跟踪Prem Watsa的费尔法克斯金融控股投资组合-2019年第一季度更新

Prem Watsa’s 13F portfolio value increased from $1.79B to $2.42B this quarter.

Fairfax Financial’s largest three stakes are Seaspan Corp., BlackBerry, and Kennedy-Wilson. They together account for ~59% of the 13F assets.

The 13F securities form a small portion of their overall investment portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Prem Watsa’s 13F portfolio on a quarterly basis. It is based on Watsa’s regulatory

13F Form

filed on 05/15/2019. Please visit our

Tracking Prem Watsa’s Fairfax Financial Holdings Portfolio series

to get an idea of his investment philosophy and our

previous update

for the fund’s moves during Q4 2018.

This quarter, Watsa’s 13F portfolio value increased ~35% from $1.79B to $2.42B. There are 36 securities in the portfolio, but it is concentrated among a few large stakes. The focus of this article is on the larger (greater than 0.5% of the portfolio each) equity holdings. The top three positions are Seaspan, BlackBerry, and Kennedy-Wilson. Together, they account for ~59% of the entire 13F portfolio.

Note: Fairfax Financial’s (

OTCPK:FRFHF

) 13F holdings only represent a small portion of their overall investment portfolio. The total size as of Q1 2019 was $38.75B of which ~18% is in cash and short-term positions. The cash allocation has gone down as they purchased short-dated US Treasuries and other short-dated corporate bonds. Prominent equity allocations include investments in Greece, India (

OTCPK:FFXDF

), and Africa (

OTCPK:FFXXF

). They have a huge position in CPI linked derivative contracts (~$114B notional amount, $16.2M fair value, 3.4 years average maturity) designed to protect against global deflation. FRFHF currently trades at ~$451 right at book value as of Q1 2019. The equity portfolio was over 100% hedged as of Q3 2016, but those were removed in the following quarter.

POSCO ADR (

PKX

):

PKX was a very small 0.58% of the 13F portfolio stake established in Q3 2015 at prices between $34.50 and $51. It was disposed this quarter at prices between $52 and $62. The stock currently trades at $48.50.

Helmerich & Payne (

HP

):

HP was a minutely small stake as of Q3 2015. The following quarter saw the position built up to ~1% of the portfolio stake at prices between $46.50 and $61. The stock is currently at $55.01. This quarter saw a ~60% selling at prices between $48 and $58 and the stake is now very small at 0.32% of the portfolio.

Seaspan Corp. (

SSW

):

The large (top three) ~28% SSW position came about as a result of exercising 38.46M in warrants in July 2018 and the same amount in January 2019 at $6.50 per share. The stock currently trades at $9.96.

Note: Regulatory filings from earlier this year show them owning 102.6M shares (47.7% of the business). This is compared to 77.16M shares in the 13F report. In January, Fairfax added $500M more in a structure similar to the first tranche made in March 2018 (debt + warrants converted early). Total investment is $1B-$500M each in equity (38.46M warrants * 2 converted at $6.50 per share) and debt. The early conversion of warrants in July last year resulted in Fairfax also getting 25M in 7-year warrants exercisable at $8.05 per share.

CenturyLink (

CTL

):

CTL is a small 1.17% of the portfolio stake established in Q4 2017 at prices between $13.50 and $20.50 and increased by ~30% next quarter at prices between $15.50 and $19. This quarter saw another ~20% stake increase this quarter at prices between $11.50 and $16.75. The stock currently trades below the low end of those ranges at $10.13.

Micron Technology (

MU

):

MU is a very small 0.51% portfolio position that saw a ~60% stake increase this quarter at prices between $31 and $44. The stock currently trades at $34.62.

BlackBerry Ltd. (

BB

):

BB is Watsa’s largest position at ~20% of the portfolio. The stake was first purchased in 2010 at around $50 for 2M shares. The position was aggressively built up to 46.7M shares (~9% of the business) in the following years. Their net cost on a fully converted basis is $12.30 per share and the stock currently trades at $8.19. There has only been very minor activity in the last six years.

