Carlson Capital's 134 Stock Portfolio: Top 10 Holdings Analyzed - Sure Dividend

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Carlson Capital’s 134 Stock Portfolio: Top 10 Holdings Analyzed


Updated on July 9th, 2021 by Nikolaos Sismanis

Founded in 1993 by Clint Carlson, Carlson Capital, L.P. is an alternative asset management hedge fund based in Dallas, Texas. It currently manages nearly $7.7 billion, providing its services to pooled investment vehicles and corporations. The firm invests in public equities, fixed income and uses hedging strategies, mainly in the United States.

Investors following the company’s 13F filings over the last 3 years (from mid-May 2018 through mid-May 2021) would have generated annualized total returns of 7.71%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.60% over the same time period.

Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.

You can download an Excel spreadsheet with metrics that matter of Carlson Capital’s current 13F equity holdings below:

 

Keep reading this article to learn more about Carlson Capital.

Table Of Contents

Carlson Capital’s Investment Philosophy & Structure

Carlson Capital’s management believes that higher risk-adjusted returns can be produced by utilizing careful, targeted hedging investment strategies. These strategies are deployed in a diversified portfolio of securities while combining the intuition and skills of multiple decision-makers. The last point is especially evident in the firm’s number of employees. The fund currently has 178 employees, 89 of which are investment professionals. The firms want to utilize a variety of investment ideas, necessitating a relatively high number of employees.

Despite hedge funds managing billions in assets, many employ just a handful of people, sometimes less than 10. In that sense, Carlson Capital makes for quite an unusual personnel structure. It’s worth noting that the majority of the firm is employee-owned, while its founder Clint Carlson is still active as the firm’s CIO.

Carlson Capital’s Portfolio & Top Holdings

According to its most recent form ADV, the company’s discretionary assets under management (AUM) amount to nearly $7.7 billion. Its latest 13F filing revealed that around $2.6 billion of the total assets are allocated to public equities. In line with Carlson’s philosophy, no individual sector occupies more than 30%, with its funds being spread over several industries.

The portfolio consists of 134 individual stocks, with the top 10 making up around 39% of total equity weight versus 36% during the previous filing. Management has concentrated Carlson’s portfolio during the previous quarter, likely sticking to its more high-conviction ideas.

Source: 13F filings, Author

The company’s top 10 holdings are below:

Source: 13F filings, Author

SWK Holdings (SWKH)

SWKH is a complex business. The company is a specialty finance business whose expertise is small pharmaceutical and health care financing. An example of operations includes a small biotech company licensing its drug candidate to a larger pharmaceutical company, which pays them royalties based on sales.

The small biotech is then able to receive immediate cash by selling all or part of its royalty right back to SWKH. The majority of revenues hit the bottom line, as the only expenses are mostly attributed to paying the management team.

Being an underwriter of royalties in this niche market gives the company a great moat while most of its revenues flow through to the bottom line. For context, the $226 million company only employs 34 people. At the same, there are multiple risks involved as royalties have expiration dates, while new pharmaceuticals pop up by the day, potentially threatening SWKH’s cash flows.

Carlson’s stake remained constant during the quarter, with shares accounting for around 6.1% of its total holdings. It’s currently the fund’s largest holding.

Just Eat Takeaway.com N.V. (GRUB)

Just Eat Takeaway.com climbed quickly to Carlson’s second-largest position, with the fund constantly adding to its position over the past few quarters. The company was formed following the merger between Grubhub and Just, with Carlson buying before this event. The fund could be sitting on paper gains of as much as 50%. With strong demand for restaurant pick-up services due to the staying-at-home economy, the company has reported record LTM (Last Twelve months) revenues of $2.49 billion, revitalizing investor interest for the stock.

However, even with growing revenues, net losses have been widening as well. The company managed to keep its gross margins above 30%, but there is little room to incur additional capital expenditure and financing costs without losing money.

GrubHub accounts for 4.6% of Carlson’s portfolio. The fund seems confident in the stock’s future despite the profitability concerns as it hiked its position by 7% QoQ.

Alexion Pharmaceuticals, Inc. (ALXN)

Alexion Pharmaceuticals is Carlon’s third-largest position. Alexion is set to be acquired by AstraZeneca. Alexion shareholders will receive $60 in cash and 2.1243 AstraZeneca American Depositary Shares (ADSs), with each ADS representing one-half of one (1/2) ordinary share of AstraZeneca. The fund is likely waiting for the acquisition close, which should result in relatively low, but low-risk returns moving into the closing date.

Slack Technologies, Inc. (WORK)

Carlson’s fourth-largest holding, Slack, is to be acquired by Salesforce (CRM) for $27.7 billion. Carlson is most likely holding the stock as a low-risk way to grow its assets once the acquisition closes.

IHS Markit Ltd. (INFO)

UK-based IHS Markit provides critical information, analytics, and solutions for various enterprises and industries worldwide. The company’s solutions offer deep insights for customers in business, finance, and government. Revenues have been growing gradually, though with some bumps along the way. Still, IHS has achieved all-time high sales during the past four quarters, posting $4.48 billion in revenues.

Still, the company reinvests the majority of its profits, so net income remains a bit compressed for now. The stock currently yields a tiny 0.7% and is valued at a relatively reasonable multiple. Shares are trading around 34 times the stock’s forward net income.

The stock is an entirely new position for Carlson, initiated during Q4-2020. The fund hiked its position by 31% during the quarter.

Teledyne FLIR, LLC (TDY/FLIR)

The company’s sixth-largest position was Flir Systems, which was due to be acquired by Teledyne. Assuming Carlson held its shares during the merger, it should now be holding shares of Teledyne. Next quarter’s filing should shed more light on this transaction.

Teledyne has been able to grow its portfolio of aerospace and defense products very successfully, growing its revenues gradually. The acquisition of Flir should further exchange operational efficiencies and unlock synergies. This is likely the reason for the rising valuation multiple, with Teledyne stock trading at 4 times its forward sales.

Xilinx (XLNX) & Maxim Integrated Products, Inc. (MXIM)

These two semiconductor stocks are Carlson’s seventh and tenth-largest positions. They account for around 6.2% of Carlson’s holdings. As COVID-19 has greatly increased the demand for electronics and data centers, the semiconductor industry is benefiting. It seems that Carlson is capitalizing on the industry’s bullish outlook through these two stocks.

However, it’s worth noting that both Xilinx’s and Maxim’s valuations have greatly risen. Semiconductor companies have a cyclical nature and, most of the time, experience fluctuating market conditions. Hence, while the future outlook remains bright, it’s likely that current investors are overpaying near these price levels.

The fund trimmed its position in Xilinx by 6%, but hiked its stake in Maxim by a whopping 36%, likely risk-adjusting its portfolio.

CoreLogic Inc. (CLGX)

Retaining the theme of investing in companies that are nearing an acquisition, Carlson’s ninth-largest position as of its latest filing was CoreLogic (CLGX). Stone Point Capital and Insight Partners successfully acquired the company on June 4th, with CoreLogic’s shares being delisted.

Final Thoughts

Carlson Capital’s 13F equity holdings have lagged the S&P500 over the last three years. While its concentrated portfolio of equities provides its investors with a well-rounded base of diversified assets, its investment philosophy has largely not paid off. With three acquisition-driven stocks in its top holdings, it looks like the fund is turning to a relatively safe pool of assets. Make sure to check the fund’s individual holdings by downloading the excel sheet, which includes dozens of interesting stocks, many featuring substantial dividend yields.

 

Additional Resources:

Alkeon Capital Management’s 121 Stock Portfolio: Top 10 Holdings Analyzed

Appaloosa Management’s 40 Stock Portfolio: Top 10 Holdings Analyzed

Viking Global’s 69 Stock Portfolio: Top 10 Holdings Analyzed

Lone Pine Capital’s 32 Stock Portfolio: Top 10 Holdings Analyzed

Pershing Square: Bill Ackman’s 7 Stock Market-Beating Portfolio

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