market folly

In the past, we've detailed the portfolio of Dan Loeb's hedge fund Third Point LLC. At that time we saw they were fond of Citigroup (C) and Transdigm Group (TDG). Third Point has a fund that is registered offshore and reports data each month to the London Stock Exchange. From their recent report we see some interesting performance statistics:

Third Point Offshore
February 2010: +3.2%
Year-to-date 2010: +6.8%
Annualized Return: 17.9%
Cumulative Performance: 788%
Annual Standard Deviation: 13.7%
Annual Downside Deviation: 8.1%
Sharpe Ratio: 1.27
Correlation to the S&P 500: 0.38

As you can see, Third Point has generated solid annualized returns with a low correlation to the market and decent Sharpe Ratio. This achievement is one of the main reasons we follow them in our hedge fund portfolio tracking series. Turning to their recent equity exposure levels we see that Loeb's hedge fund is net long financials and healthcare while being net short the market indicies & FX. Here's the full breakdown of their equity exposure:

Basic Materials: Long 1.4%, Short 0%, Net 1.4%
Communications: Long 3.3%, Short 0%, Net 3.3%
Consumer: Long 12.1%, Short -5.9%, Net 6.2%
Energy: Long 1.4%, Short -2%, Net -0.6%
Financials: Long 15.9%, Short -2.1%, Net 13.8%
Healthcare: Long 8.9%, Short -1.4%, Net 7.5%
Industrials: Long 6.4%, Short -2%, Net 4.4%
Technology: Long 6.1%, Short -1%, Net 5.1%
Utilities: Long 0%, Short 0%, Net 0%
Market Indices/FX: Long 0%, Short -3.8%, Net -3.8%

Total L/S Equity: Long 55.5%, Short -18.2%, Net 37.3%

On the credit side of things, Loeb has the largest net long exposure to distressed assets (Net 29.9%) but also has sizable net long stakes in Performing (Net 14.8%) as well as MBS (Net 18.7%). They also provide a geographic breakdown of exposure for the equities portion of their portfolio:

Americas: long 106%, short -15%
Europe: long 22%, short -2%
Asia: long 2%, short -2%

Some of Third Point's top winners have included Ception Therapeutics, Chrysler (multiple securities), and CIT Group (multiple securities again). Some of their top losers include: Heidelberg Cement, Rexam, Healthnet, and YRC Worldwide. We know that they have been long Healthnet as it appears on their SEC portfolio disclosures. However, their losing position in YRC Worldwide is conspicuous because it did not appear on their last filing. As such, we would venture to guess that they have since started a new long in this name and have suffered as shares have sharply declined over the past month or so.

Overall, here is a breakdown of their top positions (and keep in mind that they own multiple securities of each):

1. Chrysler
2. Delphi
3. CIT Group
4. Dana Holding
5. PHH Corp


Overall, an intriguing and useful update as we get a better look at just how long Loeb's fund is in certain asset classes. For more insight from this hedge fund we recommend checking out Dan Loeb's recommended reading list as well as our previous coverage of Third Point's portfolio.