Daniel Loeb's Third Point hedge fund now holds more bets on stock price declines than gains, the billionaire told investors in a letter seen by Reuters on Monday, making him one of the first hedge fund managers to outline a new strategy following a turbulent third quarter.
Loeb, who has one of the best long-term track records in the industry, saw his fund gain 4.7 percent in October after losing a combined 8.9 percent in July, August and September.
"The environment for short selling is also attractive and we have more single short names than long positions in our book today," Loeb wrote in the letter dated Oct. 30.
"We have reduced our net exposure by nearly a third through sales and new shorts over the past few months while maintaining significant positions in our highest conviction, event-rich names," he wrote, without identifying the new positions.
He said that the fund's biggest winners for the third quarter included Kraft Heinz and eBay, plus an unnamed position called "short A." The biggest losers during the quarter include SunEdison, Dow Chemical Co., Amgen Inc. and Yum! Brands.
Loeb founded the $17.5 billion hedge fund Third Point 19 years ago, and has become one of the industry's most closely watched managers for his average 16.2 percent returns.
Many fund managers were caught off-guard by market declines in the third quarter, that were triggered by concerns over slowing growth in world No. 2 economy China, uncertainty about when the U.S. Federal Reserve will raise interest rates, as well as falling oil prices.
Third Point's 8.9 percent loss in the third quarter was worse than the benchmark S&P 500 index's decline of 6.4 percent. But the October gain has put the fund flat year-to-date, placing him in a better position than many rivals.
The average hedge fund is down 1.59 percent for the year, data from Hedge Fund Research show.
Loeb said equity market trading may remain bumpy, but he does not see a "looming U.S. recession."
He said the firm's conviction to stick with favorite healthcare stocks and to add more during the sell-off "enabled us to re-establish ourselves on positive footing" in October.
Loeb said healthcare company Baxter International, one of his biggest third-quarter losers, remained among his favorite picks. He praised its new Chief Executive Jose Almeida for his track record at Ireland-headquartered Covidien, where shares surged nearly 140 percent during his tenure.
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