Updated on September 14th, 2021 by Nikolaos Sismanis
The Baupost Group is a long-only hedge fund founded in 1982 by Harvard Professor William Poorvu and his partners.
Among Mr. Poorvu’s founding partners was Seth Klarman, who built his billion-dollar fortune at the helm of the fund over these years, remaining the key executive today.
The fund has over $30 billion in assets under management (AUM), $12.3 billion of which is allocated to the firm’s public equity portfolio. The Baupost Group is headquartered in Boston, Massachusetts.
Investors following the company’s 13F filings over the last 3 years (from mid-August 2018 through mid-August 2021) would have generated annualized total returns of 6.6%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.08% 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 the Baupost Group’s current 13F equity holdings below:
Keep reading this article to learn more about The Baupost Group.
Table Of Contents
- Introduction & 13F Spreadsheet Download
- Baupost Group’s Fund Manager, Seth Klarman
- Baupost Group’s Investment Philosophy & Strategy
- Baupost Group’s Noteworthy Portfolio Changes
- Baupost Group’s Portfolio & 10 Largest Public Equity Investments
- Final Thoughts
Baupost Group’s Fund Manager, Seth Klarman
Upon founding Baupost, Poorvu asked Klarman and his associates to handle some funds he had raised from the selling of his stake in a local TV station, and the fund was commenced with US$27 million in start-up capital. Amongst Baupost’s founders, Mr. Klarman was considered relatively inexperienced. Therefore, the fund was taking a big risk with his involvement.
In 2008 Klarman managed to raise $4 billion in crisis-liquidated capital from large foundations and Ivy League endowments. He would allocate $100 million of these funds in stocks and other assets per day, including distressed securities and bonds, resulting in multi-bagger returns post-2008.
Klarman wrote the book Margin Of Safety which details his risk-adverse and value-driven investment philosophy. The book is an investing classic that is out of print. Copies on eBay sell from hundreds to thousands of dollars.
Baupost Group’s Investment Philosophy & Strategy
The Baupost Group’s investment philosophy revolves heavily around Mr. Klarman’s investing principles, which can be summed into the following key points:
- Risk evaluation: While this may sound like a well-known and trivial principle, in reality, sophisticated risk-aversion is far from commonly practiced in the investing world. This is especially true in times of low volatility, such as the current incredible bull market, in which market participants tend to ignore the systemic risks that arise in the underlying economy. Therefore, Mr. Klarman and his team will make sure that their risk is well-mitigated, usually by holding put options against a market index.
- Capitalizing on “Motivated sellers”: A motivated seller is someone who, as Klarman puts it, is letting go of their shares for a non-economic reason. One such reason, for instance, can be the exclusion of stock from a major index. This can cause a stock to trade lower without anything changing in regards to its everyday operations, which can create compelling buying opportunities.
- Capitalizing on “Missing buyers”: One of Warren Buffett’s more famous proverbs is that if you have been in a poker game for 30 minutes and still don’t know who the patsy is, you can be fairly certain it’s you. Mr. Klarman’s version is that he never wants to appear at an auction (i.e., stock buying) to discover that all the other bidders (Mr. Market) are more knowledgeable and have a lower entry cost than he does. Therefore, Baupost is likely to be buying unpopular assets if it sees value in them in an attempt to be ahead of the overall market, despite the “missing buyers.”
The Baupost Group’s Noteworthy Portfolio Changes
During its latest 13F filing, The Baupost Group executed the following notable portfolio adjustments:
- Shaw Communications Inc Class B (SJR)
- Outbrain Inc (OB)
- ironSource Ltd (IS)
- Reinvent Technology Partners Y (RTPY)
- Garrett Motion Inc (GTX)
- Noble Corp (Cayman Island) (NE)
- Fidelity National Financial Inc (FNF)
- Fox Corp Class A (FOXA)
- Healthpeak Properties Inc (PEAK)
- Fox Corp (FOX)
Baupost Group’s Portfolio & 10 Largest Public Equity Investments
Baupost’s public-equity portfolio is not heavily diversified. Instead, its holdings are concentrated, featuring high-conviction ideas. The portfolio numbers only 22 equities, the 10 most significant of which account for 77.5% of its total composition. The fund’s largest holding is Intel Corp. (INTC), occupying around 12.1% of the total portfolio.
Source: 13F filing, Author
Intel Corp. (INTC):
Intel is Baupost’s largest holding. The semiconductor giant performed well over the past year, delivering revenues of $77.8 billion, 8.2% higher YoY, despite the challenges caused by the pandemic. The company enjoys massive margins, with $20.9 billion making it to the bottom line in FY2020.
In its most recent results, Intel raised its full-year 2021 guidance once again, beating investors’ expectations. The company is now expecting GAAP revenue of $73.5 billion (previously $77.0 billion) vs. $72.1 billion consensuses, and non-GAAP EPS of $4.80 (previously $4.60).
Despite its resilient performance, investors have been lately worrying about competition catching up, especially from Advanced Micro Devices (AMD). As a result, shares are currently trading at around 12.9 times their forward net income. Considering the company’s blue-chip status and strong buybacks, we can see the stock’s valuation expanding if AMD doesn’t end up taking as much market share as expected.
Intel counts 7 years of consecutive annual dividend increases, with its most recent one being a 5.3% raise. The stock currently yields around 2.6%, while the dividend itself is well-covered, as Intel is currently featuring a payout ratio of around 30%.
eBay Inc. (EBAY):
eBay is Baupost’s second-largest holding, currently accounting for around 11.4% of its portfolio. The company’s revenues have remained mostly stagnant for nearly a decade, generating around $11 billion in sales per year.
However, the company has excelled in maximizing its profitability, consistently expanding its net income margins over the years. eBay has the capacity to post net income margins of around 30% and is essentially a cash cow that can remain wildly profitable under any economic environment.
During the ongoing pandemic, for example, the company’s financials remained very stable, causing eBay’s results to remain consistent. Because eBay has struggled with growing its revenues, management has been returning massive amounts of cash to its shareholders, primarily in the form of stock buybacks.
As you can see in the graph below, since 2006, the company has retired half its shares outstanding, which is utterly staggering. That is in addition to paying a modest dividend.
Those who are looking to start a position in eBay may be happy to hear that the stock is only trading at 16 times its forward net income. Investors are apparently not willing to pay a premium for the stock due to its lack of growth.
However, the stock presents a value proposition, trading at a reasonable multiple and offering hefty capital returns. The stock is a clear example of Klarman’s preference for underappreciated companies with a wide margin of safety.
Baupost holds around 2.29% of the company’s total shares outstanding, with the fund trimming its position by 18% during the quarter.
Qorvo, Inc. (QRVO):
Qorvo develops and markets technologies and products for wireless and wired connectivity worldwide. It is the fund’s third-largest holding. If the forecasts regarding 5G are realized, the semiconductor industry (along with Qorvo) is likely to enjoy massive growth over the next few years.
At the same time, the company’s revenues are expanding, and Qorvo has started delivering sturdy profits as well. Shares are currently trading at around 15.4 times the company’s forward net income, which is most likely justified given Qorvo’s growth catalysts.
Baupost hiked its position by around 2% during the latest quarter.
Viasat, Inc. (VSAT)
These media conglomerates comprise Baupost’s 4th most significant holdings, accounting for nearly 9.3% of its portfolio. In the current landscape, the legacy media conglomerates have been in trouble, as content creation is becoming increasingly decentralized.
Companies such as Netflix (NFLX), Amazon (AMZN), and even Apple (AAPL) have started producing their own content, while the news outlets have moved mostly online, generating sales through ads or a subscription fee.
In our view, Baupost holds stakes in Viasat and Nexstar Media Group Inc (NXST) (its 12th largest holding) as an activist investor. The fund holds 22.2%, and 4.89% of their total shares outstanding, respectively. This indicates the possibility that Baupost wants to have an active influence on how the companies are run, with a potential aim towards modernizing.
For retail investors, these positions could be risky long-term bets, though admittedly attractively priced ones.
Alphabet, Google’s parent company, occupies around 8.4% of Baupost’s holdings. The fund held its position stable during the quarter, hence Alphabet remained its fifth-largest holding.
The company has become increasingly more attractive to investors, following Alphabet posting fantastic financials and robust growth consistently. Revenue growth has re-accelerated, with its most recent quarter posting growth of nearly 35%.
Net margins are above 25%, while revenue has seen uninterrupted growth. However, Alphabet still does not pay a dividend.
As a result of steady, robust organic growth, and stock buybacks, the company displays a 5-year EPS CAGR of 58.49%. This is quite impressive, considering its sheer size.
The company is one of the most attractively priced stocks in the sector as well, trading at around 27.2 times its forward earnings, despite its consistent growth, massive moat, and strong balance sheet. By accumulating $135.8 billion of cash on its balance sheet, the company should not face any sort of liquidity problems.
Translate Bio, Inc. (TBIO):
Translate Bio is a clinical-stage messenger RNA (mRNA) therapeutics company that specializes in developing medicines to treat diseases caused by protein or gene dysfunction. The company is about to be acquired by Sanofi. Therefore, Baupost is likely holding its position until the acquisition is complete, to take advantage of the remaining upside.
Facebook Inc. (FB):
Facebook is Baupost’s seventh-largest position, with the fund hiking its stake by 19% during the quarter.
Facebook is a tremendous cash cow, but with a problem. On the one hand, with strong financials, one of Wall St.’s healthiest balance sheets, and the best platform for advertisers to utilize, Facebook has been dominating the social media industry. The company has reported an all-time high bottom line of $38.9 billion over the past four quarters, amid great user growth, notwithstanding now decelerating to the single digits.
For these reasons, it would not be a complete surprise if Facebook paid a dividend at some point in the future.
On the other hand, the stock has failed to attract a higher multiple, as the steep scrutiny it has faced over the past few years have had an impact on the valuation. The stock is only trading at around 25.9 times its underlying earnings, despite its rapid growth.
With its ARPU (average revenue per user) still very strong, Facebook’s financials are more than likely to continue expanding rapidly. Facebook’s investment case today does not only include the potential for a significant upside but also comes with a great margin of safety.
If such a valuation expansion never appears, and Facebook continues to trade at a forward P/E of around 26, at an EPS growth rate of 20%-30% in the medium term (which the current user and APRU growth trajectory could easily sustain), investors should achieve equally satisfactory returns with a constant valuation multiple.
Micron Technology, Inc. (MU):
Baupost’s eighth-largest holding is Micron, which accounts for around 5.3% of its holdings. The stock has skyrocketed over the past few years, currently trading 8 times higher than its 2016 levels.
The fund is a bit late to the party, initiating the position in Q3-2020. This means that Baupost believes the stock has more room to run. At a forward P/E of around 8 and growing forward EPS expectations, the stock could reasonably rally higher.
Baupost increased its position by around 32% during the quarter.
Willis Towers Watson Public Limited Company (WLTW):
Willis Towers Watson is Baupost’s ninth-largest holding and has had a place in its portfolio since Q1-2021. The company operates as an advisory, broker, and solutions company worldwide, generating around $9.35 billion of revenues and nearly $1 billion of net income annually.
In its most recent Q2 results, Willis Towers posted total revenue growth of 9% and adjusted EPS of $2.66, up 48% over the prior year. Willis Towers’ EPS features a 3-year EPS CAGR of nearly 50%, further boosted by stock buybacks. Overall, the company’s financials point towards strong fundamentals for continuous shareholder value creation moving forward.
Baupost slashed its position by around 24% during the quarter.
International Flavors & Fragrances Inc. (IFF):
International Flavors & Fragrances Inc. is a global manufacturer and seller of flavors and fragrances. The company has made two large acquisitions, Frutarom (2018) and DuPont Nutrition and Biosciences (2021) in a short time period. Baupost initiated a position in Q1 and made no changes during Q2.
In general, IFF’s legacy businesses grow earnings in the low-to-mid-single digits excluding currency effects. That being said, the size of the recent acquisitions has transformed IFF and expanded its market presence in food and beverage, personal care, and health and wellness. Baupost is likely capitalizing on this expansion. The company also features a track record of 19 consecutive years of dividend increases.
International Flavors & Fragrances is Baupost’s tenth-largest position.
The Baupost Group’s holdings provide several interesting positions for investors to consider. Based on our calculations, the fund’s public equity portfolio has been underperforming the overall market. However, this could be due to clients joining/leaving Baupost, as well as the fund’s various hedging instruments, distorting our return results. In any case, investors are likely to find several appealing investing ideas inside their holdings.
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