This article is part of a series that provide 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 05/14/2013. 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 Q4 2012.
Klarman's US long portfolio remained steady in the quarter at ~$3.1B. Large positions in News Corporation and Oracle were reduced substantially during the quarter and those were offset by large increases in portfolio allocation to American International Group and BP plc. Since inception (1982), Baupost Group's US 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. 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 US long portfolio remained at 21 this quarter.
Citigroup WTS (C.WS.A): The warrants have a strike price of $106.10 and expire on 01/04/2019. They currently trade at $5.70 (for ten warrants which can be converted to one Citigroup common stock). The relatively small 1.53% position was established at prices between $4.50 and $5.80. It is a leveraged bullish bet on Citigroup that would pay off handsomely, if Citigroup (C) common stock trades well above the strike price before expiry.
DirecTV (DTV): DTV is a minute 0.38% position established this quarter at prices between $47 and $57. As the position size is very small, the stake establishment does not indicate a clear bias. The stock currently trades well above that range at around $64.
Elan (ELN): ELN is a 3.46% position established this quarter at prices between $10 and $12. The stock currently trades at $11.45. The stake establishment indicates a mild bullish bias.
Allied Nevada Gold (ANV): ANV was 2.59% of the US long portfolio position that was reduced by over 43% last quarter and eliminated this quarter. The position was increased by around 25% in Q2 2012 but was kept steady in Q3 2012. 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 last quarter was at prices between $29 and $41. The stake elimination this quarter happened at prices between $30 and $16.50. The timing of the sale was perfect as the stock currently trades well below that range at $8.86. The stake elimination indicates a clear bearish bias.
Genworth Financial (GNW): GNW was a 3.4% of the US long portfolio stake established in Q2 2012 at prices between $4.89 and $8.38. The position was eliminated this quarter at prices between $7.50 and $10.50. The stock currently trades at $11. This is the second round-trip in GNW for Klarman as a similar trading pattern happened in the Q4 2011 to Q1 2012 timeframe as well.
American International Group (AIG): AIG is a large 15.11% position established last quarter at prices between $30.68 and $37.21. The position size was increased by close to 80% this quarter at prices between $35 and $40. The stock currently trades well outside that range at around $46. The substantial stake increase indicates a clear bullish bias.
BP PLC (BP): BP is Klarman's largest 13F position and represents 23.33% of the US long portfolio. The stake was reduced marginally last quarter after a significant 16% stake reduction in Q3 2012. The position was increased by around 60% this quarter at prices between $40 and $45. The pattern of Klarman's trades over the last year is random but the net effect is a huge long position at prices between $36 and $49. The stock currently trades within that range at $43. The large position size indicates a clear bullish bias. For investors attempting to follow Klarman, BP is a very good option to consider.
Idenix Pharmaceuticals (IDIX): IDIX is a 2.97% of the US 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 $3.5 and $15 during the period of the stake acquisition. In Q3 2012, the position was increased by 20% when the share price varied between $4.36 and $11.02. Last quarter, it was increased by another 60% at prices between $3.52 and $5.30. This quarter, the position was again increased by another 30% at prices between $3.5 and $5.4. The stock currently trades at $3.65. The significant stake increase over several quarters in the face of falling prices indicates a clear bullish bias. For investors attempting to follow Klarman, IDIX is a good option to consider.
Rovi Corporation (ROVI): ROVI is a 5.62% of the US long portfolio stake established in Q3 2012 at prices between $10.01 and $19.14. The position was almost doubled this quarter at prices between $15.43 and $21.43 after keeping it steady last quarter. The stock currently trades above that range at around $24. The stake build-up indicates a bullish bias.
News Corp. (NWSA) and News Corp. Class B (NWS): News Corporation was Klarman's largest 13F position as of Q4 2012, with the Class A and Class B shares together accounting for almost 17% of the portfolio. The position was trimmed marginally last quarter at prices between $23.57 and $26.24 after reducing it by 12% in Q3 2012 at prices between $21.73 and $25.22. This quarter, the position was reduced substantially - the Class A shares were eliminated at prices between $25.50 and $30.69 and 70% of the Class B shares were also sold. NWS is a long-term holding and Klarman's cost-basis is very low. During a rare video conference at the Ben Graham center for Value Investing, Klarman indicated that the breakup value of News Corp. in a distressed environment is over $20 per share and in a normal environment should be between $20 and $30. The stock was trading in the $5 range when he made those comments in March 2009. It currently trades at over $33 per share. Klarman is harvesting the large gains on this position.
Oracle Corporation (ORCL): ORCL is a 3.52% of the US 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% in Q3 2012 at prices between $28.82 and $33.10 and by just over 22% last quarter at prices between $29.58 and $34. The position was reduced by another two-thirds this quarter at prices between $31.25 and $36.34. The stock currently trades near the mid-point of that range at $33.67 per share. The substantial stake reduction over the last three quarters signifies a clear bearish bias.
Enzon Pharmaceuticals Inc. (ENZN): ENZN is a very small 0.94% of the US long portfolio position that was reduced marginally this quarter after a 13% reduction last quarter. It is a long-term holding and the minor stake reduction does not indicate a clear bias.
Alliance One International (AOI) and Ituran Location and Control (ITRN): These are very small positions (~1% of the US long portfolio or less) that were reduced substantially this quarter. As the position sizes are very small, they do not indicate a clear bias.
The rest of the portfolio remained steady during the quarter:
ViaSat (VSAT): VSAT accounts for 17.14% of the portfolio. The position was increased marginally in Q3 2012 at prices between $33.85 and $40.85 and again last quarter at prices between $35 and $41. The stock currently trades well outside that range at over $59. Klarman first purchased VSAT in 2008 at much lower price-points but has consistently built the stake over the last five years. He is sitting on huge gains on the position.
Theravance Inc. (THRX): THRX is a large 10.30% of the US long portfolio position that was kept steady this quarter after reducing by around 7% in Q3 2012 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 has already doubled year-to-date and currently trades at $41.87. The stock experienced a price-spike earlier this month after announcing a $1B royalty deal with Elan PLC. Interestingly, Klarman initiated a position in Elan PLC this quarter as well (see above).
NovaGold Resources Inc. (NG): NG is a 2.95% stake built up over several quarters last year at prices between $3.5 and $12. The stake was increased by one-third in Q3 2012 at prices between $3.68 and $6.19 and marginally last quarter at prices between $4.19 and $5.60. The stock currently trades well below that range at around $2.40. Klarman is sitting tight in the face of a large price-drop on this position.
Aveo Pharmaceuticals Inc. (AVEO), Central Pacific Financial Corp. (CPF), Microsoft Corporation (MSFT) Calls, NovaCopper Inc. (NCQ), and Syneron Medical Ltd. (ELOS): These are small positions, each accounting for less than 2% of the US long portfolio. They were kept steady this quarter and so do not indicate a clear bias.
The spreadsheet below highlights changes to Klarman's US stock holdings in Q1 2013: