Dan Loeb is bullish on President Trump. Although he admits
he didn’t expect the election outcome, the founder
of Third Point says in his firm’s fourth quarter
letter that the morning after election day his firm "took
immediate steps to reorganize the portfolio" around investments
it deemed would benefit from Trump’s reported
agenda. The event-driven hedge fund firm, which technically
signed the letter—not Loeb--believes quantitating
easing is now going to end quickly, heralding a new period of
fiscal stimulus via tax reform and infrastructure spending. It
expects a "significant reduction" in taxes, the elimination of
the interest rate deduction, and the removal of the
deductibility of state and local income taxes from federal
returns. At the same time, Loeb and his firm are looking for "a
dramatic pullback in government bureaucracy, red tape, and
regulation." And, of course they anticipate a major
infrastructure plan to stimulate the economy, create jobs, and
increase the labor participation rate. This plan would be
bankrolled, in part by an 8 percent tax on repatriated cash
held offshore by U.S. companies, the letter anticipates.
"Electing a president who is seen as pro-business (ignoring his
protectionist views on global trade) has awakened animal
spirits, already demonstrated by the record spikes in both
business and consumer confidence since the election," the
letter states. "This economic growth will come at the same time
as inflation is starting to inflect upwards and the domestic
economy is close to full employment, notwithstanding the low
labor force participation rate."
For investors, this means less correlation between asset
classes and even within equities themselves. Third Point also
says this kind of environment will be good for activists. "A
reflationary environment creates favorable conditions for value
and event-driven investing, risk arbitrage, and activism and so
our exposure has increased in equities relative to corporate
and structured credit," Third Point states. It also says credit
will enjoy "a mini-cycle story like the one we saw last year,
where opportunities popped up quickly and only those with the
ability to be nimble and move capital quickly generated
Third Point says the portfolio is primarily focused on the
U.S., but stresses an accelerating U.S. economy will help boost
global growth as well. At the same time, Third Point
acknowledges the is a risk of Trump waging destructive trade
wars and/or escalating inflation, which could result in a
policy mistake, which could result in a sharp sell-off. So, the
hedge fund firm has hedges structured to guard against negative
impact from those events.
Several hedge funds have reported January results.
Third Point Offshore Fund enjoyed a very strong start to the
year, posting a 2.2 percent gain in January. Most of the
profits were made on the long side of its equity portfolio.
Altogether, the overall portfolio fared much better on the long
side but losses across the board in the short book offset some
of the gains. Entering February Third Point was 57.2 percent
net long in its long-short book, up slightly from the previous
Bill Ackman’s Pershing Square Holdings was up
0.10 percent in January. At least it didn’t lose
money although it was up a lot more than that earlier in the
Och-Ziff Capital Management’s multi-strategy
funds got off to a good start. OZ Master Fund rose 2.15
percent, OZ Asia Master Fund rose 2.30 percent while OZ Europe
Master Fund climbed 1.97 percent.
The firm also said it had $33.6 billion under management as
of February 1, up $100 million from the prior month. However,
it suffered another $400 million in redemptions last month.
Shares of Facebook, the second most possible hedge fund
stock, fell 1.8 percent to close at $130.84 even though the
social media pioneer reported very strong quarterly earnings.
In response to the earnings report, Credit Suisse raised its
price target from $165 to $170 and maintained its Outperform
rating on the stock. "Street models continue to underestimate
the long-term monetization potential of upcoming new products,"
the bank tells clients in a note. UBS lifted the price target
slightly, from $154 to $155.