Wednesday, November 2, 2011

Dan Loeb's Third Point Q3 Letter 2011

Dan Loeb's hedge fund firm Third Point just sent out their third quarter letter to investors for 2011. In it, they talk about their low net exposures and how they've protected capital through the volatility.

This morning we pointed out how Third Point increased exposure in October. Their letter says that they've "added some beta back to the portfolio, primarily by covering shorts, nibbling at credit, and adding to select long positions." Third Point has had a lot of dry powder and has been waiting to deploy it.

Asset Backed Securities

We've often mentioned Third Point's exposure to asset backed securities, but this past quarter's letter gives us some color as to their positions:

"Our portfolio still consists primarily of dented prime “Re‐Remic” securities, which are priced at a mid‐teens yield, and seasoned subprime securities, which are priced at a high‐ teens yield. We have a small number of CMBS bonds and student loan ABS. The cash carry on our mortgage portfolio is about 60‐70 BPS per month."

Embedded below is Third Point's Q3 letter (email readers click the link to come read it):

For activity from this hedge fund in October, head to our post this morning on Third Point's Lehman Brothers position.

Dan Loeb's Third Point Shows Lehman Brothers as a Top Position

Dan Loeb's hedge fund Third Point updated investors on their latest holdings and exposures for the end of October. Third Point lists Lehman Brothers Holdings as a top position this month, one that previously has not appeared in the upper echelon of their portfolio.

Third Point's Top Positions

1. Yahoo! (YHOO)
2. Gold
3. Delphi Corp
4. Lehman Brothers Holdings
5. Sara Lee (SLE)

Also worth noting is that Sara Lee has taken the place of Technicolor from last month as their fifth largest stake. The company recently sold its North American coffee business, something the hedge fund anticipated when we highlighted Third Point's Sara Lee investment thesis.

Third Point's top three positions remain unchanged from last month. You can view Loeb's bull case for YHOO here.

Increased Equities Exposure

Third Point was up 0.8% in October and 0.9% for the year at that time. Equities rallied furiously in October as the S&P 500 was up 10.9% and last month it seems Loeb's firm was hurt by their low net exposure which we've highlighted previously.

And speaking of exposure, Third Point did increase their net long position in equities to 22.9%, up from 15.6% net long the month prior. They have their largest net long exposure to the technology and energy sectors.

In credit, they are 18.4% net long as they continue to have their largest net long exposure in asset backed securities and continue to be net short government issues. Their overall net long exposure in credit increased 2.8% from last month.

Geographically speaking, Third Point is net long the Americas by 57%, net short EMEA at -5% and net short Asia at -2%.

David Einhorn Buys Gold Miners, Sells Some Physical Gold

David Einhorn of hedge fund Greenlight Capital recently spoke on the conference call for the reinsurance company he's associated with, Greenlight Capital Re (GLRE). Einhorn manages the reinvestment portfolio and gave some comments on his latest portfolio positioning:

Greenlight Buys Gold Miners

The most notable change was a shift in his gold related investments. Back in 2009 we highlighted Einhorn's physical gold position. This time around, Einhorn has been re-allocating some of his physical gold stake into gold miners. He's been buying miners via GDX the exchange traded fund.

The rationale for such an adjustment: "Throughout the course of this year, a substantial disconnect has developed between the price of gold and the mining companies. With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk adjusted returns even if gold does not advance further. Of course, since we believe gold will continue to rise, we expect gold stocks to do even better."

Greenlight Increases Equity Exposure

Einhorn also mentioned that he boosted net long exposure to 35%. On the markets in general, the hedge fund manager still sees pockets of opportunity, saying, "Many equities, especially in large capitalization companies appear quite attractive. This is balanced by the continuing impact of dangerous macro policies. Most of our portfolio is assembled from the bottom up and we continue to see reasonable opportunities on both sides of the portfolio."

Einhorn Sells Pfizer (PFE), Adds to Other Longs

Another notable move from Greenlight in the past quarter was the sale of their longstanding position in Pfizer (PFE) due to better investment opportunities elsewhere. During the volatility and market dip, Einhorn was covering some shorts, adding to existing long positions, and starting new stakes in the technology and auto sectors.

We also detailed Einhorn's presentation on shorting Green Mountain Coffee Roasters (GMCR) from the Value Investing Congress as he outlined the company's accounting gimmicks.

For all aspiring fund managers out there, be sure to check out David Einhorn's recommended reading list.

Monday, October 31, 2011

Invest For Kids Chicago: Marc Lasry, Richard Perry, Barry Rosenstein & More

We want to let readers know about a great upcoming investment conference in Chicago. Invest For Kids Chicago donates 100% of the money to children's charities and gives you a chance to hear investment ideas from top managers. Last year the event raised over $1 million.

