This series of articles are an ongoing analysis of the changes made to Baupost Group's U.S. stock portfolio on a quarterly basis. The spreadsheet below highlights changes to Baupost Group's U.S. stock holdings in the last quarter (Q4 2011): (Click to enlarge)
The Baupost Group, headed by Seth Klarman, has around $29.4B in Assets Under Management (AUM). Typically, the fund is diversified among different asset classes and special situations such as liquidations, bankruptcies, and distressed debt. As of Q3 2011, the U.S. allocation of the portfolio stood at just 12.5% (~$3B). As of EOY 2011, the U.S. allocation of the portfolio is at ~11.36% ($3.34B). This slight downward shift in allocation is not that significant. In the last decade, his U.S. allocation has varied between a low of 2.4% and a high of 15%. The existing allocation signifies a relatively bullish stance toward U.S. equities.
Targacept Inc (TRGT): Targacept is a small position (1% of the U.S. stock portfolio) initiated this quarter when the price-per-share varied between $5 and $19.25. The stock currently trades at ~$6. The stock crashed 75% during the quarter following Phase 3 trail results for TC-5214, a collaborative effort with AstraZeneca (AZN) for adjunct treatment in patients with depressive disorder. The first two study results out of four Phase 3 studies were announced during the quarter and both came out negative. The studies did not meet primary endpoint of change on the Montgomery-Asberg Depression Rating Scale (MADRS). Given his penchant for finding value, it is probable Klarman initiated the position after the crash. The stock is currently trading ~20% higher than the lows reached in the quarter. Klarman has three other positions in biopharmaceuticals in the small-cap space. The fact that Klarman holds four different positions in this arena when he has only 20 positions in the entire U.S. stock market is significant, and indicates that he considers that space as a good hunting ground to unveil values.
Beitburn Energy Partners LP (BBEP): Beitburn is a long-term position that was in the portfolio since 2007. The position size peaked at around 8.5M shares in 2009 which was ~13% of the U.S. stock portfolio allocation at the time and since then the position was slowly trimmed to 2.5M shares which was a mere ~1.5% last quarter before elimination this quarter. The price-per-share varied between $16.18 and $19.10 during the quarter. The bulk of the shares were acquired in Q3 2008 when the price-per-share varied between $14.10 and $20.92. Klarman must have realized only modest annual returns during his ownership of the stock.
News Corp Class A and Class B Shares (NWSA and NWS): News Corporation, a long-term holding first purchased in 2005, is a large position that was incrementally increased this quarter by around 1.6% to 25.7M shares. The position size fluctuated till Q1 2008 when it was doubled to over 12M shares when the price-per-share varied between $18.39 and $20.30. The stake was increased substantially to around 21M shares in Q3 2008 when the price-per-share varied between $11.03 and $14.76. Although the position size varied only modestly in the last few quarters, a significant shift is from the Class A shares to the Class B shares, despite Class B shares trading at a slight premium. The difference between the share classes is that the Class B shares have voting rights. The shift indicates Klarman's belief that the voting shares will have more demand in the future. Any entity looking for a controlling stake would definitely want Class B shares. Rupert Murdoch, the founder and CEO and his family has a large ~38% stake in the Class B shares.
Allied Nevada Gold (ANV) and Novagold Resources Inc (NG): Novagold, first purchased in Q3 2011 when the price-per-share varied between $6.45 and $11.22 is ~2% of the U.S. stock portfolio position. The stock currently trades at $8.48. Allied Nevada, first purchased in Q1 2011 when the price-per-share varied between $24 and $35 is a ~4% of the U.S. stock portfolio position. The stock currently trades at $34.07. The positions were increased by 50% and 15%, respectively, this quarter. Klarman certainly has a bullish bias towards gold and is in the process of building a position through stakes in these two companies. He is known to hold gold as a hedge against devaluation of global currencies due to uncontrolled government spending. The stocks currently trade in the mid-point of the range Klarman could have purchased them. For investors attempting to follow Klarman, these two stocks are good candidates for further research.
Aveo Pharmaceuticals (AVEO) and Idenix Pharmaceuticals (IDIX): Aveo, almost 3% of the U.S. stock portfolio position, was increased modestly this quarter. Idenix, close to 1.5% of the U.S. stock portfolio position, was more than doubled this quarter. Idenix's price-per-share varied between $4.55 and $8.22 this quarter and the stock currently trades at $10.92. Klarman is bullish on Idenix but as it is trading well above the range Klarman could have bought the stake at, investors attempting to follow him should wait for a better entry point.
BP PLC (BP): BP, initiated in Q2 2011 when the price-per-share varied between $42 and $46 is a very large 15% of the U.S. stock portfolio position that was decreased by ~12% this quarter. At its current value of $46.35 BP is still trading at a significant discount to valuations among oil majors. The oil spill of May 2010 resulted in the price-per-share dropping from around $60 to $27 and the stock has been on a slowly recovering mode since then. For investors attempting to shadow Klarman, BP is a good option.
Hewlett Packard Company (HPQ): HP, initiated in Q3 2011 when the price-per-share varied between $22 and $37, is a very large (around 15% of the U.S. stock portfolio) position. The stock currently trades at ~$28.70. The position size was trimmed by ~10% this quarter. The stock was decimated due to PC segment underperformance and a major management shakeup, with CEO Leo Apothekar replaced by Meg Whitman. For investors attempting to tag along with Klarman, HP is still very much a value play trading around the mid-point of the range of prices Klarman could have paid for the stock.
PDL Biopharma Inc (PDLI): PDL is a 1.5% U.S. stock portfolio position that was slashed by more than half during the quarter. PDL's price-per-share varied between $5.35 and $6.40 this quarter and the stock currently trades at $6.39. PDL trades are a rare about-turn for Klarman as the stake was roughly doubled in Q3 2011 only to be reduced by half during Q4 2011.
Alere Inc (ALR): Alere is a 1.5% U.S. stock portfolio position that was trimmed by a third during the quarter. Alere's price-per-share varied between $18.51 and $26.43 during the quarter. It currently trades at $25.76. The stake was initiated in Q3 2010 when the price-per-share varied between $26.68 and $31.17 and doubled in Q4 2010 when the price-per-share varied between $28.84 and $38.40. Klarman has since turned bearish on the stock.
The fund's positions in Alliance One International (ALR ~1.5%), Central Pac Financial Corp (CPF <1%), Enzon Pharmaceuticals (ENZN ~2%), Genworth Financial (GNW ~2%), Ituran Location and Control (ITRN <1%), Microsoft (MSFT ~10%), Multimedia Games Holding Co Inc (MGAM <1%), Sycamore Networks (OTCQB:SCMR <0.3%), Syneron Medical Ltd (ELOS ~1.5%), Theravance (THRX ~10%), and Viasat (VSAT ~15%) have remained unchanged during the quarter. The portfolio had a couple of home runs during the quarter: Multimedia Games Holding Co Inc (MGAM) almost doubled although the position was very small and Viasat (VSAT) vaulted 30%. The only ones that decreased in value were ENZN that dropped about 5% and Sycamore that dropped a very small percentage. The rest of the positions had modest positive returns.
Please read our Tracking Seth Klarman' 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 2011.