Seth Klarman‘s Baupost Group didn’t have a brilliant first quarter as 12 stocks from its equity portfolio with a market cap of over $1.0 billion had an average decline of 2.3%. However, Baupost has a solid return over the last year, which amounts to 30% and its first quarter performance was still far better than Kyle Bass’ Hayman Advisors, which was down by 18.9% based on its long positions in five stocks and was also the worst performing hedge fund on our list for the first quarter. Klarman’s top four picks, which, according to the latest 13F, filing are represented by Cheniere Energy, Inc. (NYSEMKT:LNG), ViaSat, Inc. (NASDAQ:VSAT), Micron Technology, Inc. (NASDAQ:MU), eBay Inc (NASDAQ:EBAY), were on average down by 15.22% during the first quarter of 2015.
Before we delve deeper into the performance of Klarman’s top four picks during the quarter our readers deserve an explanation why we have been following funds like Baupost Group for the last couple of years along with over 700 other investment firms. We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are 45 days delayed. We used a 60-day delay in our back tests to be on the safe side. Our research has shown that 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ four-factor alpha amounted to 80 basis points per month. We have also been sharing and tracking the performance of these stocks since the end of August 2012. These stocks returned 132% over the last 2.5 years, outperforming the S&P 500 ETF (SPY) by nearly 80 percentage points (see more details here).
Even though the stock of the company that represents Baupost’s largest holding, Cheniere Energy, Inc. (NYSEMKT:LNG), was up by 9.94% during the first quarter it couldn’t save the fund from a rather disappointing performance. The holding comprised of some 13.81 million shares valued at $972.03 million, according to the fund’s latest 13F. Chiniere’s stock has climbed despite the weakness in the demand for natural gas. The company’s two terminals, Sabine Pass and Corpus Christi are still awaiting completion, which are set to provide the company with major export opportunities. Another stockholder of Cheniere Energy, Inc. (NYSEMKT:LNG) is Andreas Halvorsen‘s Viking Global with 9.95 million shares as of the end of 2014.
The performance of ViaSat, Inc. (NASDAQ:VSAT)‘s stock didn’t help Baupost’s returns as it declined by 5.43% during the first quarter. As of the end of last year, the investor disclosed holding 11.53 million shares of the broadband satellite provider. The company is banking on its ViaSat-2 satellite, which is scheduled to be launched with the help of Elon Musk’s SpaceX in 2016, to add some much needed impetus for growth. Bob Peck and Andy Raab’s FPR Partners and Mason Hawkins’ Southeastern Asset Management are two other investment firms that have significant stakes in ViaSat, Inc. (NASDAQ:VSAT).
Micron Technology, Inc. (NASDAQ:MU)’s stock had the worst decline among all companies from the list, losing 22.5% during the first three months of 2015. Mr. Klarman might have anticipated such an outcome, since Baupost disclosed ownership of 19.71 million shares, down by 62% on the quarter. The semiconductor manufacturer has faced considerable pressure in sales from both NAND and DRAM segments. However, the company’s new 3D NAND line and the transition from the 25nm 8GB NAND to 20nm 8GB NAND, which reduces board space by about 30% to 40%, has made some analysts very hopeful of the company’s future prospects. David Einhorn’s Greenlight Capital was another significant shareholder of Micron Technology, Inc. (NASDAQ:MU) with 31.26 million shares valued at $1.09 billion at the end of the fourth quarter.
eBay Inc (NASDAQ:EBAY) added some counterweight to the fund’s slide as its stock returned nearly 2.78% during the first quarter, while Baupost held 9.32 million shares as of the end of December, up by 53% on the quarter. The parent company of PayPal is set to spin off its payment arm later this year. According to the PayPal’s Senior Vice President the company is experiencing phenomenal growth as it expands in markets outside the U.S. It remains to be seen how profitable eBay Inc (NASDAQ:EBAY) would be without PayPal in the face of competition from the likes of Amazon.com, Inc. (NASDAQ:AMZN) and Alibaba Group Holding Ltd (NYSE:BABA). The e-commerce company was also downgraded in March by Piper Jaffray to ‘Underweight’ from ‘Neutral’. Another shareholder of eBay is Carl Icahn, who holds some 46.27 million shares of eBay Inc (NASDAQ:EBAY) valued at $2.6 billion.
Disclosure: none
