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This article is part of a series that provides an ongoing analysis of the changes made to Baupost Group's U.S. stock portfolio on a quarterly basis. It is based on Klarman's regulatory 13F Form filed on 02/13/2013. Please visit our Tracking Seth Klarman's Baupost Group Holdings article for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q3 2012.

Klarman's U.S. long portfolio decreased by around 7% during the quarter from around $3.3B to $3.1B. A large 7.5% position in Hewlett Packard (HPQ) was eliminated in the quarter and several other positions were trimmed substantially, thus accounting for the decrease in portfolio size. Since inception (1982), Baupost Group's U.S. long portfolio has accounted for between 2.4% to 15% of the Assets Under Management (AUM). The current allocation is at the high-end of that range but it was reduced by a combined 20% in the last two quarters. The rest of the AUM is diversified among cash, debt, real estate, and hedges. The fund continues to hold well over a quarter of the AUM in cash. The number of holdings in the U.S. long portfolio was reduced by one to 21 this quarter.

New Stakes:

American International Group (AIG): AIG is a large 7.45% position established this quarter at prices between $30.68 and $37.21. The stock currently trades just outside that range at around $38.50. The substantial new stake indicates a clear bullish bias.

Stake Disposals:

Hewlett Packard Co.: HPQ was Klarman's third-largest position behind News Corporation and BP Plc. in Q2 2012 at over 14% of the U.S. long portfolio. But, after a stake increase of over 55% in Q1 2012, the position was reduced by close to 50% last quarter and was eliminated this quarter. The stake was first established in Q4 2011 at a price-range between $22 and $37. The large stake increase in Q2 2012 happened at prices between $19.36 and $25.25. The stake reduction last quarter was at prices between $16.71 and $20.36 and the stake elimination this quarter was at prices between $11.71 and $17.21. The stock currently trades at around $17. The pattern of trades indicates that Klarman realized capital losses on HPQ, a somewhat unusual occurrence. The stake elimination indicates a bearish bias.

Sycamore Networks (OTCQB:SCMR): SCMR was a very small position that was established in the first two quarters of 2011 and was eliminated this quarter. The company announced it was winding down its operations in October 2012. Although the position was purchased at much higher prices, hefty special dividends along the way brought down Klarman's cost-basis.

Stake Increases:

NovacCpper Inc. (NCQ): NCQ is a minute 0.27% stake that was acquired in Q2 2012 as a result of the spin-off of NCQ from NovaGold Resources (NG). The position was increased last quarter by 50% at prices between $1.70 and $2.84 and by 10% this quarter at prices between $1.79 and $2.90. The stock currently trades at around $2. NCQ is a micro-cap with a $105M market capitalization. Klarman generally does not invest in such companies but the stake increase indicates a mild bullish bias.

NovaGold Resources Inc: NG is a 2.95% stake built up over the last five quarters at prices between $3.5 and $12. The stake was increased by one-third last quarter at prices between $3.68 and $6.19 and marginally this quarter at prices between $4.19 and $5.60. The stock currently trades at $4.32, near the low-end reached during the quarter. Klarman's consistent stake increase against falling prices indicates a strong bullish bias.

Viasat (VSAT): VSAT accounts for 12.9% of the portfolio. The position was increased marginally last quarter at prices between $33.85 and $40.85 and again this quarter at prices between $35 and $41. The stock currently trades outside that range at over $47. Klarman first purchased VSAT in 2008 at much lower price-points but has consistently built the stake over the last five years. The large position size and the stake increase represent a clear bullish bias.

Idenix Pharmaceuticals (IDIX): IDIX is a ~3.03% of the U.S. long portfolio stake that was built-up over several quarters starting in Q2 2011. It is a very volatile stock and the price fluctuated between $4.3 and $15 during the period of the stake acquisition. Last quarter, the position was increased by 20% when the share price varied between $4.36 and $11.02. It was increased by a whopping 60% this quarter at prices between $3.52 and $5.30. The stock currently trades at $4.71. The significant stake increase over several quarters indicates a clear bullish bias.

