% of the portfolio valued at $1.04 billion
  5. Energy with 6.6% of the portfolio valued at $469 million
  6. Consumer Discretionary with 5.5% of the portfolio valued at $390 million
  7. Materials with 3.9% of the portfolio valued at $276 million
  8. Telecommunications with 2.3% of the portfolio valued at $163 million
  9. Consumer Staples with 1.6% of the portfolio valued at $112 million
  10. Utilities with 0.3% of the portfolio valued at $19 million
  11. Other with 0.4% of the portfolio valued at $25.5 million. 

Charles Brandes Investment Philosophy & Strategies

Charles Brandes met Benjamin Graham in 1971 after for long being impressed by his strategy, career, and consistent performance. Graham’s book Security Analysis was like a bible for Brandes’ investing career, and a cornerstone of his strategy.

Since the inception of his fund in 1974 he has stuck with the value investing principles that Benjamin Graham defined decades earlier. He was always on the lookout for stocks on discounts, especially during crises and booms during his four-decade investing career. 

Besides the Brandes flagship funds, they offer a wide array of other investing options like global equity and fixed income, emerging markets equity, and international and United States small-cap equity, amongst others. But, they are all based on long-term value investing principles that demand discipline and patience.

Like all value investing managers, Brandes was looking to buy below the intrinsic value of the company. Is the discount caused by a crisis in the company, or because it was still not recognized by the market, was not the primary question. The question was whether the company could bounce back, and deliver gains to the investors.

He often showed a contrarian approach which can be primarily seen in the 90s. When the herd went for tech and computer stocks, he stacked up out of favor automotive stocks. That brought him substantial gains after the dot net bubble which resulted in new investors pouring capital into the fund.

During the 90s and 2000s, he opened a lot of funds, and divided responsibility among a number of managers. He always opted to keep responsibilities amongst a group of people, rather than keeping all the decision-making for himself. 

The fund didn’t always manage to beat the indexes, but Brandes was always convinced of the success of the value investing strategy. He frequently emphasized the importance of looking beyond a short-term period, and that a patient investor will in some moments reap the benefits of his correct choices and willingness to stay diligent.

Brandes opted for investing in businesses and industries he knew and understood. That way he would have at least some potential outlook for a period in front of them. 

His approach to investment risk was based on assessing long-term fluctuations in the economic value of the companies themselves. He didn’t pay much attention to short-term volatility because as a value investor, he would look at a longer time frame. 

The difficulty in predicting downturns inside companies and their sectors is what pushed him to work on diversification strategies. That was his key way to combat and minimize losses due to sometimes bad choices.

After he departed from the fund in 2018 the Brandes Investment Partners kept utilizing value investing strategy. 

Charles Brandes Performance Analysis

Historical Performance

Available data for the Charles Brandes funds go back three decades. Between 1994 and 2023 the fund delivered 931% cumulative gains, equaling 8% annual gains. In the same time frame, the S&P 500 almost equaled the fund and delivered 921% gains. 

The period between 1999 and 2003 was the period when the fund easily beat the index. Then it generated a gain of 404% while the index trailed with 285%. But, in that period annual returns fell to just 6.69%.

Between 2004 and 2023 the fund underperformed the index generating just 233% gains, while the index managed to deliver 327%. That means that the investors since 2004 would get 6.20% annual returns from the fund, compared to the index’s 7.54%. Especially bad years were 2008, 2007, and 2005.

In the last 15 years after the 2008 economic crisis, the fund again managed to beat the index. From 2009 they created a gain of 542% or 13.20% annual returns. In contrast, the index managed to generate 427.27% returns or 11.72% per year. 2009 and 2013 were very good years. 

The last 10 years were marked by lower performance when the index beat the fund by a small margin of 158% to 154%. The worst years for the fund were 2015 and 2020. The fund came back from -2.19% in 2022 and generated an 11.28% gain in 2023. But, at the same time, the index materialized more than double the performance of the fund.

Notable Success

Japanese stocks during the 80s

While the Japanese economy was booming and the stock prices were rising, Brandes decided to invest in undervalued Japanese companies. This proved to be a great long-term decision, because these companies gained in value, and delivered significant returns over the intrinsic value.

Success in the emerging markets

Brandes has a wide knowledge of markets all around the world. Throughout his career, he was heavily invested in alternative markets including Brazil, Russia, China, and India. Then there were not so many investors ready to play in those markets which left him enough space to navigate. Although not all investments were positive, the majority brought solid returns.

Notable Failure

Accusations Of Stolen Databases

In 2006 AIM investment management filed a lawsuit against Brandes’ company for stolen databases. Some former AIM employees left the company and brought with them sensitive data to the Brandes Partners. The AIM demanded $600 million for reparation, and Brandes decided to settle.

Grifols SA (BME: GRF) holding

A pharmaceutical company focused on producing plasma-derived medicine didn’t prove its worth over the years. In 2020 the company bought 675 thousand shares at $18.50. After that they continued to increase their position, acquiring a total of 13.5 million shares. Their stock has been losing value for years, and it plunged in 2024 with value going under $8.

Future Outlook

Charles Brandes left the company in 2018, but he hasn’t been the crucial decision-maker since the early 2000s. The fund in the last year managed to beat the index with 38.95% returns, while the index managed to create 27%. 

The fund is sticking with its original value investing approach. In recent years they made some good buys like Halliburton Co. McKesson Corporation and Micron Technology. They are still focused on the global market having funds operating in Europe and BRICS countries.

They avoided following the herd and are not owners of big stakes in the currently booming AI sector. That could still go both ways, but at the moment they are at a loss. It is highly unlikely to expect a major turn in their approach, so it all falls to the performance of their big players which are showing promise in 2024.

Final Thoughts

Following the strategy of Benjamin Graham in the 21st century is not an easy feat to achieve. A lot has changed in the market, some call it more efficient than before, but the impact of new strategies cannot be denied.

Brandes’ company is still keeping to its core values of finding companies that are traded below their intrinsic value which has become harder than ever. Global challenges put some strain on their diversified network of international funds. In 2023 the fund started offering ETFs which is a new addition to their already wide array of products. 

HFA Padded

The post above is drafted by the collaboration of the Hedge Fund Alpha Team.