Tracking Seth Klarman's Baupost Group Holdings - Q2 2025 Update

In the second quarter of 2025, Seth Klarman's Baupost Group has once again demonstrated its hallmark discipline and contrarian instincts, navigating a high-interest-rate environment by doubling down on undervalued sectors and exiting overhyped positions. The firm's latest 13F filing, released on June 30, 2025, reveals a portfolio that reflects both strategic patience and a keen eye for long-term value. For investors seeking to understand where capital is being allocated in a world of elevated borrowing costs, Klarman's moves offer a masterclass in risk-adjusted returns.

Strategic Shifts in a High-Rate World

Baupost's Q2 2025 portfolio adjustments underscore a clear focus on companies with durable cash flows, strong balance sheets, and defensive characteristics—traits that thrive when borrowing costs are high. The firm increased its stake in Alphabet (GOOGL/GOOG) by 26.8% to 2.63 million shares and Dollar General (DG) by 26.7% to 2.67 million shares. These moves highlight Klarman's preference for businesses with pricing power and stable demand, even as growth stocks face headwinds from higher discount rates.

Alphabet's AI and cloud segments, which are now contributing 30% of its revenue, exemplify the firm's bet on structural growth within a mature tech giant. Meanwhile, Dollar General's dominance in the discount retail sector—bolstered by its 1,500 new stores and 8% EBITDA margins—positions it as a defensive play in a macroeconomic climate where consumer spending is likely to remain cautious.

Undervalued Sectors and Contrarian Bets

Klarman's latest additions and exits further illuminate his playbook. The firm entered new positions in Elevance Health (ELV), Amcor (AMCR), and Fiserv (FI), all of which operate in sectors with strong long-term fundamentals but currently out of favor.

• Elevance Health, a healthcare services giant, saw its stake grow by 150.41% in share count, reflecting confidence in the sector's resilience. Healthcare's low sensitivity to economic cycles and its role in essential services make it a natural hedge against volatility.
• Fiserv, a fintech services provider, was acquired at a 42% discount to its peak in 2024 after slashing its revenue forecast. Klarman's $154 million investment in Fiserv—3.75% of the portfolio—signals a belief in the company's long-term value despite short-term pain.
• Amcor, a packaging firm, was added for its exposure to the consumer staples sector, which benefits from sticky demand and pricing power.

Conversely, Baupost exited Clarivate (CLVT) and Solventum (SOLV), both of which had underperformed in a high-rate environment. Clarivate's data analytics business, while valuable, faced margin compression from rising interest costs, while Solventum's insurance services lacked the scale to compete with larger peers.

High-Rate Resilience: Sectors to Watch

Klarman's portfolio aligns with broader trends in a high-interest-rate environment. Sectors like industrials and consumer staples—which Baupost has heavily invested in—tend to outperform when growth slows and investors seek stability. For instance, CRH PLC (CRH), a construction materials company, saw its stake increase by 41.98%, capitalizing on infrastructure spending and durable demand for building materials.

Meanwhile, utilities and healthcare remain undervalued relative to their fundamentals. Utilities, though highly indebted, offer attractive yields and stable cash flows, while healthcare's structural demand is insulated from economic downturns. Klarman's emphasis on these sectors suggests a belief that the market is underestimating their long-term potential.

Contrarian Opportunities for Investors

For investors seeking to mirror Klarman's approach, several themes emerge:
1. Defensive Sectors: Prioritize companies in healthcare, industrials, and consumer staples with strong balance sheets and predictable cash flows.
2. Undervalued Fintech: Firms like Fiserv, which have been battered by short-term volatility but retain long-term growth potential, offer compelling entry points.
3. Dividend Payers: Utilities and REITs, which provide income and downside protection, are well-suited for a high-rate world.

However, caution is warranted. Klarman's exits from Communication Services and Technology holdings—such as Clarivate—highlight the risks of overpaying for growth in a high-discount-rate environment. Investors should avoid speculative tech stocks and instead focus on companies with proven earnings and low debt.

Conclusion

Seth Klarman's Q2 2025 portfolio adjustments reaffirm his commitment to value investing in a world where growth stocks are increasingly penalized by high interest rates. By doubling down on undervalued sectors like healthcare and industrials, and exiting overhyped positions, Baupost has positioned itself to capitalize on long-term opportunities while mitigating risk. For investors, the lesson is clear: in a high-rate environment, patience, discipline, and a focus on durable cash flows are the keys to outperforming the market.