The Baupost Group is a Boston-based hedge fund founded and operated by billionaire Seth Klarman. Klarman’s fund is one of the biggest and most successful hedge fund firms in the world, ranking fourth in net gains since its founding, according to Bloomberg. His main fund has generated an annualized return of as much as 17% after fees since its inception. By the same token, Seth Klarman has acquired a reputation as one of the best-performing hedge fund managers in the history of finance by generating more than $21 billion in returns throughout his career. Klarman is mostly-known as a value investor, who uses little or no leverage in his investments except for the real estate sector. The most recent 13F filing shows that Klarman’s ample equity portfolio consists of 28 active positions and is valued at $5.95 billion. In this article we’ll analyze Klarman’s top small-cap holdings in the following companies: ViaSat Inc. (NASDAQ:VSAT), Theravance Inc. (NASDAQ:THRX), PBF Energy Inc. (NYSE:PBF) and Keryx Biopharmaceuticals Inc. (NASDAQ:KERX).
While we track the latest moves of funds, we are in fact more interested in their 13F filings, which we use to determine the top 15 small-cap stocks held by the funds in our database. We gather and share this information based on 16 years of research, with backtests for the period between 1999 and 2012 and forward testing for the last 32 months. The results of our analysis show that these 15 most popular small-cap picks have great potential to outperform the market, beating the S&P 500 Total Return Index by nearly one percentage point per month on average in backtests. Moreover, since the beginning of forward testing in August 2012, the strategy worked splendidly, outperforming the market every year and returning 139% through the end of April, which is more than 80 percentage points higher than the returns of the S&P 500 ETF (SPY) (see more details).
The Baupost Group did not change its stake in ViaSat Inc. (NASDAQ:VSAT), its top small-cap pick, during the first quarter. The hedge fund still owns slightly more than 11.53 million shares valued at $687.49 million as of March 31. ViaSat shares are mostly flat in 2015, having increased by 1% since the beginning of the current year. The innovator in broadband and communication technologies and services delivered a strong financial performance in the latest quarter, beating the expectations of Wall Street analysts. ViaSat generated revenues of $364.8 million during its fiscal fourth quarter of 2015, which ended on April 3, hitting a new record high. Additionally, the fiscal fourth quarter net income delivered by ViaSat amounted to $7.5 million, which is indisputably higher than the loss reported during the same period one year prior. To sum up, it seems that ViaSat’s stock might get right back on its desired path as funds like Jeffrey Bronchick‘s Cove Street Capital and FPR Partners keep increasing their holdings in ViaSat Inc. (NASDAQ:VSAT).
The Baupost Group also did not make changes to its equity stake in Theravance Inc. (NASDAQ:THRX) maintaining its 19.82 million share position, valued at $311.51 million. Despite the fact that shares of Theravance have achieved a rise of more than 15% since the beginning of the year, it is expected that the stock price could go even higher, as the U.S. Food and Drug Administration approved BREO® ELLIPTA® for the treatment of asthma on April 30. Additionally, the company has recently announced a $0.25 cash dividend that will be paid at the end of June and amounts to a solid 6.01% yield, which undoubtedly signals that the company is currently in good financial health. Some other funds bullish on Theravance Inc. (NASDAQ:THRX) include Youlia Miteva’s Proxima Capital Management and Richard Perry’s hedge fund Perry Capital.
Klarman also kept his position unchanged in the North American independent refiner, PBF Energy Inc. (NYSE:PBF), with Baupost Group’s position amounting to 8.66 million shares valued at $293.85 million. Even though the current and potential investors of PBF Energy might be worried about its medium- and long-term crude exports, the company generated a profit of $87.32 million in the first quarter of the year, slightly beating analysts’ estimates. Moreover, PBF Energy’s management has declared that its quarterly financial results look pretty good in spite of the challenges the company has been facing. Although PBF Energy’s shares have increased by more than 2% since the beginning of the current year. Tim Mullen’s Swift Run Capital Management increased its equity stake in PBF Energy Inc. (NYSE:PBF) to 201,336 shares during the first quarter.
The Baupost Group added 4.08 million shares to its stake in Keryx Biopharmaceuticals Inc. (NASDAQ:KERX), enlarging the hedge fund’s position in the biopharmaceutical company to 22.38 million shares, which were valued at $284.90 million as of March 31. Regardless of the fact that the shares of Keryx have dropped by 27% since the beginning of the year, the company is currently expanding its operations in Boston, and a newly-launched drug used to manage phosphate levels and enhance iron levels will be crucial in boosting the company’s growth and revenue. Keryx Biopharmaceuticals’ CEO, Greg Madison, has declared himself pleased with the clinical adoption rate of this drug, which might put the company back on track. Jerome Pfund and Michael Sjostrom’s Sectoral Asset Management increased its stake in the company during the first quarter.
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