Seth Klarman’s Baupost picks up beaten-down shares, raises Alphabet stake

Baupost Group's Seth Klarman significantly increased his stake in Alphabet by 27% to $464 million in Q2, making it the fund's second-largest holding, while also initiating new positions in beaten-down value plays like Fiserv ($154M) following its revenue forecast cut, Amcor Plc ($51M), and PagSeguro Digital ($24M). These Q2 moves underscore Klarman's deep value investing philosophy, yet they occur amidst Baupost's recent underperformance, with only a 4% annual return over the last decade and $7 billion in investor withdrawals, reflecting the broader challenges faced by value strategies in a growth-centric market.

Analysis

Based on its latest regulatory filing, Seth Klarman's Baupost Group executed a dual-pronged strategy in the second quarter, reinforcing its conviction in large-cap technology while simultaneously initiating positions in beaten-down, out-of-favor stocks. The fund increased its stake in Alphabet by 27% to a $464 million holding, making it the firm's second-largest position after the stock rallied 14% in the quarter. This move is juxtaposed with new positions characteristic of Klarman's deep-value approach, most notably a $154 million stake in Fiserv, a fintech provider whose stock had fallen 42% over six months after cutting its annual revenue growth forecast. Additional new stakes include a $51 million position in Amcor Plc and a $24 million bet on PagSeguro Digital. This activity occurs against a challenging backdrop for the fund; Baupost has delivered only a 4% average annual return over the last decade and has experienced investor withdrawals totaling approximately $7 billion over the past three years, highlighting the persistent underperformance of value strategies in a market led by growth stocks.

Key Decisions for Investors

• Investors should consider Klarman's new position in Fiserv as a potential signal of a bottoming process in the beaten-down fintech stock, warranting a closer look at its fundamentals for a long-term value play.
• The significant 27% increase in the Alphabet stake, even after a 14% quarterly rally, suggests that a premier value investor sees continued fundamental strength and reasonable valuation in mega-cap tech leaders.
• The fund's recent history of significant underperformance, with a 4% annual return over the last decade and substantial capital outflows, serves as a crucial counterpoint, cautioning that emulating these trades carries the risk associated with a strategy that has recently struggled against market trends.