This week, Soros Fund Management LLC released its 13F portfolio updates for the third quarter of 2021, 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.” The theory of reflexivity is that individual investor biases affect both market transactions and the economy, resulting in chaotic financial markets and the mispricing of assets.
Based on its latest 13F report, the firm’s top buys for the quarter were IHS Markit Ltd. (INFO, Financial) and VEREIT Inc. (VER, Financial), while its most notable sells were Maxim Integrated Products Inc. (MXIM, Financial) and Alexion Pharmaceuticals Inc. (ALXN, Financial).
IHS Markit
Soros Fund Management’s top buy of the quarter was an addition to its IHS Markit (INFO, Financial) investment. The firm acquired an additional 1,092,410 shares, bringing the total stake to 2,442,411 shares and impacting the equity portfolio by 2.55%. The stock traded for around $118.07 per share in the three months through September.
Based in the U.K., IHS Markit is a critical information provider that was formed from the 2016 merger of IHS Inc. and Markit Ltd. The company provides information, analytics and solutions for the major industries and markets that drive economies worldwide.
The company has a financial strength rating of 5 out of 10, driven by a strong Piotroski F-Score of 7 out of 9 and an Altman Z-Score of 5.02. The profitability rating is 8 out of 10 with a three-year revenue per share growth rate of 7.3% and a three-year Ebitda per share growth rate of 20.3%.
On Nov. 17, shares of IHS Markit traded around $130.51 apiece for a market cap of $51.93 billion. According to the GuruFocus Value chart, the stock is significantly overvalued.
VEREIT
The firm also added 2,338,371 shares to its VEREIT Inc. (VER, Financial) position, bringing the total number of shares owned up to 4,357,631 and impacting the equity portfolio by 2.11%. During the quarter, shares traded for an average price of $48.57 apiece.
VEREIT is a real estate investment trust based out of Phoenix. It owns and manages single-tenant retail, restaurant, office and industrial properties. The REIT was acquired by larger industry peer Realty Income Corp. (O) on Nov. 1 (after the third quarter ended), with VEREIT shareholders receiving 0.705 shares of Realty Income common stock for each share of VEREIT owned, so it is possible that Soros’ firm acquired more of the stock in order to take advantage of a merger arbitrage opportunity.
On Nov. 17, shares of Realty Income, which VEREIT is now a part of, traded around $71.78 each for a market cap of $40.57 billion. The GF Value chart rates the stock as fairly valued.
The company has a financial strength rating of 4 out of 10; although the cash-debt ratio of 0.05 is low, the Piotroski F-Score of 5 out of 9 is typical of a stable company. With average operating and net margins and a dividend yield of 3.94%, the REIT has a profitability rating of 7 out of 10.
Maxim Integrated Products
The firm sold out of its 1,087,667-share stake in Maxim Integrated Products (MXIM, Financial). Previously, the stock had a 2.17% weight in the equity portfolio. Shares traded around $100.35 apiece during the quarter.
The manufacturer of analog and mixed-signal integrated circuits was acquired by industry peer Analog Devices Inc. (ADI) on Sept. 22. Under the terms of the deal, Maxim stockholders received 0.63 of a share of Analog common stock for each share of Maxim common stock owned. Soros’ firm ended the quarter with an additional 72,999 shares of Analog Devices in its portfolio, bringing the total number of Analog Devices shares owned up to 250,903, so it seems that the firm cut its holding during the quarter, though whether the sale occurred before or after the acquisition is unclear.
On Nov. 17, shares of Analog Devices, which Maxim is now a part of, traded near the $187.55 mark, resulting in a market cap of $100.69 billion. The Peter Lynch chart shows the stock is trading above both its intrinsic value and its median historical valuation.
The company has a financial strength rating of 6 out of 10, with the Altman Z-Score of 7.59 and Piotroski F-Score of 8 out of 9 showing a fortress-like balance sheet. The profitability rating is 8 out of 10. Despite industry-beating margins, the return on invested capital has dropped below the weighted average cost of capital in recent years, so it seems the company is not creating value for shareholders.
Alexion Pharmaceuticals Inc.
Soros Fund Management also ditched its 500,001 shares of Alexion Pharmaceuticals Inc. (ALXN, Financial) merely a quarter after acquiring them. The position had represented 1.74% of the equity portfolio. During the quarter, shares were trading hand for around $183.84 each.
Headquartered in Boston, Alexion is a biopharmaceutical company that focuses on developing medications for rare diseases that result from dysfunction of the complement system, which is a component of the immune system.
Alexion was acquired by British pharmaceutical company AstraZeneca (LSE:AZN) (AZN) in late July. The $39 billion buyout consisted of $13.3 billion in cash and 236,321,411 new AstraZeneca shares, 94% of which became the new AstraZeneca American Depositary Shares (ADSs) listed on the Nasdaq. It should be noted that AstraZeneca does not appear on Soros Fund Management’s filing for the quarter.
On Nov. 17, shares of AstraZeneca, which Alexion is now a part of, traded around $57.71 for a market cap of $178.69 billion. The Peter Lynch chart shows a stock whose share price keeps rising even as earnings fall, resulting in ever-higher overvaluation.
The company has a financial strength rating of 4 out of 10. The interest coverage ratio of 1.37 and current ration of 1.13 indicate the company could face liquidity issues. Its profitability is rated a score of 7 out of 10. Earnings have been recovering since 2015, and the company has achieved a three-year revenue per share growth rate of 4.5% and a three-year Ebitda per share growth rate of 6.6%.
Portfolio overview
As of the quarter’s end, Soros Fund Management held shares of 232 common stocks in an equity portfolio valued at $5.00 billion. The turnover for the quarter was 16%.
The top holdings were Liberty Broadband Corp. (LBRDK) with 13.47% of the equity portfolio, D.R. Horton Inc (DHI) with 7.26% and the PowerShares QQQ Trust Ser 1 ETF (QQQ) with 7.12%.
In terms of allocations to different sectors, the firm was most invested in the consumer cyclical sector, followed by communication services and financial services.
