Third Point's Top Holdings & Latest Exposures

Dan Loeb's Third Point Offshore Fund finished May -2.6% and was up 3.7% year-to-date at that time.  The fund now manages $4.6 billion and has seen annualized returns of 17.1%.  Below are their top positions and latest exposures.


Third Point's Top Holdings

1. Yahoo! (YHOO)
2. Gold
3. Delphi (DLPH)
4. Apple (AAPL)
5. Sara Lee (SLE)

The hedge fund's top winners from the past month included three consumer short positions, one industrial short position, as well as a long of Vertex Pharmaceuticals.  Their top losers in the quarter included gold, YHOO, DLPH, Hess (HES), as well as Abercrombie & Fitch (ANF).

We've previously posted Third Point's Q1 letter which includes their thesis on AAPL among other positions.

Their stake in Sara Lee slides into their top holdings again as this catalyst play will spin-off its coffee business at the end of June and then will  rename its remaining business Hillshire Brands to reflect its line of meat products.

In other recent activity from this hedge fund, we've highlighted that Third Point reduced its Technicolor stake as well.


Latest Exposure Levels

We've noted that throughout the first half of the year, Third Point ratcheted up net long exposure as they liked the risk/reward skew.  However, given the ramp in volatility this past month, it should come as no surprise that Third Point reduced exposure.

At the end of May, they were 31.4% net long equities (44.4% long and -13% short).  This compares to 40% net long the month prior.  During the month, they cut long exposure and increased short exposure.

Geographically, they are net long Americas at 61%, net short EMEA at -10%, and net short Asia at -3%.

They also decreased their exposure to credit.  In April they were 20.7% net long and at the end of May they were only 14.2% net long.  Of note is the fact that they increased their short bet against government securities.


Dan Loeb is featured in the new book The Alpha Masters and you can check out our review here.

Third Point's 2011 Letter: Rationale for Owning UniCredit, Skyworks, Abercrombie & More

Dan Loeb's $8.9 billion hedge fund firm Third Point is out with its year-end 2011 letter. They see the bullish ramp up of 2012 continuing but are obviously still doing work on the short side as well. Third Point writes,

"The start of this year has created one especially welcome dynamic: a fall in correlations. For the first time in nearly a year, single name stock picking is being rewarded. We have steadily increased capital invested in event-driven situations in equities, corporate credit and mortgages."

We've detailed how the hedge fund has increased exposure over the past few months.


Where Third Point is Putting Money to Work

Loeb's firm has focused on two areas recently: forced selling and hidden growth. Positions they've acquired when others have been forced sellers are Unicredit, Skyworks Solutions (SWKS), and EksportFinans.

Under the hidden growth thesis, they've invested in a long credit position in Ally Financial, as well as long equity stakes in Volkswagen and Abercrombie & Fitch (ANF). They acquired their position in Abercombie in January after shares had been cut almost in half, writing,

"A&F was attractive because we believe we paid roughly 10x cy12 EPS (ex $7 net cash) for a business that should grow earnings at a double digit rate for at least the next few years. That growth will come from recovering US profitability and from continued growth of the company's high margin online (2009-11 CAGR +38%) and international businesses (2009-11 CAGR +70%)."

The hedge fund also writes about their activist stake in Yahoo in Third Point's full 2011 letter which is embedded below (email readers click to come read it):



For more on Loeb's fund, we also recently wrote about Third Point's Technicolor stake.

Deteriorating Consumer Environment: Abercrombie and Fitch (ANF) Evidence

This is just continuing evidence of a lackluster consumer environment. Abercrombie and Fitch (ANF) same store receipts were down in August, setting up what I predict will be a downward accelerating consumer environment. Both Citi and Merrill Lynch downgraded ANF on Friday, citing deteriorating sales and increased markdowns. In fact, Citi went as far as to say that they think ANF could trade at its lowest multiple in 5 years. Just something to keep an eye on as you try to balance your portfolios.

Specialty retail is getting hit hard (and will continue to get hit hard) as effects from the housing market, consumer credit crunch, and inflation take a toll on consumer's pocketbooks. Abercrombie is known for its upscale niche within the teen segment, often selling more expensive items than the likes of competitors Aeropostale (ARO), who seems to be doing alright in this environment. So, look for consumers to "trade down" in this environment.

In any given sector, I like to take a balanced approach and often times am market neutral. For instance in retail, being long the likes of Walmart (WMT) or various other discounters who sell essentials (food, gas, toiletries, medicine) is very appealing to me. Then, you take the other side by going short discretionary retailers, such as ANF. Long cheap and/or necessary items; Short expensive and/or discretionary items. The same logic can be applied to food by going long the likes of McDonald's (MCD) for the "cheap" factor (although they might see some slight headwinds due to their strong international presence and a rising US dollar). Then, shorting casual dining restaurants such as BJ Restaurants (BJRI) or Darden Restaurants (DRI), who are feeling the pinch of rising input costs and slower dining traffic.

The main point to take away here is that we all know the consumer is strapped for cash. However, I think too many people are counting on a recovery. With vast evidence of the housing market accelerating to the downside, I just don't see how that is possible. Add in the consumer credit crunch and the inflationary pressures consumers are seeing on everything they buy, and you've got a recipe for a very thrifty consumer.