It’s been a tough year for Third Point and Dan Loeb. The hedge fund has $17 billion under management but is up just 0.6% this year compared to the S&P 500 through September 30. Wit its failed activism in Campbell Soup and the recent market selloff, it’s same to say the situation has deteriorated since.
Loeb’s latest letter is up in Third Point’s website, you can view it here.
On the latest slump, Loeb believes it was caused by rising Treasury yields which climbed to 3.2% from 2.8% in August.
“Rates were driven higher by Fed Chair Powell’s commentary that
spooked the market into quickly projecting the worst‐case scenario, i.e. that a tightening
overshoot would drive an otherwise buoyant economy into recession. These fears
manifested themselves initially in the de‐levering of growth stocks, causing volatility to rise
and the market to breach levels to the downside, driving systematic and quantitative
strategies to accelerate selling in a window of time where corporates were not participating
in buyback programs due to the blackout period. At the same time, a string of weak earnings
pre‐announcements made investors question what had been a firewall for the S&P until that
point….It always seems like the perfect storm in hindsight. Weakening earnings plus trade war
escalation plus a potentially overzealous Fed was a toxic combination, particularly for
Overall, he sees the trend in US growth slowing with the balance of global growth tilted depending on whether Chinese stimulus succeeds. Loeb sees no signs of a recession and says it’s important to stay balanced and not get overly negative.
However he has shifted to a more defensive position.
“We have delevered our portfolio, reduced our tech exposure meaningfully, and grown our
short book. We expect to be net sellers over the next few months if markets rally,” Loeb writes.