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Top 2nd-Quarter Trades of Bernard Horn's Polaris Capital

Global-oriented value fund releases quarterly portfolio

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James Li
Aug 25, 2021

Summary

  • Fund switches Coca-Cola Europacific Partners stake from U.K. shares to U.S. shares.
  • Fund takes positions in Jazz Pharmaceuticals and Daito Trust Construction.
  • Fund's Alexion stake dissolved following AstraZeneca acquisition.
  • Fund also exits holding in Quest Diagnostics.
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Bernard Horn (Trades, Portfolio), manager of the Polaris Global Value Fund, disclosed this week that his fund’s top trades during the second quarter included the exchange of his Coca-Cola Europacific Partners stake from the U.K.-listed shares (LSE:CCEP, Financial) to the U.S.-listed shares (CCEP, Financial) and new holdings in Jazz Pharmaceuticals PLC (JAZZ, Financial) and Daito Trust Construction Co. Ltd. (TSE:1878, Financial). The fund also dissolved its Alexion Pharmaceuticals Inc. (ALXN) stake and exited its holding in Quest Diagnostics Inc. (DGX, Financial).

The guru’s Boston-based fund seeks undervalued companies around the globe based on the belief that country and industry factors are important determinants of stock prices and that global market fluctuations produce mispriced stocks.

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The fund returned 2.83% during the second quarter and 14.27% year to date, compared to the MSCI World Index's returns of 7.89% for the quarter and 13.33% year to date. As of June 30, Polaris’ $512 million equity portfolio contains 100 stocks, with four new positions and a turnover ratio of 5%. The top four sectors in terms of weight are financial services, consumer cyclical, basic materials and industrials, representing 21.73%, 16.25%, 11.36% and 10.76% of the equity portfolio.

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Coca-Cola Europacific Partners

Polaris exchanged its 107,600 U.K. shares of Coca-Cola Europacific Partners (

LSE:CCEP, Financial) for the same number of U.S. shares (CCEP, Financial). The net portfolio impact of the two trades is 0.11%. U.K. shares averaged 48.28 euros ($56.80) while U.S. shares averaged $58.15 during the quarter.

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On May 10, Coca-Cola European Partners merged with Coca-Cola Amatil to form Coca-Cola Europacific Partners. GuruFocus ranks the bottling company’s financial strength 4 out of 10 on several warning signs, which include a modestly weak Altman Z-score of 2.17 and interest coverage and debt ratios that are underperforming more than 80% of global competitors.

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Jazz Pharmaceuticals

Polaris purchased 35,600 shares of Jazz Pharmaceuticals (

JAZZ, Financial), giving the position 1.24% equity portfolio weight. Shares averaged $173.04 during the second quarter; the stock is modestly undervalued based on Wednesday’s price-to-GF Value ratio of 0.71.

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The fund said in its letter that the Irish biotech company continued bolstering its neuroscience and oncology pipeline with Jazz’s May acquisition of GW Pharmaceuticals PLC (

LSE:GWP, Financial). GuruFocus ranks Jazz’s profitability 8 out of 10 on the back of a 2.5-star business predictability rank and profit margins that outperform more than 84% of global competitors.

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Despite high profitability, Jazz’s financial strength ranks 3 out of 10 on several warning signs, which include a weak Altman Z-score of 1.16 and interest coverage and debt ratios underperforming more than 89% of global competitors.

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Daito Trust Construction

The fund purchased 50,200 shares of Daito Trust Construction (

TSE:1878, Financial), giving the position 1.07% weight in the equity portfolio. Shares averaged 12041.8 yen ($109.47) during the second quarter; the stock is fairly valued based on Wednesday’s price-to-GF Value ratio of 0.93.

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GuruFocus ranks the Japanese real estate company’s financial strength 7 out of 10 on several positive investing signs, which include a strong Altman Z-score of 3.57 and interest coverage and debt ratios that outperform more than 75% of global competitors.

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Alexion

The fund's 37,800-share holding in Alexion was dissolved following the company’s merger with AstraZeneca PLC (

AZN, Financial), impacting the portfolio by -1.17%.

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The U.K.-based drug manufacturer completed the acquisition of Alexion on July 21. GuruFocus ranks AstraZeneca’s financial strength 4 out of 10: Although the company has a solid Piotroski F-score of 6, warning signs include a modestly weak Altman Z-score of 2.78 and interest coverage and debt ratios that underperform more than 80% of global competitors.

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Gurus with holdings in AstraZeneca include

PRIMECAP Management (Trades, Portfolio), Ken Fisher (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).

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Quest Diagnostics

The fund sold 41,033 shares of Quest Diagnostics (

DGX, Financial), trimming 1.07% of its equity portfolio. Shares averaged $130.88 during the second quarter; the stock is fairly valued based on Wednesday’s price-to-GF Value ratio of 0.99.

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GuruFocus ranks the Secaucus, New Jersey-based medical diagnostics and research company’s profitability 8 out of 10 on several positive investing signs, which include a 3.5-star business predictability rank, a high Piotroski F-score of 9 and profit margins and returns that are near 10-year highs and outperform more than 78% of global competitors.

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Disclosures

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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