4 Stocks Behind Bill Gates $45 Billion Portfolio

The Bill & Melinda Gates Foundation is a philanthropic powerhouse that lists among its accomplishments the total eradication of two types of polio virus, improving agricultural outcomes in impoverished countries and delivering health services to millions worldwide.

Making these initiatives possible is a $45 billion investment portfolio that generates the money needed to fund the foundation’s efforts.

Surprisingly, about 80% of this sum is in just four carefully selected stocks, each of which plays its own unique role in the Gates portfolio.

Key Points

• The Gates Foundation’s $45 billion portfolio has 80% in just four stocks.
• Microsoft leads with $12.5 billion in AI-driven growth, while Berkshire Hathaway provides steady compounding and diversification.
• Waste Management and Canadian National Railway offer recession resistance and high dividends, balancing the portfolio.

Microsoft Is a $12.5 Billion Bet

It should come as no surprise that Gates’ biggest holding is a $12.5 billion stake in Microsoft (NASDAQ:MSFT) that accounts for over a quarter of the total portfolio.

Though the stock has hit something of a plateau this year by gaining just 9.9% YTD, the company has been among the best-performing stocks of the last several decades. Indeed, a $1,000 investment made in the company’s IPO would be worth multiple millions of dollars today.

By far the largest development at Microsoft at the moment is the company’s growing dominance in AI. Just as NVIDIA has become the leading force in AI hardware, Microsoft has become the undisputed frontrunner in developing AI software products.

In large part, this is thanks to its early investment in OpenAI, the company responsible for creating ChatGPT. Thanks to this early stake, the company is expected to be generating $10 billion in annual revenue from its AI investments by the end of this year.

Outside of AI dominance, though, Microsoft also remains highly valuable as the world’s leading software company. The company accounts for over 70% of desktop operating systems worldwide and is also one of the three majors in the cloud computing industry.

These business lines even have significant synergy with Microsoft’s ongoing AI development, providing a huge base of existing customers to introduce new AI-driven products to as it creates them.

Friendship with Buffett Leads to 22.6% Stake

Bill Gates and Warren Buffett first met in 1991, afterward striking up a friendship that has lasted to this day. As a result, Buffett also became a major donor to the Gates Foundation, giving the charity a huge number of his personal shares in Berkshire Hathaway (NYSE:BRK.B). Today, Berkshire accounts for 22.6% of the foundation’s portfolio.

Like Microsoft itself, Berkshire has been a massively successful compounding investment that has stood the test of time. While focused on much more conventional investments than Microsoft’s high-growth tech enterprises, Berkshire has multiplied its value time and time again over the years.

Indeed, an investment of $1,000 in Berkshire when it first went public would today be worth tens of millions of dollars. Earlier this year, Berkshire also became the first non-tech company to achieve a valuation of over $1 trillion.

Berkshire Hathaway shares provide a stable long-term growth component to the Gates portfolio. While Microsoft is likely to grow faster in the coming years as its AI investments continue to bear fruit, Berkshire Hathaway will continue to deliver less aggressive growth from a combination of its core insurance businesses, investments in public companies and operation of wholly-owned subsidiaries.

Garbage Is Big Business

Gates’ third-largest position is Waste Management (NYSE:WM), a company that handles trash removal, recycling and other environmental services. WM represents 14.8% of the portfolio, a significant drop from the amounts held in Microsoft and Berkshire.

This holding has punched above its weight this year, though, as Waste Management shares are up 21.8% YTD. While this still compares negatively to Berkshire’s 31.3%, WM has surprisingly outperformed Microsoft in the midst of a tech stock boom.

In addition to WM’s recent price appreciation, it also offers a significantly high dividend that kicks off abundant cash for the Gates Foundation. Each share of Waste Management pays $3 annually and yields just under 1.4%.

With 32.2 million shares in its portfolio, the foundation can expect to receive over $95 million a year in dividend income alone from its Waste Management position.

Better still is the fact that the dividend has trended steadily upward, appreciating at an annualized rate of 7.1% over the past 10 years.

Waste Management also provides an element of stability to the Gates portfolio. As an essential service provider, the company is quite recession-resistant.

With most of its revenues coming from extremely predictable trash collection contracts, WM is able to ride out macroeconomic shocks that affect many other businesses.

Even at the height of the unusual 2020-21 period, Waste Management suffered just two quarters of single-digit year-over-year revenue contraction before resuming its usual positive revenue growth.

Canadian National Railway

At 14.3%, Canadian National Railway (NYSE:CNI) rounds out the major holdings in the Gates Foundation’s highly concentrated portfolio.

As with other top investments, Canadian National has an excellent moat and the ability to remain dominant in its industry over the long term.

In CNI’s case, this moat arises from its sheer importance to the entire Canadian economy. The railroad is responsible for transporting an estimated C$250 billion of goods across the country annually.

Canadian National also offers a dividend yield that is even higher than Waste Management’s. Shares of CNI currently yield 2.3%, paying out $2.45 annually.

As a result, Canadian National is the best income producer in terms of yield among the Gates Foundation’s major investments. This fact may go some way toward explaining why, among the four top holdings, CNI is the only one that wasn’t reduced in the last quarter.

On thing in favor of Gates is that CNI hasn’t appreciated as much as the other top holdings in the portfolio, rising by just under 10% from the average cost basis of $98.83 but Canadian National Railway shares still trade at under 20x forward earnings.

With a net margin of over 30% and a return on equity of over 23%, the Gates Foundation cemented an attractive cost basis for its shares that is likely to leave plenty of room for appreciation in the future.