Seth Klarman's Major Q3 Moves At Baupost

by: Zvi Bar

Baupost Group's Seth Klarman is well regarded as one of the better value investors. His margin of safety selections rarely change, and he has written and stated that he, like Warren Buffett, believes the ideal length of time to hold a good investment is forever. Nonetheless, he does sometimes sell out of positions.

According to Baupost's last 13F-HR, filed on November 14, 2011, during the third quarter of 2011 Mr. Klarman's fund made several large transactions. Some of you may find it interesting to learn what Mr. Klarman is adding and/or reducing exposure to. Below is an explanation of the significant changes Baupost reported. The information is based on holdings at the end of the third quarter (September 30, 2011), and so it is possible that the fund has changed its holdings in the interim.

According to the filing, Baupost sold out of two positions: Boupost liquidated its investments in Audiovox (NASDAQ:VOXX) and CapitalSource (NYSE:CSE). Baupost sold about 10.4 million shares in CSE, valued at about $67.4 million at the end of the third quarter, and about $5.8 million worth of VOXX. The hedge fund did not reduce stakes in any other equities within the filing portfolio.

Baupost entered four new equities during the third quarter. The largest new position was in Hewlett-Packard (NYSE:HPQ), where the hedge fund bout 20.75 million shares, valued at about $465.8 million. This is now one of Baupost’s largest holdings. Other new postions include Genworth Financial (NYSE:GNW), buying 10 million shares, and NovaGold Resources (NYSEMKT:NG), in which the fund acquired 5 million shares.

Baupost also acquired over 4.28 million News Corp Class B shares (NASDAQ:NWS), valued at about $66.8 million. Baupost was already an investor in News Corp’s Class A shares (NASDAQ:NWSA), owning over 21 million shares and adding nearly 2 million during the third quarter. Baupost now holds about $325 million worth of NWSA.

Baupost’s largest position increases were led by the BP Plc ADR (NYSE:BP), in which Baupost purchased over 8.24 million shares, bringing the hedge fund’s position to over 13.74 million shares, valued at approximately $500 million. After more than doubling Baupost’s holdings in BP, it is now the hedge fund’s largest holding. Baupost also added to its holdings in PDL BioPharma (NASDAQ:PDLI) and Allied Nevada Gold (NYSEMKT:ANV), both top ten holdings of the hedge fund, and to its smaller positions in Idenix Pharmaceuticals (NASDAQ:IDIX) and Sycamore Networks (NASDAQ:SCMR).

Bauposts largest investments were oriented around large cap companies that have had event driven weakness over the last year. BP was hurt by the gulf oil drilling gush, requiring it to sell assets to raise cash related to its potential liabilities. HPQ has fallen considerably over the last year due to a revolving door of leadership and a continued reduction to its market share in the computer business, as well as a weak and flip-flopping initial entry into the tablet market. A News Corp British paper subsidiary was caught spying, and was shut down amid a public spectacle.

Baupost appears to believe that the share price reductions in these large companies are not consistent with the value proposition they offer, and that at their present levels they provide some margin of safety. The hedge fund also continues to accumulate positions in selected gold miners.

Disclaimer: This article is intended to be informative, and should not be construed as personalized advice, as it does not take into account your specific situation or objectives.

Disclosure: I am long CSE.

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