Jacobson has admitted that the holy grail of value investing- a good company trading at a cheap price- is very elusive in the modern financial markets, even with the resources of a hedge fund research team. As a result he claims that Highfields end up looking at unattractive businesses which carry low valuations because the market expects that poor performance to continue. If the price is low enough, or if the company’s struggles have been due to problems which are getting weaker, then it might be a buy.
Considering that the hedge fund tends to manage a moderately concentrated portfolio- in its most recent 13F filing, the six largest positions were responsible for about 40% of the reported investments- it seems to us that the fund doesn’t need to find too many “close enough” picks to match its large size as long as it can invest high amounts of capital. The smallest of these six largest positions was over $350 million. In turn, the large size of the positions and the concentration of the portfolio generally results in fairly long holding periods for Highfields; Jacobson has claimed that a holding period can be two to three years. Between September 2011 and September 2012 the same three stocks have held the top three slots in the fund’s 13F portfolio according to our database of filings, and two more of the most recent top six had Highfields report a position of at least $200 million a year earlier. Read on for a quick discussion of the five largest holdings in Jacobson’s most recent reported portfolio or see the full list of stock picks:
News Corp (NASDAQ:NWSA). Highfields owned about 32 million shares of News Corp, which is planning to split its business into two next year. Partly because of the opportunities inherent in this special situation- management of spun out or broken up companies can sometimes create shareholder value by being more focused on operations- News Corp was one of the most popular services stocks among hedge funds. The stock trades at 23 times trailing earnings, suggesting that the market currently expects it to improve.