Updated on June 24th, 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 $30 billion in assets under management (AUM), $9.3 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-May 2019 through mid-May 2022) would have generated annualized total returns of -2.1%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 16.1% 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-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:
- No new stakes were bought during the latest quarter.
Noteworthy New Sells:
- NortonLifeLock Inc (NLOK)
- Pershing Square Tontine Holdings, Ltd. (PSTH) – We have covered Pershing Square here.
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 31 equities, the 10 most significant of which account for 74.9% of its total composition. The fund’s largest holding is Intel Corp. (INTC), occupying around 12.4% of the total portfolio.
Source: 13F filing, Author
Intel Corp. (INTC)
Intel is Baupost’s largest holding, accounting for 12.4% of its total holdings. The semiconductor giant’s performance remained robust over the past year. For the year, adjusted revenue improved 2% to $74.7 billion while adjusted earnings-per-share of $5.47 compared to $5.10 in 2020. The company enjoys massive margins, with $19.8 billion making it to the bottom line in FY2021.
Entering 2022, Intel’s performance came in relatively strong, despite the ongoing macroeconomic headwinds pressuring its top line and margins.
Revenue for the PC-Centric business decreased 13% to $9.3 billion for the quarter, primarily due to component shortages as well as the modem ramp down. PC volume fell 18%. Datacenter and AI Group continues to act well, with revenue growing 22% to $6.0 billion. Enterprise and government revenue was higher by 53% and unit volumes grew by 17%.
Network and Edge Group grew 23% to $2.2 billion due to the ongoing recovery from COVID-19 and strong networking demand. Intel saw strong growth rates in its emerging segments. Intel Foundry Services, Accelerated Computing Systems and Graphics Group, and Mobileye grew 175%, 21%, and 5%, respectively. The gross margin declined 480 basis points to 50.4%, nonetheless.
Despite its resilient performance, investors have been lately worrying about competition catching up, especially from Advanced Micro Devices (AMD). The company expects adjusted earnings-per-share of $4.16 for 2022. This implies a P/E of just 8.9. 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 8 years of consecutive annual dividend increases, with its most recent one being a 5.0% raise. The stock currently yields around 3.95% while the dividend itself is well-covered, as Intel is currently featuring a payout ratio of around 35%.
Baupost trimmed its position in Intel by 8% during the previous 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 8.9 times the company’s forward net income, which could be underappreciating Qorvo given its growth catalysts.
Viasat, Inc. (VSAT)
Media conglomerate Viasat is Baupost’s third-largest holding, accounting for roughly 10.5% 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 22.8% of its total shares outstanding. 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.
Alphabet offers several well-known products, such as Google, Android, Chrome, Google Cloud, Google Maps, Google Play, YouTube, as well as technical infrastructure. While the company’s expansion has lasted for more than a decade and a half, it is still a high-growth stock.
Revenue growth has re-accelerated, with the company posting growth of over 41% last year, despite the deceleration caused during the first couple of quarters during the initial pandemic outbreak. The company is one of the most attractively priced stocks in the sector as well, trading at around 19.1 times its forward earnings, despite its consistent growth, massive moat, and strong balance sheet.
With its robust profitability, Alphabet has accumulated a cash and equivalents position of $133.9 billion. As a result, the company can comfortably afford to invest in its long-term bets such as Waymo, and in the meantime return cash to its shareholders through buybacks. Alphabet has repurchased $52.18 billion worth of stock over the past four quarters, retiring shares at an all-time high rate.
Baupost hiked its position by 6% during the quarter. The stock accounts for around 9.7% of its portfolio.
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 2.82%. Hence the company’s ultra-low valuation multiple from a price/sales perspective.
The company is Baupost’s fifth-largest holding, and it was held steady during the quarter. Baupost holds around 23.7% 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 13.4, while management has historically rewarded shareholders through stock repurchases.
Baupost boosted its stake in the company by 30% during the latest quarter.
SS&C Technologies Holdings, Inc. (SSNC)
SS&C Technologies Holdings offers software products and software-powered services to the financial services and healthcare industries. The company owns and runs a technology stack across securities accounting, performance and risk analytics, regulatory reporting, and healthcare information operations. The company’s products and services enable professionals in these industries to automate complicated business processes and are critical in helping its clients to manage information processing requirements.
Despite the challenges that arose during the pandemic, the company managed to grow its revenues, while its net income margins have now been restored to their pre-pandemic levels.
SS&C Technologies is Baupost’s seventh-largest holding, accounting for 3.8% of its total holdings. The fund trimmed its position in the company by 1% during the last quarter. It now holds around 1.47% of the company’s total shares.
Micron Technology, Inc. (MU)
Baupost’s eighth-largest holding is Micron, which accounts for around 3.8% of its holdings. While the stock has corrected lately, it is still currently trading more than 5 times higher than its 2016 levels.
The fund is a bit late to the party, initiating the position in Q3-2020. At a forward P/E of around 5X and growing forward EPS expectations, the stock could reasonably rally higher.
Despite that, Baupost slashed its position by 4% in the most recent quarter after its previous 54% slash in Q4-2021, likely losing some confidence in the stock.
The Liberty SiriusXM Group (LSXMA)
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 its position in the Liberty SiriusXM Group by 12% during the previous quarter.
Dropbox, Inc. (DBX):
With 700 million registered users, Dropbox is the company behind one of the most well-known content collaboration platforms internationally. The company’s platform enables individuals,teams, and enterpiese to collaborate and store data as smoothly as possible.
Dropbox’s revenues have been gradually expanding. As a result, Dropbox has been enjoying scaling economies, which has allowed the company to record profits lately. That said, there are multiple risks attached to Dropbox’s investment case, with the most significant being brutal competition. Bigger players in the space such as Microsoft and Alphabet offer similar products which they can bundle with the rest of their solutions for a lower price. Dropbox features robust customer retention, nonetheless.
Dropbox is Baupost’s tenth-largest holding, accounting for 3.7% of its total publicly-trading assets. The position was boosted by 30% during the latest quarter.
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.
See the articles below for analysis on other major investment firms/asset managers/gurus:
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- The 20 Highest Yielding Dividend Aristocrats
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- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
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- The 20 Highest Yielding Monthly Dividend Stocks
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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: