Here is What Billionaire Seth Klarman is Buying and Selling

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The 2015 year didn’t end on a particularly cheerful note for billionaire Seth Klarman‘s Baupost Group. Analysis done by Insider Monkey shows that the companies with a market cap of over $1 billion that the fund held during the year delivered a weighted average return loss of 27.7%. In comparison, Bill Ackman’s Pershing Square and David Einhorn’s Greenlight Capital fared better by delivering weighted average return losses of 21.7% and 24.9%, respectively. Since we don’t include the returns delivered by a fund’s short positions in our analysis or those returns generated through an investment firm’s exposure to bonds, options, or private investments, it is quite possible that the actual returns of a fund differ drastically from the returns estimated by us. While 2015 wasn’t great for Baupost Group, its recently submitted 13F filing for the period ending December 31, reveals that the fund prepared itself during the fourth quarter to fare better in 2016 by making some major changes in its equity portfolio. In this article we are going to analyze the five most notable moves made by the fund during the quarter.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about 6 basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas (see the details here).

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Let’s start with Frontier Communications Corp (NASDAQ:FTR) in which the fund reduced its stake by 19% to 10.9 million shares during the fourth quarter. After making their lifetime high of $8.46 last February, shares of the communications company have almost halved since then and are trading down by over 9% this year. This massive decline in its stock has resulted in the $.105 per share quarterly dividend that it pays to represent a highly lucrative annual dividend yield of 9.91% at the stock’s current market price. The company is slated to report its fourth quarter results next week and analysts are projecting it to declare a loss of $0.03 per share on revenue of $1.42 billion, compared to the EPS of $0.04 on revenue of $1.33 billion that it reported for the same quarter of 2014. Most analysts that cover the stock are bullish on it, having an average rating of ‘Overweight’ and an average target price of $6.29. Ken Griffin‘s Citadel Investment Group sold its entire stake of nearly 8.00 million shares of Frontier Communications Corp (NASDAQ:FTR) during the fourth quarter.

Taking into account the recent rise in gold prices and its resultant effect on NovaGold Resources Inc. (USA) (NYSEMKT:NG)‘s stock, it seems Baupost Group made the wrong call by reducing its stake in the company by 12% during the fourth quarter. Most of the 14.73% rise that the stock has enjoyed this year has come this month, after gold prices shot up from sub-$1,120 per ounce levels to over $1,240 per ounce. On January 27, the company reported its fourth quarter earnings, declaring a loss per share of CAD$0.03 ($0.0217) versus the loss of CAD$0.02 ($0.0145) per share it reported for the same quarter of 2014. On February 5, analysts at JPMorgan Chase & Co. reiterated their ‘Neutral’ rating on NovaGold Resources Inc. (USA) (NYSEMKT:NG)’s stock. Robert Pitts‘ Steadfast Capital Management increased its stake in NovaGold Resources Inc. (USA) (NYSEMKT:NG) by 1% to 7.64 million shares during the fourth quarter.

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