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).
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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.
During the second quarter Baupost increased its Pioneer Natural Resources (NYSE:PXD) holding by 28% to 4.07 million shares valued at $563.78 million, representing 9.4% of its portfolio. The $19.05 billion oil and gas exploration and production company’s stock is down by more than 14% for the year, even though it beat the bottom line estimates in its financial results for the second quarter. Revenues, however, came in lighter than expected. Despite a downturn in energy commodity prices, Pioneer Natural Resources (NYSE:PXD) expects to increase its crude production, maintaining the 10%-plus production growth it had previously forecast for 2015. The company plans to add an average of two rigs a month in Spraberry/Wolfcamp, bringing about 100 new wells into production in the second half of the year. SPO Advisory Corp, which is led by John H. Scully, is the largest stockholder of Pioneer Natural Resources (NYSE:PXD) within our database, holding about 7.35 million shares valued at $1.02 billion at the end of June.
After a 28% hike during the June quarter, Baupost’s PBF Energy Inc (NYSE:PBF) holding was comprised of 11.03 million shares valued at $313.33 million. The stake amassed more than 13% of the company’s outstanding shares. So far this year, PBF Energy Inc (NYSE:PBF)’s stock has appreciated by more than 31%, compared to 18.33% average gains for the oil & gas refining & marketing industry during the same period. In June the company revealed that it will buy the 189,000-barrel-per-day Chalmette oil refinery in Louisiana for $322 million, increasing its total capacity to more than 725,000 barrels per day. Although PBF Energy Inc (NYSE:PBF) missed the bottom line estimates for its second quarter financial results, it beat the expectations for the top line. During the second quarter Robert Joseph Caruso’s Select Equity Group, a prominent shareholder of PBF Energy Inc (NYSE:PBF), decreased its holding by 2% to 4.56 million shares valued at $129.62 million.
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