Billionaire hedge fund leader Daniel Loeb is increasing his wager against the stock market, according to a report by CNBC. Loeb's hedge fund, Third Point, suffered losses in two of its flagship funds last quarter, and Loeb is aiming to increase short positions that brought positive returns early in the year. While Loeb did not indicate exactly how his bets would change in the immediate future, he suggested that the increase will come in "fundamental single names."
Loeb explained his decision by commenting on the "important shift in markets" that took place in the first quarter of the year. Loeb revealed his plans to increase his short portfolio on an earnings call for Third Point Reinsurance, which posted a loss of 26 cents per share in the first quarter of the year. Loeb continued by saying that "investors have become increasingly concerned about multiples, particularly since after many years of low rates, there finally was an alternative to equities in the form of relatively riskless two-year money." Rising bond yields has proven to be one of the biggest market movers early in 2018.
Offshore, Ultra Funds Post Losses
Two flagship funds from Third Point, the Offshore Fund and the Ultra Fund, each posted losses for the first quarter. According to a letter to clients sent last week, the Offshore Fund fell by 0.6% and the levered Ultra Fund dipped by 1.5% during that period. For 2017, Loeb's fund struggled as well; his firm posted gains of 18.1% for the year, which lagged behind the S&P 500's total gain of 21.8%. At the same time, Loeb indicated that the reinsurance portfolio fell by 0.2% in the first quarter of the new year; this figure managed to outperform the S&P 500, which fell by 0.8% during that same time period.
Loeb's change is likely because of the success of an equity short allocation, which managed to return 2.4%. He said his firm intends "to further increase short exposure to fundamental single names and quantitative-derived baskets in 2018, and less on market hedges to dampen volatility and reduce net exposure." Loeb, like many other money managers, tends to favor periods of market volatility because of the pricing opportunities these times offer. "Looking ahead, we still see S&P growth in the U.S. supported by fiscal stimulus in 2018," he explained, adding that "we remain focused on maintaining a portfolio that can deliver compelling risk-adjusted returns across market cycles and will opportunistically adjust the portfolio across expected further waves of volatility." At the same time, Loeb and his team will monitor the economy for signs of a recession, although they don't expect that there are signs of a recession approaching for the time being.