Billionaire Seth Klarman’s Top Energy Stocks

Seth Klarman‘s Baupost Group recently filed its 13F for the second quarter reporting period. Klarman, the author of the $1,500 book, Margin of Safety, was asked by one of his professors, Bill Poorvu, to manage money for Baupost after he graduated from Harvard Business School. During the second quarter the market value of the fund’s portfolio rose to $5.99 billion from $5.95 billion at the end of the previous quarter. The turnover ratio for the quarter was relatively small at 12.5%.  A hefty 40% chunk of the fund’s public equity portfolio belonged to the energy sector, with its top picks including Cheniere Energy, Inc. (NYSEMKT:LNG), Pioneer Natural Resources (NYSE:PXD), and PBF Energy Inc (NYSE:PBF), which we’ll discuss in this article.

But why do we track hedge fund activities? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect the hedge funds’ activities. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small cap stock picks among hedge funds also bested passive index funds by around 60 percentage points over the 35 month period beginning in September 2012, returning 118% (read the details here).

Klarman increased his holding in Cheniere Energy, Inc. (NYSEMKT:LNG) by 11% during the second trimester to 15.37 million shares valued at $1.06 billion. The stake represented 17.74% of the fund’s portfolio and amassed more than 6.4% of the company’s outstanding shares. With Cheniere Energy, Inc. (NYSEMKT:LNG) is ever so close to opening its Sabine Pass liquefied natural gas export terminal and making its first shipment later this year, the company has sparked the attention of activist investor Carl Icahn, who acquired about 19.35 million shares of the company this month through Icahn Partners, representing 8.18% of the company’s outstanding shares. The money manager believes that the company is undervalued and plans to engage the management on matters involving its operations, capital expenditures, financing, and executive compensation. Cheniere Energy, Inc. (NYSEMKT:LNG)’s stock has slid by nearly 3% so far this year.