Baupost Group is one of the best known and largest value hedge funds in the world. Investors have often used Seth Klarman's portfolio as a means of generating ideas. In this post we'll discuss some top positions and also examine similar managers and their holdings.
Baupost has a stable portfolio concentrated in five holdings which make up around 60% of their investments: BP (BP) 14.7%, Viasat (VSAT) 13.8%, Oracle (ORCL) 11.2%, News Corp (NWSA) 11%, and Theravance (THRX) 9.7%. These stocks, which have been Baupost's largest holdings for several quarters, have performed quite well over the past year, with YTD performances of -0.19% with a 4.91% dividend yield , +23% , +6.24% , +14.35% , and -0.04% . Baupost's only new position this quarter is in American International Group (AIG) at 8%, while Klarman has redeemed his positions in Hewlett-Packard Company (HPQ) and Sycamore Networks (SCMR). Overall, their investments returns have been impressive and would have been a great boost to any retail investor's portfolio; studying such a stable and successful portfolio can lead to valuable insights.
While NWSA, BP, and ORCL are relatively popular positions in general, VSAT and THRX stand out as more distinctive to Baupost; a deeper analysis of these holdings may be revealing. VSAT is held by several other funds, including FPR Partners and MIG Absolute Return. Although FPR Partners is private and may not have any open investable funds, studying their top positions can generate new ideas. Their largest holding is in Arch Capital Group (ACGL), an insurance company with global operations, a low market beta, and +9% returns so far this year. MIG Absolute Return also holds a position in Arch Capital Group; as a result, both FPR Partners and Baupost show a similarity to MIG Absolute Return Fund. However, MIG is more diversified and smaller than either (with only $198 million under management). MIG may be an appealing investment from the point of view of a hedge fund investor, though a more in depth evaluation would be needed. Likewise, it may be worthwhile to examine FPR's other holdings and managers similar to them.
Digging deeper into Theravance also leads to interesting insights. Although THRX is flat YTD, their stock has gone up nearly 20% over the past 12 months. Baupost holds 19% of Theravance's float (13 million out of 53 million). Interestingly, FPR Partners recently bought 305,000 shares of THRX. Ranking managers according to the weight of THRX in their portfolio identifies Litespeed Management as an interesting candidate for further study. An event-driven/special situations fund, Litespeed Management holds only a modest 980,000 shares of THRX, but this accounts for around 8% of their $267 million portfolio. Their largest positions are in Tronox (TROX), Macquarie Infrastructure (MIC), Avon Products (AVP), Diamond Foods (DMND), and Anadarko Petroleum Corporation (APC), all of which have done quite well recently. Avon Products led the group, up an amazing 44% YTD, and Diamond Foods stock recently surged 16% (on the back of a BlackRock investment)! Macquarie Infrastructure has also had strong performance up around 14% YTD, and Anadarko is also up 13% so far for the year.
An interested analyst could dig into this basket of securities (BP, VSAT, ORCL, NWSA, THRX, TROX, MIC, AVP, DMND, and APC) and identify where there might still be value left. However, in many cases strong performance of this kind is a signal that the opportunity or event these hedge fund managers have been waiting for has played out, though studying their smaller holdings may still be lucrative. A more profitable approach might be to investigate other similar asset managers and their portfolios in the hope of uncovering some sleeper positions. Funds like MIG Absolute Return and Litespeed could be interesting for follow-up research; they reflect the holdings of larger managers but have smaller assets and are therefore more accessible and flexible. Furthermore, these two funds show only a weak similarity to other managers, making it less likely that they are exposed to crowded positions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.