"Tracking Prem Watsa’s Fairfax Financial Holdings Portfolio – Q4 2018 Update"
"Prem Watsa’s 13F portfolio value decreased from $2.37B to $1.79B this quarter.Fairfax Financial’s largest three stakes are Blackberry, Seaspan Corp, and Resolute Forest Products. They together account for ~49% of the 13F assets.The 13F securities form a small portion of their overall investment portfolio.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  filed on 02/14/2019. Please visit our  to get an idea of his investment philosophy and our  for the fund’s moves during Q3 2018.This quarter, Watsa’s 13F portfolio value decreased ~24% from $2.37B to $1.79B. There are 34 securities in the portfolio, but it is concentrated among a few large stakes. The focus of this article is on the larger (greater than 0.5% of the portfolio each) equity holdings. The top three positions are Blackberry, Seaspan, and Resolute Forest Products. Together, they account for ~49% of the entire 13F portfolio.Note: Fairfax Financial’s (FRFHF) 13F holdings only represent a small portion of their overall investment portfolio. The total size as of Q3 2018 was $37.45B of which ~25% is in cash and short-term positions. The cash allocation went down that quarter as they purchased short-dated US Treasury Bonds. Prominent equity allocations include investments in Greece, India (FFXDF), and Africa (FFXXF). They have a huge position in CPI linked derivative contracts (~$115B notional amount, $11.8M fair value, 3.9 years average maturity) designed to protect against global deflation. FRFHF currently trades at ~$495 compared to a book value of ~$450. The equity portfolio was over 100% hedged as of Q3 2016 but those were removed in the following quarter.New Stakes:Bank of Nova Scotia (BNS): BNS is a small 0.69% of the portfolio position established this quarter at prices between $49 and $60 and the stock currently trades at $57.10.Stake Increases:General Electric (GE): GE was a minutely small 0.31% of the portfolio stake as of Q1 2018. Q2 2018 saw a ~160% stake increase at prices between $12.75 and $15.25 and that was followed with a one-third further increase last quarter at prices between $11.25 and $14.20. This quarter saw another ~30% increase at prices between $6.75 and $13.75. The stock currently trades at $10.03.Kept Steady:Blackberry Ltd (BB): BB is Watsa’s largest position at ~19% of the portfolio. The stake was first purchased in 2010 at around $50 for 2M shares. The position was aggressively built up to 46.7M shares (~9% of the business) in the following years. His cost-basis is ~$17 and the stock currently trades at $8.37. There has only been very minor activity in the last six years.Note: In Q4 2013, Fairfax co-sponsored a cash-infusion of $1B through convertible debentures ($10 conversion price earning 6% interest) - they financed $500M of that transaction and the remaining was funded by a consortium of other investment funds - the implied dilution took their ownership up to ~16.5% of the business. In Q3 2016, those shares were redeemed and new ones issued ($605M in 3.75% debentures convertible at $10 due 11/13/2020) to the same entities in a private placement.Seaspan Corp. (SSW): The large (top three) ~17% SSW position came about as a result of exercising 38.46M in warrants on July 16, 2018 at $6.50 per share. The stock currently trades at $8.89.Note: Regulatory filings from last month show them owning 102.6M shares (47.7% of the business). This is compared to 38.69M shares in the 13F report. In January, Fairfax added $500M more in a structure similar to the first tranche made in March 2018 (debt + warrants converted early). Total investment is $1B - $500M each in equity (38.46M warrants * 2 converted at $6.50 per share) and debt. The early conversion of warrants in July last year resulted in Fairfax also getting 25M in 7-year warrants exercisable at $8.05 per share.Resolute Forest Products (RFP): RFP is the third-largest holding at ~14% of the portfolio. The stake was first established in Q4 2010 when it was named Abitibi Bowater and the position has since been more than doubled. Watsa’s cost-basis on RFP is much higher than the current quote of $8.42.Kennedy-Wilson Holdings (KW): KW stake is a large (top five) 13.50% of the 13F portfolio position. Watsa’s ownership stake in the business is ~12%. Q4 2016 saw a ~40% increase at prices between $20 and $23 and that was followed with a ~8% increase in Q1 2018.  