Keeping an Eye on the Pros

 | May 15, 2013 | 1:00 PM EDT  | Comments
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It's the time of year when the markets get flooded with the latest batch of 13F filings revealing the investment activity during the first quarter of 2013.

The current backdrop is intriguing, to say the least. The economy is clearly moving forward, not backward, albeit in bumps. Housing is moving in the right direction and the stock market is reaching new high. And the Federal Reserve, of course, is in the background, pumping tens of billions of dollars a month into the economy in hopes of spurring modest inflation.

Let's start with Seth Klarman of the Baupost Group. Klarman has been outspoken on the "inevitable" consequences that today's monetary policy is producing. He also recently decided to return capital to his investors, the second time he has done so. An investor only does that when he feels his current capital base exceeds his opportunity set of available present and future investments.

During the first quarter, Klarman added three new positions in Citigroup (C), DirectTV (DTV) and pharmaceutical company Elan (ELN). As for Citigroup, I should clarify that Klarman bought the Class A warrants (C-WTA). Of the $3 billion portfolio, these all were relative small-size bets with Elan being the biggest at a $108 million position. Baupost's largest position, News Corp (NWSA), was scaled down to less than $125 million from $550 million. Klarman made a big addition to his AIG stake, taking it to nearly 12 million shares from 7 million shares. And BP (BP) was scaled up to over 17 million shares from 11 million shares. In addition, he bought over 600,000 AIG warrants. Other major position reductions included Oracle (ORCL).

Martin Capital is a value-based fund that doesn't get much attention due to its relatively small size and the fact that it's located in Elkhart, Ind. But Frank Martin's results are attention grabbing and his reputation among the investment community speaks for itself. Martin is sitting on a lot of cash as only $42 million was in equities at the end of the first quarter and I believe assets under management were approximate $150 million. Martin runs a concentrated shop -- only 12 equity positions -- an attribute I like because it tells me he knows his investments well.

Martin's biggest position remains automotive technology company Gentex (GNTX), a name I have written about on RealMoney. New positions initiated include AT&T (T) and drug company AbbVie (ABBV). Martin sold out of Hewlett Packard (HPQ) and Walgreen (WAG) during the quarter. If you want some ideas to look into, I am a big fan of the smaller investment funds that focus on a handful of names. Gentex is up over 25% in the past three months.

In the coming days, heavy hitters such as Berkshire Hathaway, the Fairholme Fund and others will reveal their market buys and sells to. Today's investment environment has more moving parts than ever, so it's never been more prudent to see what the seasoned vets are up to.

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