Primecap is an investment firm founded in 1983. They became well-known for their managing US-equity portfolio for the giant Vanguard. In 2004 they launched their mutual funds. The firm always had a large AUM but it managed to keep a low profile. Primecap Management portfolio stocks are valued at $126 billion divided into 325 holdings.
The biggest holding which takes about 12% of the portfolio is Eli Lilly And Co. In distant second place is Micron Technology followed by Microsoft. Other important holdings include Amgen Inc, KLA Corp, and FedEx.
Their investment strategy is based on four pillars: long-term investment horizon, value investing, reliance on fundamental research, and individual decision-making. In the last 5 years, their cumulative returns slightly beat the S&P 500 index. For in-depth information about their portfolio, strategy, and performance, stay with us.
Top Holdings
- Eli Lilly And Co (NYSE:LLY) with 12.73% of the portfolio
LLY is the biggest holding in the Primecap portfolio, which consists of 22.2 million shares. They bought a massive stake of 44 million shares in the company more than a decade ago. Then the price was $54, and since 2014 they have been almost constantly decreasing the stake in this holding. In the last three and a half years they sold about 19 million shares. Since 2013 the price rose to $777 generating a massive return of 1288%.
- Micron Technology (NASDAQ:MU) with 3.26% of the portfolio
Like with LLY, Primecap used the same tactic with Micron Technology. They bought a large stake in the company and watched it gain value. The majority of 37.5 million shares were bought for under $10, while their current value is $117. The company invested $444 million in the company, while the current value of this holding is $4.42 billion. This proved to be a lucrative trade, and it generated a return of 896%.
- Microsoft (NASDAQ:MSFT) with 3.21% of the portfolio
Microsoft is another example of a long-term commitment to the investment. Primecap bought a 61 million share large stake in Microsoft for then good price of $27. Since then they are slowly trimming the holding and now own 10.4 million shares. They invested $291 million into Microsoft while the current value skyrocketed to $4.36 billion, resulting in a gain of 1396%.
- Amgen Inc (NASDAQ:AMGN) with 3.06% of the portfolio
Now we can follow the pattern of the Primecap investment approach. Find a good undervalued company, make a large investment, and wait it out. Most of their biggest holdings are just this. A long-term planned investment and Amgen is no different. They owned over 40 million shares at the beginning when the price was at $88. Slowly they reduced their position to 14.6 million. In the meantime, the price went above $200 in the last couple of years. Primecap invested about $1.31 billion, while the current value of the position is $4.15 billion. This trade delivered a gain of 217%.
- KLA Corp (NASDAQ:KLAC) with 3.03% of the portfolio
KLAC is another good investment call made by Primecap portfolio managers. In the last 10 years, their stock rose from $53 to $700. They currently own 5.89 million shares valued at $4.11 billion. In the last three years, they sold about 4 million shares for prices between $200 and $400. This position generated a 1042% gain so far.
- FedEx (NYSE:FDX) with 2.76% of the portfolio
Primecap owns 12.9 million FedEx shares, after several trimmings during 2023. Their total investment in FedEx was $1.45 billion, while the value of the position jumped to $3.74 billion, resulting in a gain of 159% so far.
- Biogen Inc (NASDAQ:BIIB) with 2.59% of the portfolio
Primecap owns 11.19 of all Biogen stocks making them the largest stakeowner in the company. Their position holds 16.3 million shares, and the entire investment cost Primecap $2.77 billion. The current value of the holding is $3.51 billion, netting a gain of 27%. In 2024 the stock price declined from $267 to $215.
- Intel Corp (NASDAQ:INTC) with 2.45% of the portfolio
Like Biogen, Primecap is also the biggest investor in Intel Corp. They own 75.2 million shares, and they have been increasing this position in the last three years. Primecap invested $2.57 billion into this position, while its present value is $3.32 billion. Intel has delivered a modest return of 30% so far.
Take A Look At Bank of America Names Eli Lilly a Top Pick:
Key Sector
Primecap favors investing in the technology and healthcare sectors, and they take the majority of the portfolio. However, they managed to diversify it by investing in all key sectors. The current sector allocation looks like this:
- Technology with 37.9% of the portfolio valued at $51.3 billion
- Healthcare with 30.5% of the portfolio valued at $41.3 billion
- Consumer Discretionary with 10.5% of the portfolio valued at $14.3 billion
- Finance with 8.3% of the portfolio valued at $11.3 billion
- Industrials with 7.7% of the portfolio valued at $10.4 billion
- Energy with 2.7% of the portfolio valued at $3.63 billion
- Materials with 0.8% of the portfolio valued at $1.02 billion
- Consumer Staples with 0.4% of the portfolio valued at $596 million.
