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Big Changes At The Top of Passport Capital’s Portfolio As Yahoo (YHOO) Takes Top Spot

Passport Capital is a San Francisco-based global investment firm founded by John H. Burbank III in 2000. The fund’s investment strategy focuses around generating high risk-adjusted returns through macroeconomic analysis, fundamental research conducted on a company-by-company basis, and quantitative resources. Passport Capital carries out top-down analysis instead of focusing merely on asset valuations to identify durable equities. Mr. Burbank is known for the massive profits he made betting against subprime mortgages back in 2007, when his fund was ranked by Barron’s as the top performing fund of the year. He started trading when he was 30 with $50,000 worth of borrowed credit cards and has turned that into a hedge fund that now manages $4 billion in assets as of June 30.

According to Passport Capital’s latest 13F filing, it manages a U.S. equity portfolio with $5.47 billion worth of holdings as of June 30. In this article, we will take a look at Passport Capital’s biggest moves during the second quarter, as revealed by the fund’s 13F filing for the June quarter.

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John Burbank PASSPORT CAPITAL

Liberty Global plc – Class C Ordinary Shares (NASDAQ:LBTYK)

– Shares Owned by Passport Capital (as of June 30): 5.13 million

– Value of Passport Capital’s Holding (as of June 30): $147.08 million

Liberty Global plc – Class C Ordinary Shares (NASDAQ:LBTYK) is the first new addition to Passport Capital’s portfolio that we’ll cover, as the fund acquired about 5.13 million shares of the company during the second quarter, valued at $147.08 million on June 30. In May, Liberty Global acquired Cable & Wireless Communications Plc for $7.4 billion on an enterprise value basis. The company’s plans to set up a Dutch telecommunications giant in a joint venture with Vodafone was also given the green light by European Union antitrust regulators earlier this month, in somewhat of a surprise decision after it was thought the Brexit in late-June could lead to the merger being scuttled. Despite the positive development, Liberty Global’s stock is still down by over 10% year-to-date. First Eagle Investment Management owns 15.19 million shares of Liberty Global plc – Class C Ordinary Shares (NASDAQ:LBTYK) as of June 30.

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Allergan plc Ordinary Shares (NYSE:AGN)

– Shares Owned by Passport Capital (as of June 30): 708,071

– Value of Passport Capital’s Holding (as of June 30): $163.63 million

Passport Capital added a stake of 708,071 shares of the Dublin-based pharmaceutical company to its portfolio during the second quarter. Allergan plc Ordinary Shares (NYSE:AGN)’s stock accounts for about 3% of the value of the hedge fund’s equity portfolio. Investment firm Piper Jaffray reiterated its ‘Neutral’ rating on Allergen, but slashed its price target on the stock to $227 from $236 earlier this month, following the company’s second quarter results, which came in at $3.35 in EPS on $3.68 billion in revenue. The Street had been expecting $3.33 in EPS and much stronger $3.97 billion in revenue. Allergan plc Ordinary Shares (NYSE:AGN)’s stock has lost over 18% of its market value so far in 2016.

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On the next page, we will take a look at Mr. Burbank’s big quarterly moves in General Electric, CF Industries, and Yahoo.

General Electric Company (NYSE:GE)

– Shares Owned by Passport Capital (as of June 30): 5.47 million

– Value of Passport Capital’s Holding (as of June 30): $172.34 million

Passport Capital increased its exposure to General Electric Company (NYSE:GE) by 790,451 shares during the second quarter. General Electric reported second quarter EPS of $0.51 on $33.5 billion in revenue, powering past the Street’s consensus targets of $0.46 in EPS and $31.76 billion in revenue. The company however reported weak demand for new equipment serving the oil, gas and transportation industries, raising concerns about its full-year targets. General Electric’s stock is flat year-to-date. As of the end of the second quarter, Natixis Global Asset Management’s Harris Associates owns 38.11 million shares of General Electric Company (NYSE:GE).

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CF Industries Holdings, Inc. (NYSE:CF)

– Shares Owned by Passport Capital (as of June 30): 7.23 million

– Value of Passport Capital’s Holding (as of June 30): $174.2 million

Passport Capital cut its stake in CF Industries Holdings, Inc. (NYSE:CF) by 35% during the April-to-June period, having ended the second quarter with approximately 7.23 million shares of the company. Earlier this month, the Illinois-based manufacturer of agricultural fertilizers reported second quarter earnings which fell short of analysts’ forecasts. The company earned $0.33 per share, less than half of the $0.68 consensus mark of analysts, while revenue of $1.13 billion was in-line with the average estimate. Shares of CF Industries have lost over 43% of their value in 2016. Matthew Barrett’s Glendon Capital Management owns 2.14 million shares of the company as of the end of the second quarter.

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Yahoo! Inc. (NASDAQ:YHOO)

– Shares Owned by Passport Capital (as of June 30): 7.27 million

– Value of Passport Capital’s Holding (as of June 30): $273.12 million

Passport Capital boosted its stake in Yahoo by 55% during the second quarter, elevating the holding to the top of its long portfolio, accounting for around 5% of its value. In a letter to investors, Mr. Burnbank said that Yahoo’s stake in Alibaba Group Holding Ltd (NYSE:BABA) makes it an attractive investment target, mainly due to the growing, technologically-savvy user base in China, which provides the country’s consumer internet companies with strong growth potential. Mr. Burbank thinks that Yahoo is an efficient way to own Alibaba, a company which he thinks could become one of the world’s most valuable because of its dominance of three diverse businesses in China: e-commerce, e-finance, and the cloud. In contrast, most of its international rivals only excel in their core businesses. Owning Yahoo! Inc. (NASDAQ:YHOO)’s shares, Burbank thinks, is similar to owning Alibaba’s but with something akin to a call option on the tax-efficient divestiture of Yahoo. Last month, Verizon Communications Inc. (NYSE:VZ) announced that it will acquire Yahoo’s core internet business for $4.83 billion in cash. Jeffrey Smith’s Starboard Value owns 12.29 million shares of Yahoo as of the end of June.

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Disclosure: None