Soros Fund Management LLC recently disclosed its portfolio updates for the third quarter of 2020, which ended on Sept. 30.
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 new regulatory oversight. 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's top stock buys for the quarter were Palantir Technologies Inc. (PLTR, Financial), D.R. Horton Inc. (DHI, Financial) and Immunomedics Inc. (IMMU, Financial). The firm also invested heavily in the PowerShares QQQ Trust Ser 1 (QQQ, Financial) exchange-traded fund and the SELECT SECTOR SPDR (XLI, Financial) ETF.
Palantir Technologies
The firm gained 18,457,516 shares in Palantir Technologies via a pre-IPO investment in the company, impacting the equity portfolio by 4.86%. During the quarter, shares traded for an average price of $9.50.
Palantir is a data mining, analytics and software company based in Denver. It mainly makes its money from government contracts and has drawn criticism from human rights and privacy activists alike for its questionable business practices.
Soros Fund Management actually made the investment in the company in 2012, but the firm later regretted the decision and said the following in a statement on Tuesday:
"SFM made this investment [in Palantir] at a time when the negative social consequences of big data were less understood. SFM would not make an investment in Palantir today."
When Palantir went public on Sept. 30, SFM's prior investment was converted into common stock shares of the company. According to the statement, Soros has already sold all the shares he could and will continue selling as the firm is able. "SFM does not approve of Palantir's business practices," Soros added.
D.R. Horton
The firm increased its D.R. Horton holding by 1,257,934 shares, or 70.04%, for a total stake of 3,054,004 shares. The trade had a 2.64% impact on the equity portfolio. Shares traded for an average price of $68.05 during the quarter.
Headquartered in Arlington, Texas, D.R. Horton is the largest homebuilder in the U.S. by number of closings. It builds new homes and sells both new and old homes through four brands: Express, Emerald, Freedom and D.R. Horton, which are all marketed toward different age and wealth demographics.
On Nov. 18, shares of D.R. Horton traded around $74.54 for a market cap of $27.13 billion. The GuruFocus Value chart rates the stock as modestly overvalued.
The company has a financial strength rating of 7 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.71 is higher than 60% of competitors, and the Altman Z-Score of 5.49 indicates a strong financial situation. The three-year revenue growth rate is 13.8%, while the three-year Ebitda growth rate is 23.1%.
Immunomedics
The firm also invested in 384,096 shares of Immunomedics, impacting the equity portfolio by 0.91%. During the quarter, shares traded for an average price of $50.24.
Immunomedics is a biotechnology company that focuses on antibody-drug conjugates for cancer treatment. On Oct. 23, months after Trodelvy became its first Food and Drug Administration-approved treatment, Immunomedics was acquired by Gilead Sciences (GILD, Financial) in an all-cash transaction valued at approximately $21 billion.
On Nov. 18, shares of Gilead (which Immunomedics is now a part of) traded around $60.90 for a market cap of $76.34 billion. Due to the acquisition, Immunomedics saw a sharp increase up to the purchase price as investors sought to profit from the special situation.
Gilead has a financial strength rating of 5 out of 10 and a profitability rating of 8 out of 10. The cash-debt ratio of 0.82 and Altman Z-Score of 2.32 show that the company is not likely to face bankruptcy in the near future. For the most recent quarter, the company's return on invested capital exceeded its weighted average cost of capital, indicating overall profitability, though that has not always been the case in recent years.
ETFs
The firm established a new position of 1,127,872 shares in the PowerShares QQQ Trust Ser 1 ETF, impacting the equity portfolio by 8.69%. Shares traded for an average price of $271.11 during the quarter.
The QQQ ETF is run by Invesco and aims to track the most innovative companies on the market. Specifically, it consists of the largest non-financial companies on the Nasdaq 100. The ETF has gained 42% over the past year.
The other ETF that the firm made a significant investment in is the SELECT SECTOR SPDR (XLI, Financial) ETF. It bought 411,600 shares, impacting the equity portfolio by 0.88%. During the quarter, shares traded for an average price of $74.75.
The XLI ETF is run by State Street Global Advisors and seeks to track the industrial sector in the U.S. This sector includes transportation companies, commercial and professional services and manufacturers of capital goods. Over the past year, the ETF has gained 6%.
Portfolio overview
At the end of the quarter, Soros Fund Management held shares of 101 stocks in an equity portfolio valued at $3.61 billion. The firm established 32 new positions, sold out of 40 stocks and added to or reduced several other positions for a turnover of 26%.
The top holdings were Liberty Broadband Corp. (LBRDK) with 20.92%, the PowerShares QQQ Trust Ser 1 ETF with 8.69% and D.R. Horton with 6.40%. 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.
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