Dan Loeb Sees Favorable Investing Environment: Third Point's Investor Letter ~ market folly

Tuesday, December 1, 2009

Dan Loeb Sees Favorable Investing Environment: Third Point's Investor Letter

Dan Loeb's hedge fund firm Third Point LLC recently sent out their third quarter 2009 investor letter and we're here to provide you with the highlights. Third Point currently manages $2.4 billion and was up 19.8% for Q3 and year-to-date as of September 30th was up 27.6%, outperforming the S&P 500 over the same timeframes.

Loeb mentions that their biggest gainers were Delphi (now inactive), Dana Holding (DAN), Bank of America (BAC), Fortis, Popular (BPOP), and RMBS securities in their mortgage portfolio. We've long known of their BAC position as he detailed it in his past letter to investors. Interestingly enough, we see that Loeb saw nice gains from Dana Holding (DAN) and we also make note that George Soros' hedge fund recently filed a 13G on that company which we'll detail in a separate post.

Just recently we covered Loeb's portfolio and noted Popular (BPOP) was a large new position. His letter provides more clarity on their position as they bought preferred shares around $0.64 per share and converted them into common at an implied cost of $1.50 per share. They believe it is undervalued relative to its peers and is positioned well in Puerto Rico.

Given that Loeb and Third Point often focus on event driven and arbitrage plays, it's interesting to see them currently have close to no risk arbitrage positions. They had previously had in excess of 20% of their capital invested in these strategies. This is mostly due to the fact that the Pfizer/Wyeth and Merck/Schering mergers closed, two arbitrage situations that hedge funds were playing heavily.

Loeb's investment outlook for the next six to twelve months is 'favorable' in both the equity and debt markets. He thinks that interest rates will remain low as the government continues to fight unemployment and get us on the road to recovery. On a corporate level, he expects to see "anemic revenue growth but continued margin expansion, increased corporate restructuring activity (spin-offs, mergers, and the like), and earnings that will frequently surprise to the upside. Thus, for equity investors, it is a stock picker's market on both the long and short sides." To see what equity positions Third Point is currently investing in, we recently checked out their portfolio.

We've covered hedge fund Third Point in-depth in the past and have compiled some nice resources including Dan Loeb's recommended reading, a recent video speech by Dan Loeb, and Third Point's second quarter letter.

Embedded on this page below courtesy of Dealbreaker is Dan Loeb & Third Point's third quarter 2009 investor letter:

You can also download the .pdf here.

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