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 11/13/2013. 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 Q2 2013.
Klarman's US long portfolio decreased from ~$4B to ~$3.5B this quarter. The very large position in Micron Technology established last quarter was increased by another 50% to a whopping 27.80% US long portfolio allocation as of this quarter. The number of holdings in the US long portfolio reduced from 21 to 19 this quarter: minute positions in Kinross Gold, Pretium Resources, and Yamana Gold were eliminated and a very small position in PBF Energy was established this quarter.
Since inception (1982), Baupost Group's US long portfolio has accounted for between 2.4% to 15% of the Assets Under Management (AUM). Despite reducing the allocation by ~15% this quarter, 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.New Stakes:
PBF Energy (PBF): PBF is a very small 0.53% of the US long portfolio position established this quarter at prices between $21 and $26. The stock currently trades outside that range at $27.75. The position size is too small to indicate a clear bias.Stake Disposals:
Yamana Gold (AUY), Kinross Gold (KGC), & Pretium Resources (PVG): These are very small positions in the gold-mining sector established last quarter and disposed of this quarter. Combined, they accounted for only about 1% of the US long portfolio. The quick about-turn indicates a mild bearish bias.Stake Increases:
Micron Technology (MU): MU is a huge 27.80% of the US long portfolio position established last quarter at prices between $9.10 and $14 and increased by just over 50% this quarter at prices between $12.55 and $17.60. The stock currently trades outside those ranges at around $19. The aggressive stake build-up indicates a clear bullish bias. He is sitting on large short-term gains on the position as the stock vaulted close to 80% in the last six months. Klarman owns just over 6% of the shares outstanding.
Theravance Inc (THRX): THRX is a large 18.81% of the US long portfolio position that was increased by 12% this quarter at prices between $35.80 and $42.64. The stake was increased by over 20% last quarter as well at prices between $22.50 and $42. It currently trades at around $35. THRX is a very long-term position that has been in the portfolio since 2008. The stock is up around 60% YTD - the price spiked in May following a $1B royalty deal with Elan PLC. Baupost controls around 19% of the business
Idenix Pharmaceuticals (IDIX): IDIX is a 3.83% 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. The last four quarters saw the position increased by ~150% at prices between $2.93 and $5.93. This quarter, the position was increased by 11%. The stock currently trades at $4.62. On 11/1/2013, Klarman disclosed in a regulatory 13D filing that his stake was increased to 36.91M shares - 27.55% of the shares outstanding - the most recent purchases happened at prices between $3.56 and $4.85. The significant stake increase over several quarters indicates a clear bullish bias. For investors attempting to follow Klarman, IDIX is a good option to consider.
ChipMOS Technologies (IMOS): IMOS is a small 1.47% of the US long portfolio position established last quarter at prices between $12.30 and $20 and increased by ~19% this quarter at prices between $15 and $21. The stock currently trades at around $16.91. The activity indicates a mild bullish bias - although the relative sizing of the position is small, it is significant that Klarman owns ~14% of the shares outstanding.Stake Decreases:
BP PLC (BP): BP was Klarman's second largest 13F position and represented 19.30% of the US long portfolio as of last quarter: the huge stake build-up over the last year happened at prices between $36 and $49. This quarter saw an about-turn as Klarman reduced the position drastically to a 5.85% allocation at prices between $40.50 and $43.50. The stock currently trades outside that range at $46.45. The large stake disposal indicates a bearish bias.
Oracle Corporation (ORCL): ORCL is a 1.97% 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% in Q4 2012 at prices between $29.58 and $34. The position was reduced by another two-thirds in Q1 2013 at prices between $31.25 and $36.34 and kept steady last quarter. The pattern continued this quarter with a stake reduction of another 30% at prices between $30 and $34. The stock currently trades at around $35. The activity signifies a clear bearish bias.
Alliance One International (AOI): AOI is a very small position (0.46% of the US long portfolio) that was reduced by ~17% this quarter. As the position size is very small and the stake reduction was minor, the activity does not indicate a clear bias.
Central Pac Financial Corp. (CPF): CPF is a very small 0.34% of the US long portfolio position that was reduced by ~50% this quarter. The stake reduction indicates a mild bearish bias.
American International Group (AIG) & WTS: AIG was a large 11.55% position build-up from Q4 2012 at prices between $30.68 and $40. Last quarter saw a turnaround, as the position was trimmed by 15% at prices between $37.50 and $46. This quarter, the position was almost eliminated at prices between $44 and $51. The stock currently trades at around $48.58. The large stake reduction indicates a clear bearish bias.
Ituran Location and Control (ITRN): ITRN is a minute 0.22% of the US long portfolio position that was reduced by ~54% this quarter. As the position size is very small, the activity does not represent a clear bias.
The rest of the portfolio remained steady during the quarter:
Viasat (VSAT): VSAT is currently Klarman's third-largest US long position accounting for 17.41% of the portfolio. His most recent purchases were minor stake increases that happened in Q3 2012 and Q4 2012 at prices between $34 and $41. Klarman first purchased VSAT in 2008 at much lower prices and so his overall cost-basis is in the high-teens. The stock currently trades well above those ranges at around $62. He is sitting on huge gains on the position. The stock has returned ~60% this year, but Klarman is continuing to hold on.
Rovi Corporation (ROVI): ROVI is a 2.94% of the US long portfolio stake established in Q3 2012 at prices between $10.01 and $19.14. The position was almost doubled in Q1 2013 at prices between $15.43 and $21.43. Last quarter, the position was reduced by ~25% at prices between $20 and $26.50 but was kept steady this quarter. The stock currently trades at around $16.93.
Citigroup WTS (C.WS.A): The warrants have a strike price of $106.10 and expire on 01/04/2019. They currently trade at $6.20 (for ten warrants which can be converted to one Citigroup common stock). The bulk of the 1.75% 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 common stock trades well above the strike price before expiry.
Novagold Resources Inc (NG): NG is a 1.25% stake built up over several quarters last year at prices between $3.5 and $12. The most recent purchases happened in Q3 2012 and Q4 2012 when the stake was increased by roughly one-third at prices between $3.68 and $6.19. The stock currently trades well below that range at around $2.30. Klarman is sitting tight in the face of a large price-drop on this position.
Enzon Pharmaceuticals Inc. (ENZN), Aveo Pharmaceuticals Inc. (AVEO), Novacopper Inc. (NCQ), and Syneron Medical Ltd. (ELOS): These are small positions, each accounting for less than 1% 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 Q3 2013: