Baupost Group's 34 Stock Portfolio | Seth Klarman Q3 2022 Update

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Baupost Group’s 34 Stock Portfolio | Seth Klarman Q3 2022 Update


Updated on November 23rd, 2022 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 around $31 billion in assets under management (AUM), $5.8 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-November 2019 through mid-November 2022) would have generated annualized total returns of -0.4%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 10.2% 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

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-averse 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:

Noteworthy new Stakes:

Noteworthy New Sells:

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 34 equities, the 10 most significant of which account for 69.2% of its total composition. The fund’s largest holding is Qorvo, Inc. (QRVO), occupying around 11.9% of the total portfolio.

Source: 13F filing, Author

Qorvo, Inc. (QRVO)

Qorvo develops and markets technologies and products for wireless and wired connectivity worldwide. It is the fund’s 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 25.3 times the company’s forward net income, which reflects Qorvo’s growth catalysts.

Baupost trimmed its position by around 2% during the latest quarter. The company is now the fund’s largest holding.

Viasat, Inc. (VSAT)

Media conglomerate Viasat is Baupost’s second-largest holding, accounting for roughly 11.9% 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 a stake in Viasat as an activist investor due to the fund holding 21.9% of its total outstanding shares. This indicates the possibility that Baupost wants to have an active influence on how the company is run, with a potential aim towards modernizing.

For retail investors, the position could be a risky long-term bet, though an admittedly attractively priced one.

Veritiv Corporation (VRTV)

Veritiv Corporation functions as a B2B provider of value-added packaging products and services, as well as facility solutions, print, and publishing products and services internationally.

Note that while Veritiv’s shares have performed well over the past three years, the company’s business model suffers from extremely low margins. Net income margins over the past four quarters amount to just 4.4%. Hence the company’s ultra-low valuation multiple of 0.2X from a price/sales perspective.

The company is Baupost’s third-largest holding and was trimmed by just 3% during the quarter. Baupost holds around 22.9% of the company’s total shares, meaning it has an active influence on the company. The fund has been accumulating shares since Q3-2014.

Fiserv, Inc. (FISV)

Fiserv is a relatively new holding for Baupost. It was initiated in Q4 2021. Fiserv provides payment and financial services technology all over the globe, operating through its Acceptance, Fintech, and Payments segments. These include point-of-sale merchant acquiring and digital commerce solutions, security, and fraud solutions, among other services.

The company’s margin-rich business model is quite robust, resulting in consistent revenue and income growth. Shares are currently trading at a reasonable forward P/E of 14.2, while management has historically rewarded shareholders through stock repurchases.

Baupost held its stake in the company stable during the latest quarter.

The Liberty SiriusXM Group (LSXMA) (LSXMK)

Baupost initiated a position in The Liberty SiriusXM Group in Q1-2020 and has since grown its equity stake steadily. The company specializes in the entertainment business in the U.S. and Canada. It offers music, comedy, talk, news, weather channels, podcast, and infotainment services via its proprietary satellite radio systems, streamed applications for mobile devices, and other consumer electronic products.

While the company has managed to gradually grow its revenues, net income margins have struggled to expand, leading to somewhat weak profitability.

Baupost boosted both its positions in the Liberty SiriusXM Group by 4% during the previous quarter. The two classes of stock, A, and K, account for 6.3% of its portfolio each.

Warner Bros. Discovery, Inc. (WBD)

Warner Bros. Discovery is an international mass media company and one of the largest in the space globally. The stock has now declined to the same levels it was trading 15 years ago, as the combined company has had a hard time integrating its assets and having them produce solid cash flow. On the one hand, Warner Bros. Discover has already achieved $750 million in incremental synergies this year, while from next year, those synergies are expected to rev notably to $2.75 billion for 2023 and $3.5 billion in 2024+. On the other, such improvements remain highly uncertain.

The fund boosted its position on the stock by 61% during the quarter. Warner Bros. Discovery is now Baupost’s seventh-largest holding, and the fund owns 5.7% of the company’s total outstanding shares.

Willis Towers Watson Public Limited Company (WTW)

U.K.-based Willis Towers Watson operates as an advisory, broking, and solutions firm internationally. The company operates through two segments, Health, Wealth, and Career, as well as Risk and Broking. The company has historically recorded stable book value per share gains, which has led to a rather stable stock price appreciation trend.

The fund boosted its position on the stock by 38% during the quarter. Warner Bros. Willis Towers Watson is now Baupost’s eighth-largest holding.

Micron Technology, Inc. (MU)

Micron Technology is a semiconductor company focused on solutions for memory and storage products. The company was founded in 1978 and launched its IPO in 1984, making it one of the most well-established publicly traded semiconductor companies.

Micron Technology has a history of experiencing extreme booms and busts. The company lost money outright in 2012 and 2016 while producing exceptional profits in other years, such as 2018. This is due to the inherently cyclical nature of the semiconductor industry in general and memory products in particular. This cyclicality has been reduced to a degree thanks to consolidation in the industry. However, Micron remains a company that will have peaks and troughs in its operations.

The fund boosted its position on the stock by 20% during the quarter. Micron Technology is now Baupost’s ninth-largest holding.

SS&C Technologies Holdings, Inc. (SSNC)

SS&C Technologies Holdings provides software products and software-enabled services to financial services and healthcare industries. The company operates a technology stack across securities accounting, front, middle, and back-office functions, processing and clearing, and compliance and tax reporting, amongst others.

Earnings-per-share growth has lagged lately, but the 1.56%-yielding dividend continues to grow gradually and remains well covered. The company also executes substantial amounts of stock repurchases as a way to return its excess cash to shareholders.

The fund boosted its position on the stock by 27% during the quarter. SS&C Technologies Holdings is now Baupost’s tenth-largest holding.

Final Thoughts

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 against 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.

 

Additional Resources

See the articles below for analysis on other major investment firms/asset managers/gurus:

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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