| Third Point founder Daniel Loeb. Photo: Bloomberg News |
Daniel Loeb’s Third Point moved into the black in February after posting a 4.3 percent gain for the month. As a result, the hedge fund, managed by the New York–based firm of the same name, is up 2.3 percent for the year.
Its February profit matched the 4.3 percent gain of the S&P 500. The fund’s results were reported by Third Point Reinsurance, which says they reflect the estimated net returns of its investment account managed by Third Point.
Third Point benefited in part from the 7.3 percent gain generated by activist target Sotheby’s in February alone, even though the stock dropped 6.67 percent on Friday, the last trading day of the month. That big one-day drop put the stock in the red for the year. It seems the auction house had to take back possession of a 59.60-carat pink diamond after the buyer couldn’t pay the $83 million it had pledged and defaulted on the deal.
Shares of Dow Chemical Co., another Third Point activist target, are up 10 percent for the first two months, the bulk of the gain coming in February. Also, two Japanese stocks rebounded in February. SoftBank, a telecommunications and Internet company, climbed 4.3 percent in February after dropping about 17 percent the previous month, while Sony Corp. surged more than 11 percent last month after declining about 9 percent in January.
American International Group, Third Point’s largest U.S. stock holding at year-end, gained 3.7 percent in February after losing money in January. Even so, it is down 2.5 percent for the year. Also, FedEx Corp., Loeb’s second-largest holding at the end of the year, was flat in February after losing about 7 percent in January. Yahoo also gained more than 7 percent in February. Yet it is still in the red for the year after losing nearly 11 percent in January.
On the other hand, shares of T-Mobile, which Loeb bought in November when the company completed a secondary offering at $25, were flat in February after dropping more than 9 percent in January. And shares of Intrexon, which Loeb called “an innovation leader in synthetic biology” in his year-end letter to his hedge fund investors, lost more than 22 percent in February after surging 43 percent in January alone.
Entering the year, however, Daniel Loeb was upbeat about 2014’s prospects. In his fourth-quarter letter to investors, Loeb said improving global economic conditions would deliver better growth. He was especially encouraged that in the U.S. there will be no budget impasse. But Loeb warned that it is very important to watch the Federal Reserve closely, since any signs that interest rates will rise sooner than people think will place a cap on price-to-earnings multiples.
“Although ‘Street’ sentiment has become more negative recently, we expect earnings to rise modestly and the economy overall to surprise to the upside from these increasingly pessimistic projections,” Loeb stated in the report.
He said Japan would be “a high-beta trade,” driven by Bank of Japan policies and maybe even Japanese citizens buying stocks ahead of inflation fears. Loeb also expected continued growth and stability in China.
“While market multiples have re-rated, an environment of accelerating GDP growth combined with low inflation and low short-term rates is more likely to result in continued multiple expansion rather than contraction,” Loeb stated in the report. He said he was concentrating on companies that are not earning as much as they could or should.
Entering February, Third Point was 70 percent net long in its long-short equity portfolio. Its credit portfolio was 28 percent net long. On the other hand, the macro book was 3.3 percent net short, but its overall exposure was very small.