KW currently trades at $21.34.Note: The original 2010 stake was from a private placement for Kennedy Wilson convertible preferred stock. The total investment from that point thru Q3 2016 was $645M. Since then, they have invested another ~$85M. By EOY 2015, they had already received distributions of $625M and so the net investment was only $105M. That is compared to a current market value of ~$285M.CenturyLink (CTL): CTL is a small 1.66% of the portfolio stake established in Q4 2017 at prices between $13.50 and $20.50 and increased by ~30% next quarter at prices between $15.50 and $19. The stock currently trades just below the low end of those ranges at $13.33.Johnson & Johnson (JNJ): JNJ is a long-term position that has been in the portfolio since 2007. The original stake was 5.9M shares purchased at a cost-basis of $62.29. In Q3 2013, roughly half the position was sold at prices between $85.50 and $94.50 and in the following quarter the remaining stake was almost eliminated at prices between $85.50 and $96. Q4 2016 saw an about turn: ~80% increase at prices between $111 and $120. The stock currently trades at ~$135 and the position is at ~1% of the portfolio.Helmerich & Payne (HP): HP was a minutely small stake as of Q3 2015. The following quarter saw the position built up to the current ~1% of the portfolio stake at prices between $46.50 and $61. The stock is currently at $55.56. There was marginal trimming in Q1 2018.General Motors (GM): GM is a small 0.70% position. Last quarter a huge ~370% stake increase at prices between $33.50 and $40. The stock is now at $39.62.POSCO ADR (PKX): PKX is a very small 0.58% of the 13F portfolio stake established in Q3 2015 at prices between $34.50 and $51. The stock currently trades above that range at $60.76. There was marginal selling in Q1 2018.McDermott International (MDR): MDR is a very small 0.24% of the portfolio position. It came about as a result of MdDermott’s all-stock (0.82407 shares of MDR for each share held) deal for Chicago Bridge & Iron. Fairfax had a small position in CBI purchased in Q3 2017 at prices between $9.55 and $20. MDR currently trades at $7.59.Note: Greek allocation in the investment portfolio includes the following individual securities: ~$1B in Eurobank (EGFEY) and ~$500M in others including Grivalia Properties, Mytilineos (MYTHY), Praktiker, etc.The 13F portfolio also has numerous very small equity positions (less than ~0.5% of the portfolio each) that add up to a total allocation of less than 5%.  The stakes are Ampco-Pittsburgh (AP), Argan Inc. (AGX), Bemis Inc. (BMS), Berkshire Hathaway (BRK.A), Cray Inc. (CRAY), Destination Maternity (DEST), FreightCar America (RAIL), Garrett Motion (GTX), Independence Contract Drilling (ICD), Jacobs Engineering (JEC), K12 Inc. (LRN), Kulicke & Soffa (KLIC), Micron Technology (MU), NetEase Inc. (NTES), Northwest Pipe (NWPX), Pacific Biosciences (PACB), Quarterhill Inc. (QTRH), Shire plc, Signature Bank New York (SBNY), Taiwan Semi (TSM), and US Silica Holdings (SLCA).The spreadsheet below highlights changes to Watsa’s 13F stock holdings in Q4 2018:11/2 –  &  – BV $451.52,Seaspan – SSW –  - The definitive agreement provides that on July 16, 2018 , Fairfax will exercise all of the warrants issued to Fairfax on February 14, 2018 , to acquire approximately 38.46 million Class A common shares at an exercise price of $6.50 per share. In January, 2019, Fairfax will immediately exercise all of the warrants that are issued to Fairfax in connection with the closing of Fairfax's second debenture investment of $250 million pursuant to the subscription agreement dated March 13, 2018 . Upon exercise of the warrants in January 2019 , Fairfax will acquire approximately 38.46 million Class A common shares at an exercise price of $6.50 per share, for a total equity investment of $500 million .Regulatory Filings thru 11/18/2018: None."