Soros Fund Management LLC recently disclosed its portfolio updates for the first quarter of 2020, which ended on March 31.
Founded by George Soros (Trades, Portfolio) in 1969, Soros Fund Management is the primary advisor for the Quantum Group of Funds. After helping define the modern hedge fund, the firm converted to a family office in 2011, becoming closed to outside investors and avoiding regulatory changes. Soros’ investing principles are based on his theory of “reflexivity,” which holds that individual investor biases affect both market transactions and the economy. This results in chaotic financial markets and the mispricing of assets, providing value opportunities for the careful investor.
Based on its investing criteria, the firm established 34 new positions during the quarter, sold out of 84 positions and added to or reduced several other positions for a turnover rate of 32%. The top buys were Peloton Interactive Inc. (PTON, Financial), TransDigm Group Inc. (TDG, Financial), Cypress Semiconductor Corp. (XLU, Financial) and the SPDR Select Sector Fund – Utilities (XLU, Financial) exchange-traded fund.
Peloton Interactive
The firm added 2,713,283 shares to its stake in Peloton Interactive, increasing the position by 966.02% for a total holding of 2,994,155 shares and impacting the equity portfolio by 4.41%. During the quarter, shares traded for an average price of $27.88.
Peloton is a New York-based exercise equipment and media fusion company founded in 2012 and launched with a Kickstarter campaign in 2013. It combines stationary bikes and treadmills with tablets so that users can stream media for workouts.
On May 19, shares of Peloton traded around $45.02 for a market cap of $12.67 billion. Since the company’s initial public offering in September 2019, the share price has gained 55.24%.
GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 1 out of 10. The cash-debt ratio of 3.0 and Altman Z-Score of 8.27 suggest a strong balance sheet and safety from bankruptcy. The operating margin of -17.59% and return on capital of -33.54% indicate low profitability, and the company has yet to turn a quarterly profit.
TransDigm Group
The firm established a new position of 149,331 shares in TransDigm Group after selling out of its previous holding in the company in the fourth quarter of 2019. The trade had a 2.93% impact on the equity portfolio. Shares traded for an average price of $547.94 during the quarter.
TransDigm Group is a manufacturing company that designs, engineers and produces components, systems and subsystems for the commercial and military aerospace sectors. The Ohio-based company is a global leader in its field, with dozens of locations throughout North America, Europe and Southeast Asia.
On May 19, shares of TransDigm Group traded around $365.35 for a market cap of $19.8 billion and a price-earnings ratio of 24.68. According to the Peter Lynch chart, the stock is trading above its intrinsic value but in line with its median historical valuation.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rating of 10 out of 10. The cash-debt ratio of 0.14 is lower than 77.46% of competitors and the Altman Z-Score of 1.25 indicates that the company could be in danger of bankruptcy within the next two years, but the current ratio of 3.14 means the company has enough liquidity to pay off short-term debt obligations. The operating margin of 38.38% is higher than 96.72% of competitors, while the return on invested capital exceeds the weighted average cost of capital, indicating high profitability.
Cypress Semiconductor
The firm also bought 1,740,000 new shares of Cypress Semiconductor after selling out of its previous holding in the company in the fourth quarter of 2019. The trade impacted the equity portfolio by 2.49%. During the quarter, shares traded for an average price of $22.88.
Cyprus Semiconductor was an American semiconductor manufacturing company. In addition to its base of memory products, the company developed systems and Internet of Things solutions, focusing on markets expected to grow faster than the overall industry.
On April 16, Cyprus was acquired by Infineon Technologies AG (FRA:IFX, Financial) (OTCQX:IFNNY, Financial), a German semiconductor company, in an all-cash deal. Cyprus’ stock ceased trading at close on April 16, after which shareholders received $23.85 per share. The company is now effectively part of Infineon technologies.
SPDR Select Sector Fund – Utilities
The firm invested in 800,000 shares of the SPDR Select Sector Fund – Utilities ETF, impacting the equity portfolio by 2.72%. During the quarter, shares traded for an average price of $64.36.
The ETF seeks to correspond generally to the price and yield performance of the Utilities Select Sector Index of the S&P 500. The companies on the index include electric utility, gas utility, multi-utility and independent power producers.
On May 19, shares of the ETF traded around $56.53 for a market cap of $11.48 billion, a price-earnings ratio of 23.05 and a dividend yield of 3.44%. The price of the ETF is down 12.16% year to date and 4.04% over the past 12 months.
Portfolio overview
At the end of the quarter, Soros Fund Management held shares of 83 stocks for an equity portfolio valued at $1.63 billion. The top holdings were Liberty Broadband Corp. (LBRDK) with a weight of 35.86%, VICI Properties Inc. (VICI) with 5.08% and D.R. Horton Inc. (DHI) with 4.89%.
In terms of sector weighting, the firm was most invested in communication services, consumer cyclical and financial services.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Portfolio updates reflect only common stock positions as per the regulatory filings for the quarter in question and may not include changes made after the quarter ended.
Read more here:
- David Tepper's Appaloosa Buys Twitter, Sells Caesars
- Baron Funds Buys Schrodinger, Sells Petrobras
- Top New Portfolio Additions of Howard Marks' Oaktree
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