Primecap Management Portfolio Approach
The cornerstones of the Primecap Management investment approach are:
- Commitment to fundamental research
The company’s analysts are encouraged to develop independent thinking and to have courage against the herd. The primary focus of the analysis is to determine if the company has a long-term capacity to grow. The evaluation is compared to other Wall Street analysts, and if the company stands better than they think, that is a good sign.
The professionals are investigating whether the company has something new and attractive to offer in the future, like a product or a service. Also, factors like a new market breakthrough, a change in management, and a shift in demand and supply are taken into account.
- Looking at a long-term investment horizon
The company is a target for investment if it shows the potential to outperform the market in the period of the next three to five years. Professionals in the fund are looking for signs of undervaluation of the company. Also, sectors that are at the moment out of favor, are on the top list of funds analysts and portfolio managers.
- Focus on individual investment-making decisions
The fund management avoids large group meetings to exchange opinions. They want their managers to make independent decisions, and they have all the freedom they can ask for.
- Following the value investing principles
Executives in Primecap Management believe that identifying undervalued companies early on creates a market advantage. Investing in companies not recognized by the market, and waiting for them to blossom has proven to be the winning formula for both the fund and its investors.
Primecap Management Portfolio Performance Analysis
Historical Portfolio Performance
Since 1989 the fund has generated cumulative gains of 7325.51% compared to the 1598.80 gain of the S&P 500 index. This translates into a yearly return of 13.10% compared to the index’s return of 8.43%.
The four-to-one gain in favor of the fund remained when we look at the 25-year cumulative gains. The fund generated 1097.35% while the index managed 285.85%. When looking at yearly gains it comes to 10.44% to 5.55% in favor of the fund.
In the last ten years, the gap between the fund and the index narrowed down. The fund managed to create a 239.13% gain, while the index accomplished 158%. Investors in the fund got 13% annual returns, in comparison to the index and its 9.94% return.
The fund managed to beat the index by a margin in the last three years. The cumulative gain of the fund is 32.39%, and the index generated a 27% return. In 2023 the fund also beat the index 28.09% to 24.23%.
Notable Success
Some of their biggest success stories are the long-standing positions in their biggest holdings:
- Eli Lilly And Co
- Micron Technology
- KLA Corp
- Microsoft
- Adobe Inc (NASDAQ:ADBE)
- Texas Instruments (NASDAQ:TXN)
We can see that Primecap is also not keen on selling its best picks. They may reduce their positions but will keep significant shares held in the winning companies.
Notable Failure
- Calithera Biosciences (OTCMKTS:CALA). In 2019 the company bought 474 thousand shares at $75. They slightly increased this holding in the next two years. But, in 2022 they decided to exit from it, due to the collapse of the company. They sold their stake at $4.64, $3.42, and $2.39.
- TuSimple Holdings Inc (OTCMKTS:TSPH). In 2021 Primecap bought over 100 thousand stocks at $43. A year later the company collapsed, and Primecap sold their stake at $9, $3.5, and $1.6.
Risk Management
Like most funds focused on value investing, the key risk management tactic is buying below the intrinsic value of the security. In the case that the company recognizes the true value of the company before the market, it will benefit from it in the long term. In case that they made a mistake, the loss will not be grave.
Besides buying cheap, the company also tries to keep a diversified portfolio. Positions amongst holdings are equally divided, and the managers aim to invest in different sectors. This way they avoid creating a concentrated portfolio. In case of a downturn in a sector, it doesn’t reflect on the majority of their holdings.
Outlook and Future of A Primecap Management Portfolio
Primecap Management is one of the funds with constant and highest performance ratings. They are managing to hold on to strong performers, while getting rid of underperformers They managed to avoid large losses, mostly due to not waiting for the holding to lose its core value, but rather choosing to let it go on time.
When looking at their top holdings like LLY, MU, MSFT, and KLAC, to just name a few, are performing very well.
FAQs
What Does Primecap Management Company Own?
Primecap Management Company doesn’t directly own companies, because they work as an investment management firm. Through their portfolio, they have a stake in 325 companies, including giants like Microsoft, Alphabet, Tesla, Intel, and Nvidia.
Who Are the Largest Shareholders of Primecap Management?
Specific information about Primecap Management ownership is not publicly available.
Final Thoughts
Primecap Management succeeded in maintaining above-average performance for decades. Their value investing approach withstands the test of time, and portfolio managers carefully pick their long-term targets. Their portfolio value is on the rise, and their top players are performing well.
Some of their new additions like Broadcom Inc, and Being Inc. will have to prove their worth, but all in all, their position looks very comfortable and safe at the moment.
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