Stake Decreases:

BP PLC (BP): BP is Klarman's second-largest 13F position and represents 13.72% of the U.S. long portfolio. The stake was reduced marginally this quarter after a significant 16% stake reduction last quarter. The pattern of Klarman's trades over the last year is perplexing. The position was first established in Q2 2011 when the price-per-share varied between $42 and $46 and was decreased by ~22% in Q1 2012 at prices between $42 and $48. The last three quarters saw a stake increase of 40% in Q2 2012 followed by stake reductions totaling 20% in the last two quarters. The stock traded between $36.46 and $45.34 in Q2 2012 and between $39.63 and $43.86 during the last two quarters. Currently, it trades at $42.45. Despite the back-and-forth trades in the last few quarters, the large position size indicates a bullish bias.

News Corporation (NWS): News Corporation is Klarman's largest 13F position with the Class A (NWSA) and Class B shares together accounting for almost 17% of the portfolio. The position was trimmed marginally this quarter at prices between $23.57 and $26.24, after reducing it by 12% last quarter at prices between $21.73 and $25.22. NWS is a long-term holding and Klarman's cost-basis is very low compared to the current market price-range. The minor stake reduction does not signify a clear bias.

Oracle Corporation (ORCL): ORCL is a 10.5% of the U.S. long portfolio stake established in Q2 2012 when the price-per-share varied between $25.61 and $29.70. It was trimmed by around 15% last quarter at prices between $28.82 and $33.10 and by just over 22% this quarter at prices between $29.58 and $34. The stock currently trades at around $35 per share. The substantial stake reduction over a couple of quarters signifies a bearish bias.

Allied Nevada Gold (ANV): ANV is 2.59% of the U.S. long portfolio position that was reduced by over 43% this quarter. The position was increased by around 25% in Q2 2012 but was kept steady last quarter. The original stake was established in Q1 2011 at prices between $24 and $35. The stake increase in Q2 2012 happened at prices between $23.82 and $32.78 and the large stake reduction this quarter was at prices between $29 and $41. The timing of the sale was perfect as the stock currently trades well below that range at $23.11. The large stake reduction indicates a bearish bias.

Aveo Pharmaceuticals Inc. (AVEO), and Enzon Pharmaceuticals Inc. (ENZN): These are positions in the small-cap pharmaceuticals space, each accounting for around 1% of the U.S. long portfolio. AVEO was reduced marginally and ENZN was reduced by around 13% this quarter. Despite the stake reduction, the long-term nature of these positions indicates a mild bullish bias.

The rest of the portfolio remained steady during the quarter:

Rovi Corporation (ROVI): ROVI is a small 1.92% of the U.S. long portfolio stake established last quarter at prices between $10.01 and $19.14. The stake was kept steady this quarter and the stock currently trades at $17.25, within the price-range Klarman could have bought it at. The small stake does not indicate a clear bias.

Theravance Inc (THRX): THRX is a large 9.09% of the U.S. long portfolio position that was kept steady this quarter after reducing by around 7% last quarter at prices between $23.81 and $31.69. It is a very long-term position that has been in the portfolio since 2008. The stock currently trades at $22.13.

Genworth Financial (GNW): GNW is a relatively small 3.4% of the U.S. long portfolio stake established in Q2 2012 at prices between $4.89 and $8.38. A similar sized stake was earlier established in Q4 2011 at prices between $4.80 and $10.68, only to dispose it off the next quarter at prices between $6.55 and $9.54. The stock currently trades at $9.14.

Syneron Medical Ltd. (ELOS), Alliance One International (AOI), Central Pac Financial Corp. (CPF), and Ituran Location and Control (ITRN): These are very small positions (~1% of the U.S. long portfolio or less) that were kept steady this quarter. As the position sizes are very small, they do not indicate a clear bias.

Microsoft Corporation (MSFT) and CALLs: MSFT was a large 5.6% stake that was reduced by a whopping 80% last quarter at prices between $28.63 and $31.46. The position was replaced with a 1.61% position in MSFT call options this quarter. The original stake was purchased in Q2 2011 at prices between $23.70 and $26.71. It was trimmed by just over 40% in Q1 2012 at prices between $26.76 and $32.85 but was kept steady in Q2 2012. The 13Fs do not show the strike prices or expiry dates and so Klarman's bias on MSFT is unclear.

The spreadsheet below highlights changes to Klarman's U.S. stock holdings in Q4 2012:

(click to enlarge)

Source: Tracking Seth Klarman's Baupost Group Holdings - Q4 2012 Update