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 Form 13F filed on August 14, 2023.Visit our series tracking Prem Watsa’s Fairfax Financial Holdings portfolio Learn about his investment philosophy and ours Previous updates The fund’s performance in the first quarter of 2023.
During the quarter, Watsa’s 13F portfolio value increased from $1.75B to $1.88B. There are 61 securities in the portfolio, but they are concentrated in a few large holdings. The focus of this article is on the larger (each greater than 0.5% of the portfolio) equity holdings. The top three companies are Occidental Petroleum, BlackBerry and Micron Technology. Together they account for approximately 46% of the entire 13F product portfolio.
Note 1: Fairfax Financial (OTCPK:FRFHF) 13F The assets held represent only a small portion of its overall portfolio. Total size as of Q2 2023 is approximately $58B, of which approximately $6.5B is cash and short-term positions. FRFHF currently trades at approximately $846, while the book value per share (Q2 2023) is approximately $834. The equity portfolio had been 100% hedged since around 2003 but was eliminated in the fourth quarter of 2016.
Note 2: Significant equity allocations not included in the 13F report include investments in Greece and India (OTCPK:FFXDF). The Greek allocation consists primarily of approximately 32% ownership in European Bank ( OTCPK:EGFEY ) ( OTCPK:EGFEF ). Other significant stakes include approximately 27% stake in Thomas Cook India, 54% stake in Bengaluru International Airport Limited and 31% stake in Quess Corp Limited.
Bank of America (BAC): The 5.55% stake in BAC was established during the second and third quarters of 2022 at prices ranging from approximately $27 to approximately $37. Prices for this quarter are approximately $27 to $31. The stock is currently trading at $28.84.
Chevron Corporation (CVX): The stake of approximately 3% of the CVX portfolio doubled in Q2 2022 at prices between approximately $142 and approximately $181. Disposal prices for the quarter ranged from approximately $151 to approximately $172. The stock is currently priced at about $167.
Occidental Petroleum Corporation (OXY): OXY is currently 13F’s largest holding, accounting for about 19% of the portfolio. It has been built over the past four quarters with prices ranging from $57 to $67. The stock is currently trading at $66.15.
Micron Technology (MU): MU is currently the third largest 13F position, accounting for approximately 13% of the portfolio. In the first quarter of 2019, the company increased its stake by approximately 60% at prices between $31 and $44. In the first quarter of 2020, the position increased by approximately 115% at prices between $34.50 and $60. The company subsequently increased its stake by approximately 400% in the third quarter of 2022 at prices ranging from approximately $49 to approximately $65. This was followed by further growth of about 12% last quarter. The stock is currently trading around $70. There was slight growth this quarter.
ORLA Mining (ORLA): ORLA represented 4.41% of the portfolio stake purchased in the third quarter of 2022 at prices between approximately $2.40 and approximately $3.70. Last quarter, shares increased by about 45%, with prices ranging from about $3.85 to about $4.90. Subsequently, the price increased by approximately 30% during the quarter, with prices ranging from approximately $3.90 to approximately $4.85. The stock is currently trading at $4.50.
Alphabet Inc. (GOOGL): GOOG purchased about 2% of the stock in the first quarter of 2020 at prices ranging from about $53 to $76. In the fourth quarter of 2020, shares increased by approximately 22%, with prices ranging from approximately $71 to approximately $91. It was down slightly this quarter. The stock is currently trading around $138.
General Electric (GE): GE’s 0.58% stake fell by about 45% this quarter.
keep it steady:
BlackBerry Limited (BB): BB shares currently account for approximately 14% of the portfolio. The position was first purchased in 2010 for 2 million shares at around $50. Over the next few years, the stake was aggressively increased to 46.7 million shares. The net cost after full conversion is approximately $10 per share, and the stock currently trades at $5.39. There has been very little activity over the past decade.
Note: In Q4 2013, Fairfax co-sponsored a $1 billion cash infusion via a convertible note (earning 6% interest on a $10 conversion price) – they provided $500 million for the deal of funding, with the remainder provided by a consortium of other investment funds. In the third quarter of 2016, these shares were redeemed and new shares were issued to the same entity in a private placement ($605 million of 3.75% bonds, convertible at $10, with a maturity date of November 13, 2020). On September 2, 2020, these bonds were redeemed and new bonds were issued ($330 million of 1.75% bonds, convertible at $6, with a maturity date of November 13, 2023). Assuming full conversion of these bonds, Fairfax will beneficially own approximately 16.4% of the business (approximately 102 million shares).
Kennedy Wilson Holdings (KW): KW shares account for a larger share of 13F portfolio positions (top five), accounting for 11.54% of 13F portfolio positions, first purchased in 2010. Prices rose approximately 40% in the fourth quarter of 2016 between $20 and $23, followed by an increase of approximately 8% in the first quarter of 2018. KW is currently trading at $16.54.
Note 1: They also own 13 million share warrants (7-year term, $23 exercise price) as part of their $300 million investment in perpetual preferred stock (4.5% dividend) last February . Their overall shareholding in the business is approximately 20%.
Note 2: The original equity in 2010 came from the private placement of Kennedy Wilson convertible preferred shares. Total investment between then and the third quarter of 2016 was $645 million. They have since invested approximately $85 million more. As of the end of 2015, they had received $625 million in distributions, resulting in a net investment of approximately $105 million. By comparison, the current market value is approximately $225 million.
Crescent Capital BDC (CCAP): CCAP purchased 1.68% of the portfolio stake in the first quarter of 2020 at prices between $6.21 and $17.10, and the stock currently trades at $16.78.
Note: Their stake in the business is approximately 6.8%.
Franklin Resources (BEN): The 1.42% BEN position was established during the first quarter of 2020 at prices between $15.30 and $26.25, and is currently at $26.25.
Alibaba Group Holding Inc. (BABA), Scotiabank (BNS), General Motors Co. (GM), Helmerich & Payne (HP), Intel Corporation (INTC), Johnson & Johnson (JNJ), Merck & Co. (MRK) and Pfizer. (PFE): These small holdings (each less than 1.50% of the portfolio) remained stable this quarter.
The spreadsheet below highlights the changes in Watsa’s 13F stock holdings during the second quarter of 2023:
Source: John Vincent. Data constructed from Fairfax Financials’ 13F filings for Q1 2023 and Q2 2023.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.