MFN Partners Management company founded in 2016 and based in Boston is a value-oriented hedge fund that doesn't back down from an activist investment if the opportunity is right. The fund is founded and led by two veterans from the sector, Michael DeMichele formerly from Highfields Capital, and Farhad Nanji from Baupost Capital. MFN Partners Management Portfolio is valued at $3.52 billion, and concentrated in ten stocks.
The stock that takes almost half of the portfolio weighting is XPO Inc (NYSE: XPO), while Lithia Motors Inc. (NYSE: LAD) and PennyMac Financial Services (NYSE: PFSI) also take more than 10% of the portfolio.
MFN Partners Management Portfolio is heavily concentrated in the industrial sector. Consumer Cyclical, Financials and Healthcare sectors also hold a significant share of the portfolio. For more about their holdings, allocation, and investment strategy, stay with us.
Key Takeaways
- MFN Partners Management has a $3.52 billion portfolio concentrated into ten stocks.
- The firm combines value investing and an activist approach as cornerstones of its strategy.
- Recent trades include trimming of the XPO Inc. holding and an increase in RXO Inc.'s Position.
Key Holdings
XPO Inc. (NYSE:XPO) with 43.9% of the portfolio
XPO a transportation service company has been a part of MFN Partners' portfolio since Q4 2018. The data from the Q1 2024 13F filing notes that the fund owns 12.68 million shares valued at $1.55 billion. The share value has been rising since Q3 2022 and has reached $106. The average buying price of XPO stocks for MFN was $50 resulting in a gain of 40.52% so far. The news from May 17 shows that the MFN sold an extensive part of this holding at prices between $112 and $115. We will have to wait for the next filing for more details. This may caused a sudden drop in the value of stocks that happened in the last couple of days.
Lithia Motors Inc (NYSE:LAD) with 13.24% of the portfolio
MFN started investing in Lithia Motors in Q4 2021 and the maximum amount of stocks they owned was 3.1 million in Q4 2022. Since then they trimmed the holding to 1.55 million stocks, with a current value of $466.66 million. The average buying price for LAD stocks since Q4 2021 was $244 while its present price is $259. From the beginning of 2024, the stock lost some of its value when it was at $330.
PennyMac Financial Services Inc. (NYSE:PFSI) with 11.72% of the portfolio
PFSI holding was incepted in Q1 2021 with an initial buy of 1.5 million shares. The number of shares over time tripled reaching 4.53 million shares. The value of the holding is at $412.80 million generating a gain of 33.32%. An average buying price is at $57, while it has risen to $91. The value price has been in an upward direction since Q3 2023.
RXO Inc. (NYSE:RXO) with 9.68% of the portfolio
RXO is a leader in brokered transportation and a major part of the MFN portfolio. They have been trading their stocks since Q4 2022 with a buy of 25 million stocks. Currently, they own 15.58 million stocks valued at $340.92 million. Recently they increased their position with 105 thousand stocks valued at $2.7 million. While MFN has been buying RXO stocks at an average of $18 its current value has risen to $20 resulting in a gain of 9%.
HCA Healthcare Inc. (NYSE:HCA) with 9.22% of the portfolio
This investment dating to Q1 2020 so far made a gain of 35.6%. The company owns 973 thousand shares with a value of $324 million. The stock value has been on a steady rise since 2021 reaching $319, while the average buying price was $244.
Occidental Petroleum Corp (NYSE:OXY) with 6.96% of the portfolio
MFN is an owner of 5.69 million shares of Occidental Petroleum in the form of an equity warrant. The warrant expires on 08/03/2027. Currently, it is valued at $245 million shares.
Liberty Global Ltd Class C (NASDAQ:LBTYK) with 2.75% of the portfolio
LBTYK is the biggest holding in the MFN portfolio which is in red. The firm invested in it since Q2 2019 and paid an average of $22 per share. The share value plummeted to the current $16.5 resulting in a negative return of 22% so far. The firm trimmed this holding in Q1 2024 selling over 1.2 million shares at $18. The stock price started to decline from the beginning of 2022 and it doesn't show signs of an upward trend.
Bausch Health Companies Inc. (NYSE:BHC) with 1.81% of the portfolio
BHC is a relatively new holding to MFN standards going back to Q3 2022. They are holding 6 million shares valued at $63 million. This holding didn't see much activity while the last trade was in Q4 2022. While the company was buying BHC stocks for an average of $7 the current value has dropped to $6.3. The firm managed to generate a 2.7% gain due to good timed sales.
Ivanhoe Electric Inc. (NYSEAMERICAN:IE) with 0.71% of the portfolio
Ivanhoe is another more recent acquisition that has been active for two years. MFN Partners Management owns 2.55 million shares priced at $25 million. The firm bought three times at an average of $10.11 and sold once for $13.40. The current stock value didn't progress much and is now at $11.10 resulting in a gain of 21.50% so far.
Cyclerion Therapeutics Inc. (NASDAQ:CYCN) with 0.02% of the portfolio
CYCN is one of the long-term investments made by MFN Partners management lasting for five years. In that period the holding created a negative return of 91.66%. While the firm bought its stock at $91.88 on average, its value dropped to $2.71. However, the fund is still keen on keeping this small holding and has not made any moves since Q4 2022.
Sector Allocation
MFN Partners Management has a portfolio concentrated in the industrial sector. While more than half of the portfolio is concentrated in industrials, it is also diversified amongst other industries. The current sector allocation is:
- Industrials with 53.58% of the portfolio valued at $1.86 billion
- Consumer Cyclical with 13.24% of the portfolio valued at $464 million
- Financials with 11.72% of the portfolio valued at $411 million
- Healthcare with 11.05% of the portfolio valued at $387 million
- Energy with 6.96% of the portfolio valued at $244 million
- Telecommunications with 2.75% of the portfolio valued at $96 million
- Materials with 0.71% of the portfolio valued at $24 million
Investment Strategy
Two cornerstones of MFN Partners Management are activist and value investing. They are looking for undervalued opportunities with the potential of a strong return. In some cases, they resorted to activism, by buying a significant stake in the company. In the process, they often work on adding their people to the board.
The investment process starts with a meticulous fundamental analysis. It aims to identify the overall state of the company. Crucial information is based on cash flows, levels of state of the debt, and any potential competitive advantage.
Funds strategy is flexible allowing them to adapt to any sudden changes in the market. Their work is also characterized by seeking the best opportunities in different asset classes and industry sectors.
Performance Analysis
Historical Performance
In the last three years, the fund generated 48.35% cumulative returns or 14.05% annual returns for weighted holdings. On the other hand, unweighted holdings delivered a negative return of 7.97%.
This significant difference between weighted and unweighted performance may indicate that the portfolio is not diversified enough and that it has a higher concentration risk.
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