Dan Loeb's Third Point: Top Positions & Latest Exposures

For the month of April, Third Point's Offshore Fund was -0.1% and is up 6.4% year to date.  Dan Loeb's hedge fund has seen an annualized return of 17.4% and their latest exposure report breaks down where they're allocating their capital.

Equity Exposure

On the equity side of things, Third Point is 51.5% long and -11.5% short, leaving them 40% net long.  This is a 1.5% increase in net long exposure since the month prior, but is mainly attributed to the fact that they reduced their short book (they actually reduced their longs compared to last month).

Their largest allocation comes with an 18.9% net long position in the technology sector (largely due to their activist position in Yahoo and big Apple position).  They are ever-so-slightly net short utilities.


Credit Exposure

In credit, they continue to be short government issues to the tune of -11.7%.  Their largest net long exposure is in asset backed securities at 14.6%.  In total, their credit exposure is 40.9% long, -20.2% short, leaving them 20.7% net long.  This is a 2.2% increase in overall net long exposure since the month prior.


Top Positions

1. Yahoo (YHOO)
2. Gold
3. Delphi (DLPH)
4. Apple (AAPL)
5. Eksportfinans ASA

Comparing their April top holdings to the month prior, their top three stakes are unchanged.  Apple has jumped back up into their top holdings as they either added to their position or their stakes in other top holdings decreased in value.

In the month, their top winners included Yahoo, Portuguese Sovereign Bonds, Volkswagen, Lehman Brothers, and Ally Financial. Much of their positive performance offset in the quarter came from the credit side of things.  We previously posted Loeb's comments at a distressed investing panel.

Their top losers included Ivanhoe Mines (IVN), Consumer Short A, Redecard SA, Technicolor (multiple securities owned), and Metro AG.  This is notable because this is the first time we've seen their positions in Redecard SA and Metro AG disclosed.

For more on this hedge fund, head to lessons Dan Loeb's learned as an investor.

Dan Arbess' Xerion Fund: 2011 Investment Strategy & Outlook

Daniel Arbess' Xerion Fund is out with its investment strategy and outlook for 2011. The hedge fund, part of Perella Weinberg Partners, manages $2.3 billion and has annualized returns of 18.97% net since inception in 2003. For 2010, Xerion finished up 12.66% net. Our previous coverage focused on how Xerion likes commodities.

2011 Market Outlook

Taken directly from Xerion's year-end letter to investors, here is a breakdown of their outlook for the new year,

" - Global economy and markets remain unbalanced, dependent on government support and highly vulnerable to policy changes and conflicting national agendas. Government-stimulated market momentum will recede in 2011, in favor of either gradual normalization or renewed crisis.

- Expect continued moderate economic recovery, however frequently punctuated by episodes of macro instability. Key risks include potential over-heating and reversal in China, persistently high domestic unemployment and acceleration of sovereign debt crises in Europe and other developed economies.

- Receding tailwinds from government intervention imply security selection and idiosyncratic opportunity will be most important in 2011. Select U.S. credit opportunities as rising yields signal higher re-financing costs. “Shake Hands With China” with exposure to commodities and equities, industrials and Asian consumer- facing industries. Selective sector opportunities in U.S. Equities. Commodity bias captures both fundamental demand in EM and fiscal crisis hedge in DM."

Portfolio Positioning

Given the above themes, Xerion is positioned cautiously long and they expect U.S. credit opportunities to be limited given the large wave of restructurings over the past two years. In developed markets, they see a few equity opportunities but they still favor emerging market equity plays and continue to play their 'shake hands with China' theme.

Of Xerion's positioning, Arbess writes, "Our portfolio structure and positioning going into 2011 is quite consistent with where it was one year ago - slightly longer and more skewed toward equity strategies versus credit, but also more hedged (which is to be expected given the higher beta and volatility of equities)."

Credit: In this asset class, they're focused on event-driven corporate plays and an opportunistic tilt toward distressed credit. Arbess writes, "we also see M&A as an evolving high yield catalyst for 2011, given that sponsors have cash to use and limited organic growth opportunities, while high yield companies are in the mode of bolstering liquidity and shedding assets to fund creditor friendly actions."

Equities: Xerion is generally cautious on domestic equities and favors high growth plays in emerging markets. Specifically, they are focusing on the rise of China's consumer and how to play that. The hedge fund is concerned with the liquidity of Asian equities in general but is intrigued by the state-owned segment of China's economy. Overall, they continue to favor their 'shake hands with China' portfolio theme.

