BOSTON (TheStreet) -- Seth Klarman, founder of Boston-based hedge fund Baupost Group, made big second-quarter bets on Microsoft (MSFT) - Get Report and BP (BP) - Get Report, two beaten-up stocks in 2011.
Klarman, who manages more than $20 billion and prefers to stay out of the media spotlight, is unlike other hedge fund managers who have made risky picks and lost money this year. Klarman is risk-averse in his value-investment approach, and his 1991 book
Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor
, only in publication briefly, is considered the value-investing manual. It now fetches hundreds of dollars on secondary markets.
Seth Klarman, Baupost Group
Baupost held just 20 stocks as of June 30, with
as the two largest holdings based on market value. Klarman's position in News Corp. didn't change during the second quarter as the company dealt with the phone-hacking scandal, although his stake did increase in market value.
Klarman didn't sell out of any position during the quarter, although he did lighten holdings in
, among others. Instead, Klarman found tech giant Microsoft and oil producer BP in the bargain bin.
Baupost bought 12 million shares of Microsoft during the quarter, which accounted for nearly 13% of the fund's portfolio with a market value of $312 million. Microsoft shares are down more than 10% through Friday, attracting other value investors thanks to a dividend yield that outpaces the 10-year U.S. Treasury as well as a forward price-to-earnings ratio that trails the broader market.
Meanwhile, Baupost also bought 5.5 million shares of BP during the second quarter, which represented the portfolio's fifth-largest position with a 10.1% weighting and market value of about $244 million. BP was another popular pick among value investors after the April 2010 rig explosion in the Gulf of Mexico. Like Microsoft, BP has a hefty dividend yield and low P/E ratio compared to the overall market. BP shares are down more than 9% through Friday's close.
Baupost Group also added new stakes in
Central Pacific Financial
, although the positions are only 1% or less of the fund's total portfolio. Klarman increased established positions in
Allied Nevada Gold
, which were two new pickups for the hedge fund in the first quarter.
-- Written by Robert Holmes in Boston
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