Note: In Q4 2013, Fairfax co-sponsored a cash infusion of $1B through convertible debentures ($10 conversion price earning 6% interest) - they financed $500M of that transaction and the remaining was funded by a consortium of other investment funds - the implied dilution took their ownership up to ~16.5% of the business. In Q3 2016, those shares were redeemed and new ones issued ($605M in 3.75% debentures convertible at $10 due 11/13/2020) to the same entities in a private placement.

Kennedy-Wilson Holdings (

KW

):

KW stake is a large (top three) 11.77% of the 13F portfolio position. Watsa’s ownership stake in the business is ~9%. Q4 2016 saw a ~40% increase at prices between $20 and $23 and that was followed with an ~8% increase in Q1 2018. KW currently trades at $20.86.

Note: The original 2010 stake was from a private placement for Kennedy-Wilson convertible preferred stock. The total investment from that point through Q3 2016 was $645M. Since then, they have invested another ~$85M. By EOY 2015, they had already received distributions of $625M and so the net investment was only $105M. That is compared to a current market value of ~$280M.

Resolute Forest Products (

RFP

):

RFP is the fourth-largest holding at ~10% of the portfolio. The stake was first established in Q4 2010 when it was named Abitibi Bowater and the position has since been more than doubled. Over the years, their net investment in RFP was $745M ($24.39 per share) and the current value is ~$89M ($6.65 per share) – in the books, the cost is listed at $300M as they wrote down losses.

Johnson & Johnson (

JNJ

):

JNJ is a long-term position that has been in the portfolio since 2007. The original stake was 5.9M shares purchased at a cost-basis of $62.29. In Q3 2013, roughly half the position was sold at prices between $85.50 and $94.50, and in the following quarter, the remaining stake was almost eliminated at prices between $85.50 and $96. Q4 2016 saw an about turn: ~80% increase at prices between $111 and $120. The stock currently trades at ~$138 and the position is at 0.85% of the portfolio.

General Motors (

GM

):

GM is a small 0.58% position. Q3 2018 saw a huge ~370% stake increase at prices between $33.50 and $40. The stock is now at $36.97.

General Electric (

GE

):

GE was a minutely small 0.31% of the portfolio stake as of Q1 2018. Q2 2018 saw a ~160% stake increase at prices between $12.75 and $15.25 and that was followed with a one-third further increase next quarter at prices between $11.25 and $14.20. Last quarter saw another ~30% increase at prices between $6.75 and $13.75. The stock currently trades at $9.88.

Bank of Nova Scotia (

BNS

):

BNS is a small 0.54% of the portfolio position established last quarter at prices between $49 and $60 and the stock currently trades at $53.17.

Note: Greek allocation in the investment portfolio includes the following individual securities: ~$1B in Eurobank (

OTCPK:EGFEY

) (

OTCPK:EGFEF

) and ~$500M in others including Grivalia Properties, Mytilineos (

OTCPK:MYTHY

), Praktiker, etc. Their overall cost-basis on Eurobank is 94 Euro cents per share compared to current price of 80 Euro cents.

The 13F portfolio also has numerous very small equity positions (less than ~0.5% of the portfolio each) that add up to a total allocation of less than 5%. The stakes are Ampco-Pittsburgh (

AP

), Argan Inc. (

AGX

), Berkshire Hathaway (

BRK.A

) (NYSE:

BRK.B

), Celgene Corp. (

CELG

), Cray Inc. (

CRAY

), Destination Maternity (

DEST

), FreightCar America (

RAIL

), Garrett Motion (

GTX

), Independence Contract Drilling (

ICD

), Integrated Device Technology (

IDTI

), Jacobs Engineering (

JEC

), K12 Inc. (

LRN

), Kulicke & Soffa (

KLIC

), McDermott International (

MDR

), NetEase Inc. (

NTES

), Northwest Pipe (

NWPX

), Pacific Biosciences (

PACB

), Quarterhill Inc. (

QTRH

), Red Hat (

RHT

), Signature Bank (

SBNY

), Spark Therapeutics (

ONCE

), Stamps.com (

STMP

), Taiwan Semiconductor (

TSM

), and U.S. Silica Holdings (

SLCA

).

The spreadsheet below highlights changes to Watsa’s 13F stock holdings in Q1 2019:

I am/we are long FRFHF, BB, CTL, GE, RFP.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.