Commodities: Arbess and his team believe that industrial commodity demand has been in a 'supercycle' since 2004. They like commodities for a couple of reasons, citing that they "benefit from robust and growing fundamental demand from industrializing emerging markets, and also attract financial investors looking for monetary debasement hedge."

In particular, Xerion prefers industrial commodities to even gold, claiming that the latter is less supported by demand and more-so driven by a financial crisis hedge. The hedge fund also likes various equity plays for this theme, specifically the junior resource companies (such as Fortescue Metals Group, Ivanhoe Mines, OGX and HRT).

Concerns In The Coming Year

Xerion rounds out its commentary and outlook by commenting on reasons to be cautious this year:

"For the past two years, markets have rallied in response to government stimulus and the anticipation of an economic recovery. We are cautiously optimistic that strong growth in the developing economies will continue to anchor the global economy in 2011, while improving sentiment in the developed world could potentially unlock cash-laden corporate balance sheets, supporting an investment-led recovery. However, bullish sentiment is already largely priced in. We expect the tailwinds of QE-inspirited rising markets to subside in 2011, further highlighting the importance of security selection, idiosyncratic opportunity and events, and, above all, hedging ever-present macro risks."

In the end, Arbess' hedge fund identifies the following as the key to continued economic recovery:

"The sustainability of global growth in 2011 will be highly dependent on G-20 policy makers’ successfully reining in short-term national interests in favor of longer-term globally coordinated efforts to shore up consumption growth in the EM."

For more on Dan Arbess' hedge fund, head to our past post on Xerion's 'shake hands with China' play.

Dan Arbess Ira Sohn Presentation: Investing As The Foundation Shifts

Today again courtesy of Dealbreaker we wanted to highlight Dan Arbess' recent presentation from the Ira Sohn Investment Conference entitled, 'Investing As The Foundation Shifts'. We had previously summarized the Ira Sohn Conference and have detailed numerous presentations from the event. This time around, we're taking a deeper look at the slideshow from Dan Arbess, the Xerion Fund manager at Perella Weinberg Partners. Just yesterday, we looked at Dan Arbess' portfolio commentary and identified that he is seeing opportunity in stressed credit and owning what China wants to buy. And now, we'll focus on some of his additional investment ideas.

When we summarized the Ira Sohn Investment Conference, we noted that Arbess was bullish on China exposure and in particular, Yum Brands (YUM) given their prolific expansion into the country. He isn't alone in his conviction here as we've seen a slew of hedge funds add positions in Yum Brands in recent quarters. In particular, we made note of Bill Ackman's YUM stake.

If you hadn't already guessed from the title, the theme of Arbess' presentation centered around a shift in the global economy. He wants to 'shake hands' with China and overall sees less borrowing in the Western world coupled with more consumption in the Eastern world. He says you can play this theme by shorting overleveraged Western producers, shorting weak currencies, and hedging monetary debasement with precious metals and miners. Arbess is also bullish on Ivanhoe (IVN) due to its solid assets and position in the metallurgical coal space.

This echoes what many hedge funds have already practiced. Hedgies have been quite short the euro (currently a weak currency) but they have been covering as of late. Additionally, tons of prominent investment managers have boosted gold exposure in their portfolios either by adding the physical metal or gold mining companies. Arbess doubts this is a top in gold and is using exposure there to hedge against inflation.

Sticking with the Asian growth theme, the Xerion Fund manager also likes Solutia (SOA) and Celanese (CE) as they both are seeing solid growth overseas. Arbess also seemingly pokes fun at a previous presentation we've posted up from Vitaliy Katsenelson entitled, China: The Mother of All Black Swans by including a picture of the lead slide from that slideshow with a giant "NOT" stamped across it. (How about a nice little Borat impersonation here for our comedic readers: "China is the mother of all black swans..... ... .....NOT.")

Ahem, anyways. Embedded below is Daniel Arbess' presentation from the Ira Sohn Conference, "Investing As The Foundation Shifts":



You can download a .pdf copy here.

For more from Arbess, head to his Xerion Fund portfolio commentary. We also recommend viewing the other presentations from the Ira Sohn Conference including David Einhorn's speech, as well as Bill Ackman's presentation and last but not least, Steve Eisman's latest investment thesis. You can also view a summary of the conference here.