Dan Loeb & Third Point's Latest Exposure Levels ~ market folly

Wednesday, January 5, 2011

Dan Loeb & Third Point's Latest Exposure Levels

Dan Loeb's Third Point Offshore Fund finished 2010 up 33.5%, compared to an S&P 500 return of 15.1%. Since inception in December of 1996, Third Point has returned an impressive 18.6% annualized. The hedge fund manager recently released its latest December exposure levels so we wanted to provide readers with an update.

Here are Third Point's top holdings as of year end:

1. Gold
2. Delphi Corp (multiple securities held)
3. Chrysler (multiple securities held)
4. Potash (POT)
5. Lyondell (LYB)

You can learn about more of Third Point's investments in our newsletter. Physical gold continues to be a massive position for Loeb and he potentially could be using the precious metal as some sort of tail risk hedge. Interestingly enough, Third Point continues to own Potash (POT) even after BHP Billiton's bid for the company failed. It appeared as though the hedge fund originally purchased POT as a arbitrage trade but maybe they like the natural resource exposure as an inflation play. Or maybe they still see the company as a viable takeover target, who knows.

Lastly, Lyondell finally shows up as a top holding for Third Point as the company exited bankruptcy. The chemical maker's equity now trades under ticker symbol LYB. Back in the second quarter we noted Loeb's fondness for post re-organization equities, and that portfolio theme continues.

Exposure Levels

Third Point has its highest net long equity exposure in basic materials and financials. In total, they are 60.1% long, -8.4% short, leaving them 51.7% net long equities. One geographic note is that Third Point had previously been net short the Asia region, but are now net long ever so slightly.

In terms of credit exposure, Third Point has its highest net long exposure in mortgage backed securities (MBS) at 19.4%, followed by distressed at 14.2% net long. Third Point is also net short government securities at -10.9%. Overall in credit the hedge fund is 32% net long.

Top Winners

In Loeb's portfolio, big winners include Delphi (multiple securities held), NXP Semiconductor (NXPI), Lyondell (LYB), Chrysler (multiple securities held), and Accuride (ACW). He highlighted NXPI in his recent letter to investors as Third Point participated in the IPO and sees upside in the name. Shares of Accuride also recently started trading in late December after re-listing on the New York Stock Exchange.

Top Losers

Third Point's portfolio saw weak performance from the following plays: three undisclosed short positions (undoubtedly due to the market's large rally), Fortis (multiple securities held), as well as State Bank of India (BOM:500112), a name we have previously not seen disclosed.

That wraps up our summary of Third Point's end of year exposure levels. You can check out more of Third Point's portfolio in our newsletter. And to learn to invest like Dan Loeb, check out his recommended reading list here.

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