If you can’t beat ’em, join ’em.
This is the attitude Dan Loeb is apparently taking these days. After lagging the market for several years, the Third Point founder decided to load up on the most popular stocks, which have been driving many investors’ returns of late.
This strategy paid off in February, when Loeb’s hedge fund, Third Point Offshore, posted a 4.8 percent gain, boosting the return for the year to 5 percent, according to the firm’s most recent monthly report. This compares with the S&P 500’s 5.3 percent gain in February and 7.1 percent for the year, including dividends reinvested.
At the end of February, three of Third Point’s five largest equity longs were members of the Magnificent Seven: Microsoft, Amazon, and Meta Platforms. Unsurprisingly, the trio played an outsize role for the firm last month, with Meta and Amazon its two top performers. Along with Microsoft, they were the top contributors for the year so far.
Alas, Alphabet, another Magnificent Seven stock, is among Third Point’s biggest losers through the first two months of 2024. Alphabet was Third Point’s fifth-largest long at the end of January after the firm bought a large stake, according to its January monthly report.
Until recently, Loeb was heavily underexposed to these high-flying stocks. For example, at the end of first-quarter 2023, Alphabet was the only Magnificent Seven stock to rank among Third Point’s top-five holdings and Alphabet and Microsoft were the only ones among the top ten.
Besides Meta and Amazon, Third Point’s biggest winners in February were energy company Vistra Corp., retailer Bath & Body Works, and Ferguson, a plumbing and heating products distributor. Altogether, equities accounted for virtually all of Third Point’s gains in February.
Given the stock market’s sharp gains last month, it is not surprising that three different — albeit undisclosed — short positions were among the hedge fund’s five biggest losers in February. The two others were investment banking giant UBS and industrials and materials company Wesco International.
The five biggest losers over the year’s initial two months were UBS, Alphabet, utility Pacific Gas & Electric, chemicals giant DuPont, and health insurance giant Humana.
Heading into March, Third Point was more bullish than in the previous month. Its equity portfolio was nearly 81 percent net long — about 100 percent long and 19 percent short. At the end of January, it was 71 percent net long. Third Point’s credit portfolio was 39.2 percent net long at the end of February, down slightly from the previous month.
Virtually the entire portfolio is long and tilted a little more toward structured credit than corporate and sovereign debt, according to the monthly report. Credit kicked in 0.4 percent to total performance and privates accounted for just over 7 percent of net exposure in February.
