Steven Romick Sends Alibaba, Baidu Positions to Hong Kong in 3rd Quarter
Steven Romick (Trades, Portfolio), manager of the FPA Crescent Fund, disclosed this week that his fund’s top trades during the third quarter included the exchanging of its Alibaba Group Holding Ltd. (BABA, Financial) and Baidu Inc. (BIDU, Financial) holdings to Hong Kong-based shares (HKSE:09988, Financial)(HKSE:09888, Financial), a short position in the SPDR S&P 500 ETF Trust (SPY, Financial), a position boost in Prosus NV (XAMS:PRX, Financial) and reductions to its holdings in Naspers Ltd. (JSE:NPN, Financial) and Meggitt PLC (LSE:MGGT, Financial).
The fund, part of Los Angeles-based First Pacific Advisors (Trades, Portfolio), seeks long-term capital appreciation through both long and short equity positions. FPA Crescent finds value in all parts of a company’s capital structure, including common and preferred stocks, convertible bonds and corporate bonds. The fund looks for companies that trade at discounts to private market value and reflect low cyclically-adjusted price-earnings ratios.
With the proceeds, the firm purchased 5,586,312 Hong Kong-based shares of Alibaba (HKSE:09988, Financial), giving the position 1.40% equity portfolio weight. Shares averaged 177.96 Hong Kong dollars ($22.89) during the third quarter; the stock is significantly undervalued based on Wednesday’s price-to-GF Value ratio of 0.48.
GuruFocus ranks the e-commerce giant’s profitability 8 out of 10 on several positive investing signs, which include a three-star business predictability rank and profit margins and returns that outperform more than 80% of global competitors.
With the proceeds, the fund purchased 3,868,925 Hong Kong-based shares of Baidu (HKSE:09888, Financial), giving the position 1.01% equity portfolio space. Shares averaged HK$160.35 ($20.63) during the third quarter; the stock is fairly valued based on Wednesday’s price-to-GF Value ratio of 1.04.
SPDR S&P 500 ETF Trust
The SPDR S&P 500 ETF Trust seeks to track the performance of the Standard & Poor’s 500 index. On Wednesday, the index closed at 4,536.31, up 16.68 points from Tuesday’s close of 4,519.63.
On Wednesday, the S&P 500 has a Shiller price-earnings ratio of 38.7, approximately 50.5% higher than the 20-year average ratio of 25.70.
GuruFocus ranks the Netherlands-based consumer internet group’s financial strength 5 out of 10 on the back of a double-digit Altman Z-score despite debt ratios underperforming more than 60% of global competitors.
The fund sold 615,085 shares of Naspers (JSE:NPN, Financial), slashing 64% of the position and 1.57% of its equity portfolio. Shares averaged 2,634.29 South African rand ($182.90) during the third quarter; the stock is significantly undervalued based on Wednesday’s price-to-GF Value ratio of 0.52.
GuruFocus ranks the South African internet and technology company’s financial strength 4 out of 10 on the back of debt ratios underperforming more than 66% of global competitors despite having a strong Altman Z-score of 4.75.
The fund sold 13,499,298 shares of Meggitt (LSE:MGGT, Financial), slicing 82.87% of the position and 1.05% of the equity portfolio. Shares averaged 6.64 pounds ($9.18) during the third quarter; the stock is significantly overvalued based on Wednesday’s price-to-GF Value ratio of 1.76.
GuruFocus ranks the U.K.-based aerospace and defense company’s financial strength 4 out of 10 on several warning signs, which include a low Piotroski F-score of 3, a modestly weak Altman Z-score of 2.25 and interest coverage and debt ratios that are underperforming more than 75% of global competitors.