Seth Klarman (Trades, Portfolio)'s Baupost Group made some significant changes to its equity portfolio according to the firm's 13F, which was filed towards the end of last week.
Investors should note that while the report does give us an insight into the equity portfolio of this hedge fund, it does not provide the complete picture. The 13F filings do not detail credit holdings, real estate investments or private equity investments. We know Baupost has substantial investments in each of these asset classes. It also has a large cash allocation, which has averaged around 30% of assets under management in the past. This position is not detailed on the 13F. The report only gives us a snapshot of Baupost's portfolio at one point in time and should not be relied upon for trading decisions.
Klarman's portfolio changes
The most notable portfolio change, in terms of the most significant impact on the portfolio, was the sale of Cheniere Energy Inc. (LNG, Financial).
Previously, this stock made up 4% of the equity portion of the hedge fund's portfolio. However, it had been significantly higher in the past. In the fourth quarter of 2014, Cheniere made up a fifth of Baupost's equity portfolio.
Considering the stock's price action over the past five years, it seems unlikely that the hedge fund booked a profit on this holding. It traded at an all-time high of more than $80 per share in September 2014. It has failed to return to this level ever since.
Klarman also reduced his holdings of several other key equity positions during the second quarter. He lowered his investment in ViacomCBS Inc. (VIAC, Financial) by 16%. Baupost now owns just under 19 million shares in the company, giving it a 5.5% portfolio weight. The HP Inc (HPQ, Financial) and Alphabet Inc (GOOG, Financial) holdings were pared back by 10% and 29%, respectively.
As well as reducing some of these significant holdings, the hedge fund manager and his team also initiated several smaller positions. The biggest of these was the healthcare provider HCA Healthcare (HCA, Financial). Klarman and his team added one million shares in this company during the second quarter. Following these deals, the holding now has a 1.22% portfolio weight. It's worth just under $100 million. HCA has been a strong performer in recent years. The healthcare provider has spent billions buying back its own shares while reinvesting in operations at the same time. It is a free cash flow giant and has plenty of capital to return to shareholders. The stock posted a 52-week high of $152 per share at the beginning of this year, but it traded as low as $80 per share in the first quarter. It recovered slightly but still traded below $100 in the second quarter. It seems as if Klarman may have been making the most of this decline to buy a proven cash cow at a depressed price.
Another portfolio addition was the New York-based analytics company Verint Systems (VRNT, Financial). Klarman acquired nearly $30 million shares of this business in the second quarter. It ended the quarter at $45 per share, down from its 52-week high of $59 per share.
Finally, Klarman added two small (under $25 million) equity positions in the second quarter. These were real estate investment trust Ventas (VTR, Financial), which specializes in the management of health care facilities, and multinational financial technology company SS&C Technologies (SSNC, Financial).
Disclosure: The author owns no share mentioned.
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