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 08/14/2014. 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 Q1 2014.
Klarman's US long portfolio increased ~48% from $4.14B to $6.14B this quarter. The increase was primarily due to the stunning performance of a couple of his positions: Idenix Pharmaceuticals (NASDAQ:IDIX) and Micron Technology (NASDAQ:MU). Idenix got acquired for a huge premium while the very large position in Micron Technology returned ~40% for the quarter. The number of holdings is at 24 but five of them are very small positions that together account for just 0.90% of the 13F portfolio. The stakes are heavily concentrated with Micron Technology, Idenix Pharmaceuticals, and Theravance Inc. (NASDAQ:TBPH) together accounting for just over 58% of the entire US long portfolio.
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. Seth Klarman's distinct investment style is elaborated in his 1991 book "Margin of Safety: Risk-averse value investing strategies for the thoughtful investor": the book is out-of-print and copies sell for a huge premium.
eBay Inc. (NASDAQ:EBAY): EBAY is a medium-sized 3.62% of the US long portfolio stake established this quarter at prices between $48.25 and $55.89. The stock currently trades at $52.93. EBAY is attracting a lot of super-investor interest - Carl Icahn, Wallace Weitz, Mark Hillman, and Leon Cooperman have all made significant purchases recently.
Theravance Biopharma: TBPH is a 3.15% of the US long portfolio position established this quarter as a result of the spinoff of TBPH from THRX. The spinoff terms called for THRX shareholders to receive 1 share of TBPH for every 3.5 shares of THRX held. TBPH has returned just over 20% since the May spinoff.
Sunedison Semiconductor (NASDAQ:SEMI): SEMI is a 1.14% of the US long portfolio position established this quarter at prices between $14.37 and $17.76. The stock currently trades at $16.61. SEMI was spun-off from Sunedison Inc. (NYSE:SUNE) on May 22, 2014.
Kosmos Energy (NYSE:KOS) & Boyd Gaming (NYSE:BYD): KOS & BYD are very small (less than 1% of the US long portfolio each) positions established this quarter. KOS was purchased at prices between $10.05 and $11.23 and it currently trades below that range at $9.49. BYD was purchased at prices between $10.41 and $13.27 and it currently trades near the low end of that range at $10.38.
BP PLC (NYSE:BP): BP was Klarman's second largest 13F position and represented 19.30% of the US long portfolio as of Q2 2013: a huge stake build-up happened from 2012 onwards at prices between $36 and $49. Q3 2013 saw an about-turn as Klarman reduced the position drastically to a 5.85% allocation at prices between $40.50 and $43.50. The position was marginally increased in Q4 2013 but the selling resumed last quarter: a ~45% stake reduction at prices between $46 and $51. This quarter, the remaining position was eliminated at prices between $47.45 and $53.07. The stock currently trades at $47.41. The activity indicates a clear bearish bias.
Cheniere Energy (NYSEMKT:LNG): LNG is a large 6.99% of the US long portfolio position established last quarter at prices between $41 and $55. The position was increased by around 5.8% this quarter at prices between $54.28 and $71.70. The stock currently trades at $72.88. The large stake build-up indicates a clear bullish bias.
Citigroup WTS (C.WS.A): The warrants have a strike price of $106.10 and expire on 01/04/2019. They currently trade at $7.50 (for ten warrants which can be converted to one Citigroup common stock, Yahoo Ticker C-WTA). The position was increased by ~18% this quarter. The bulk of the 1.22% 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.
Keryx Biopharma (NASDAQ:KERX): KERX is a medium-sized 2.64% of the US long portfolio position established last quarter at prices between $12.16 and $17.04. This quarter, the position was increased by two-thirds at prices between $12.11 and $17.04. The stock currently trades at $16.74 and Klarman controls just over 11% of the business.
PBF Energy (NYSE:PBF): PBF is a 3.38% of the US long portfolio position first purchased in Q3 2013 at prices between $21 and $26. It was more than doubled in Q4 2013 at prices between $21.44 and $31.46 and was increased by over 175% last quarter at prices between $23.79 and $31.46. This quarter, the position was marginally increased. The stock currently trades at $25.91. The significant stake build-up spanning several quarters indicates a bullish bias.
RF Microdevices (RFMD) & TriQuint Semi (TQNT): RFMD & TQNT are small ~1.5% of the US long portfolio position each established last quarter. The RFMD position was established at prices between $4.51 and $7.93 and it was increased by ~48% this quarter at prices between $7.50 and $10.13. TQNT position was established at prices between $8.07 and $13.55 and it was increased by ~55% this quarter at prices between $12.75 and $16.79. RFMD currently trades at $11.41 and TQNT at $18.61.
ViaSat (NASDAQ:VSAT): VSAT is currently Klarman's fourth-largest US long position accounting for 10.89% of the portfolio. Since Q3 2012, the position has seen only minor stake increases. This quarter also saw a marginal increase. 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 at $53.06. He is sitting on huge gains on the position. The stock was up ~60% in 2013, but has dropped ~16% so far this year.
Theravance Inc (THRX): THRX is a large 9.89% of the US long portfolio position. It is a very long-term position that has been in the portfolio since 2008. Baupost controls around 18% of the business. The most recent buying happened in Q4 2013 when the stake was increased by ~9% at prices between $33.74 and $41.53. This quarter saw very minor selling. The stock currently trades at around $22.70.
NOTE: THRX split-up into two businesses this quarter - a royalty focused segment that retained the name and a research focused bio-pharma segment Theravance Biopharma . As a result, THRX shareholders received one share of TBPH for every 3.5 shares of THRX held. The implied performance of Klarman's most recent share purchase quoted above is negatively skewed because of this.
Idenix Pharmaceuticals: IDIX posted a stunning 300% return this quarter as a result of the acquisition of IDIX by Merck (NYSE:MRK) at $24.50 per share cash. Klarman's position was built-up over several quarters starting in Q2 2011. It was a very volatile stock and the price fluctuated between $3.5 and $15 during the period of the stake acquisition. The bulk of the shares were purchased at prices between $2.93 and $5.93 since Q2 2012. Q4 2013 saw a ~25% stake increase at prices between $3.56 and $4.85 and that was followed up with a huge 16.42M stake increase last quarter at $6.50 per share on 02/04/2014. The pattern of trades is as though Klarman had anticipated the acquisition.
ChipMOS Technologies (NASDAQ:IMOS): IMOS is a small 1.29% of the US long portfolio position established in Q2 2013 at prices between $12.30 and $20 and increased by ~19% in Q3 2013 at prices between $15 and $21. The stock currently trades at around $24.03. Although the relative sizing of the position is small, it is significant that Klarman owns 9.84% of the shares outstanding.
Kindred Biosciences (NASDAQ:KIN): KIN is a very small 0.84% of the US long portfolio position established in Q4 2013 at an average cost-basis of around $11. The stake as a percentage of the business is very high at over 17%: 2.8M shares out of the ~15M shares outstanding. The position was disclosed in a 13G filing on 01/09/2014 and that immediately aroused speculative interest that resulted in a huge price-spike. The stock currently trades at $15.12.
Micron Technology: MU is Klarman's largest position at 27.72% of the US long portfolio. The stake was first established in Q2 2013 at prices between $9.10 and $14 and increased by just over 50% in Q3 2013 at prices between $12.55 and $17.60. The stock currently trades outside those ranges at around $31.04. Q4 2013 saw a ~20% stake reduction at prices between $16.55 and $23.14. Klarman is sitting on large gains on this position.
NovaGold Resources Inc (NYSEMKT:NG): NG is a 1.49% stake built up over several quarters in 2012 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 near the low-end of those ranges at $3.78.
Syneron Medical Ltd. (NASDAQ:ELOS): ELOS is a 0.67% of the US long portfolio position that has been kept steady since Q3 2011. It is a long-term position first purchased in Q2 2006.
Other very small positions (less than 0.5% of the US long portfolio each) in the portfolio are Alliance One International (NYSE:AOI), Alon USA Partners LP (NYSE:ALDW), American International Group (NYSE:AIG) warrants, Aveo Pharmaceuticals (NASDAQ:AVEO), and Novacopper (NYSEMKT:NCQ). With AOI, it should be noted that Klarman controls 7.24% of the business.
The spreadsheet below highlights changes to Klarman's US stock holdings in Q2 2014:
Disclosure: The author is long SUNE, NG, THRX. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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