When: November 9th, 1:30 PM to 6PM
Where: Chicago, IL at the Harris Theater

Marc Lasry (Avenue Capital)
Richard Perry (Perry Partners)
Barry Rosenstein (JANA Partners)
Michael Milken (Milken Institute)
Leon Cooperman (Omega Advisors)
Sam Zell (Equity Group Investments)
Thomas Russo (Gardner Russo & Gardner)
Barry Sternlicht (Starwood Capital Group )
Michael Elrad (GEM Realty Capital)
John Keeley Jr (Keeley Asset Management)

You can register for the event by clicking here. We've also embedded the sign-up form below:

So many conferences take place on the east or west coasts, so this is a great event for those of you in the Midwest. We've also embedded the flyer for the event below:

Head to to register as it's for a great cause and a chance for you to hear the latest ideas from top money managers (some of whom don't speak in public that often).

Bill Ackman Goes Activist on Canadian Pacific Railway (CP)

Bill Ackman's hedge fund Pershing Square Capital Management has disclosed an activist position in Canadian Pacific Railway (CP) via a 13D filed with the SEC.

This is a brand new position for the hedge fund as they now own 12.2% of Canadian Pacific with 20,659,504 shares due to portfolio activity on October 18th.

Just over 2.6 million of those shares are represented by a call option with a strike price of $30.55 and an expiration date of April 27th, 2012. Shares of CP currently trade around $63.

Regarding why Ackman purchased CP shares, the 13D filing simply states that he thought shares are undervalued and an attractive investment.

This comes after Ackman recently pitched another investment idea at the Value Investing Congress (see his full presentation here).

Per Google Finance, Canadian Pacific Railway "has 14,800-mile network extends from the Port Metro Vancouver on Canada’s Pacific Coast to the Port of Montreal in eastern Canada, and to the United industrial centers of Chicago; Detroit, Michigan; Newark, New Jersey; Philadelphia; New York City and Buffalo, New York; Kansas City, Missouri, and Minneapolis, Minnesota. Its network is consisted of four primary corridors: Western, Eastern, Central and the Northeast the United States. Its business includes bulk, which include grain, coal, and sculpture and fertilizer; merchandise, which include forest products, industrial and consumer products, and automotive; and intermodal."

Pershing Square has been actively buying over the past few months as we detailed how the hedge fund bought $600 million worth of investments in August alone.

Jeffrey Altman's Owl Creek Boosts Cigna Position

Jeffrey Altman's hedge fund Owl Creek Asset Management filed a 13G with the SEC on their position in Cigna (CI). Due to portfolio activity on October 27th, Owl Creek has disclosed a 5.14% ownership stake in Cigna with 13,896,771 shares.

This is an increase of almost 66% in their position size. At the close of the second quarter, they only owned 8,396,087 CI shares.

Owl Creek Asset Management also recently disclosed a new position in Lone Pine Resources (LPR). They acquired this position via their stake in Forest Oil (FST) which distributed a special dividend of LPR shares to FST shareholders.

In other portfolio updates from this hedge fund, we've also detailed how Owl Creek has been active in YRC Worldwide (YRCW).

Per Google Finance, Cigna is "a global health service organization with subsidiaries that are providers of medical, dental, disability, life and accident insurance and related products and services. In the United States, these products and services are offered through employers and other groups and in selected international markets, CIGNA offers supplemental health, life and accident insurance products, expatriate benefits and international health care coverage and services to businesses, governmental and non-governmental organizations and individuals."

Soros Fund Management Discloses WebMD Convertible Bond Position

George Soros' firm, Soros Fund Management, filed a 13G with the SEC in regards to shares of WebMD (WBMD). Due to activity on October 13th, Soros disclosed a 5.59% ownership stake in WBMD with 3,471,885 shares.

This is an increase in their exposure to WebMD. However, it must be noted that Soros actually sold common stock from the end of Q2 until present. They boosted their exposure to the name via acquiring convertible bonds (2.25% due March 31, 2016 and 2.50% due January 31, 2018).

You can view other recent portfolio activity from Soros here.

Per Google Finance, WebMD is "a provider of health information services to consumers, physicians and other healthcare professionals, employers and health plans through its public and private online portals, mobile platforms and health-focused publications."

Patrick McCormack's Tiger Consumer Starts Liz Claiborne Stake

Patrick McCormack's hedge fund Tiger Consumer Management recently filed a 13G with the SEC regarding shares of Liz Claiborne (LIZ). They reported a 6.59% ownership stake in LIZ with 6,237,700 shares.

This is a brand new position for the hedge fund as they did not own shares upon close of the second quarter. Tiger Consumer Management passed the 5% ownership stake threshold requiring an SEC filing on October 12th.

Tiger Consumer is one of the many firms seeded by Tiger Management founder, Julian Robertson. And as its fund name implies, Tiger Consumer focuses primarily on the consumer sector.

Per Google Finance, Liz Claiborne "designs and markets a portfolio of retail-based brands, including JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX. It also has a group of department store-based brands with consumer franchises, including the LIZ CLAIBORNE and MONET families of brands and the licensed DKNY JEANS and DKNY ACTIVE brands. It operates in three segments: Domestic-Based Direct Brands segment, International-Based Direct Brands segment and Partnered Brands segment."