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At The Motley Fool, we understand that it often pays to zig when Wall Street zags, but that doesn't mean that we don't pay attention to what leading fund managers are buying and selling. And funds that aren't always in lockstep with the broader market can be a particularly valuable source of insight.
Every quarter, fund managers overseeing more than $100 million must disclose their quarter-end holdings publicly by filing Securities and Exchange Commission Form 13-F. The form lists all U.S.-traded securities the manager held at the end of the quarter. Although the form doesn't disclose the manager's short positions or the manager's intraquarter trades, it can shine a bright light on his or her "long" stock bets.
Q3 2011 update
Baupost Group is a hedge fund company founded by Seth Klarman back in 1982. Klarman is a successful investor with a lot to teach us. He sticks to his value-investing principles so much that at times he has a large chunk of his assets in cash due to not finding sufficient bargains.
Why should you look at Baupost's moves? Well, according to the folks at GuruFocus, it has averaged gains of close to 19% annually since its inception, far outstripping the S&P 500.
The total market value of Baupost Group's disclosed equity holdings as of September 30, 2011 -- the latest quarter for which data is available -- was $3 billion across 22 holdings. The company's 10 largest positions and associated changes in number of shares held as of Sept. 30, 2011 were:
BP (NYSE: BP ) : Increased 149.8%.
Hewlett-Packard (NYSE: HPQ ) : New.
ViaSat (Nasdaq: VSAT ) : Increased 4.5%.
News Corp. (Nasdaq: NWSA ) : Increased 10.5%.
Microsoft (Nasdaq: MSFT ) : Unchanged.
Theravance (Nasdaq: THRX ) : Increased 9.8%.
Allied Nevada Gold (AMEX: ANV ) : Increased 3.6%.
PDL BioPharma (Nasdaq: PDLI ) : Increased 68.8%.
Aveo Pharmaceuticals (Nasdaq: AVEO ) : Increased 12.8%.
News Corp. (class B) (Nasdaq: NWS ) : New.
The big gain in BP might be due to expected growth in cash flow and the company's success in moving away from its recent reputation as "Big Problems." Meanwhile, Hewlett-Packard has dismayed many investors with its board of directors' boneheaded moves, but it's hard not to see it as one of the market's big bargains at recent levels. PDL BioPharma suffered when Avastin, a drug for breast cancer that it had received royalties for, was dissed by the FDA , but the company remains one of our highest-rated drug stocks.
During the quarter, the Baupost Group also increased its position in Idenix Pharmaceuticals and Sycamore Networks. It sold out of two stocks entirely: CapitalSource and VOXX International. Baupost wasn't the only one selling the REIT CapitalSource -- some insiders did, as well.
Selected Q3 2011 commentary
Baupost Group has more than 37% of its assets in the technology sector, with health care and oil and gas comprising another 21% and 18% of the portfolio, respectively. The share of assets in technology and oil and gas has risen sharply in recent quarters, while financials, consumer services, and basic materials have shrunk.
Here's where the firm has been winning and losing and making new bets.
It's hard to find winners in the third quarter, when the S&P 500 sank by about 14%. But Idenix Pharmaceuticals stayed flat, which is actually a good performance, relatively speaking. Investors have been hopeful about the promise of the company's hepatitis C drug, which is ripe for partnership with a deeper-pocketed pharmaceutical company. Some speculate that Idenix itself might be bought out, too. The company has a two-star (out of five stars) rating at Motley Fool CAPS.
Satellite specialist ViaSat didn't do so well, dropping 23%. During the quarter, my Foolish colleague Seth Jayson noted that its finished goods inventory was piling up at a rate faster than sales growth. That's rarely auspicious. The company has a four-star rating in Motley Fool CAPS.
In addition to Hewlett-Packard and News Corp., Baupost also added new positions in Genworth Financial (NYSE: GNW ) and NovaGold Resources (AMEX: NG ) . Genworth insures mortgages, so this looks like a vote of confidence that further mortgage problems won't sink the company. Also appealing to some is the company's plan to sell off part of its business in Australia. NovaGold jumped nearly 25% in one day recently, on bullishness over its plans to sell off its copper business in order to focus more on gold. Genworth has a three-star rating at Motley Fool CAPS and NovaGold has a two-star one.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13-F forms can be great places to find intriguing candidates for our portfolios.