According to Third Point’s website, Daniel Loeb uses a “…flexible, opportunistic” investment style. What this means is that the team identifies companies where there might be a catalytic situation brewing, and then strategically invests in them to unlock shareholder value. But historically, Loeb has also used activism as a catalyst to add value to his shareholders.
In terms of his activist style, Loeb isn’t afraid to create uproar right at the top, in order to seek change. Some of Third Point’s notable activist stances caused changes in companies like Yahoo, Sony and Nestle – all of which resulted in Loeb getting everything, or significantly, what he demanded of the boards.
The Portfolio Dissected
For the quarter ending Dec 31, 2017, Daniel Loeb’s Third Point filed its 13-F on Feb 14, 2018. Total value of the hedge fund’s holdings was reported to be $13,855,091,000, with the largest position being in Baxter International Inc. (BAX), in which the Guru holds 36,000,000 shares.
If you are looking to build a portfolio like Loeb’s, albeit worth a significantly lesser dollar value, you’ll need to diversify into many sectors, with Info. Tech (22.1%) and Health Care (22%) dominating. Other sectors that Loeb’s likes are Consumer Discretionary (12.4%) and Health Care (12.2%).
A look at Third Point’s top-10 holdings might also give you some idea of what to invest in if you wish to mimic this Guru’s portfolio. Again, you will see he likes specific tech names, like NetFlix Inc (NFLX) and Alphabet Inc (GOOGL) – but Amazon.com Inc (AMZN) does not make it to the top-10.
If you like Loeb’s activist approach, then one stock that should go onto your watchlist might be Honeywell International Inc. (HON). Activist Loeb has made his views public, about trying to unlock over $20B in shareholder value trapped in HON. How? By getting the boar to spinoff its Aerospace division. There could be significant upside to HON if he is successful – so keep an eye out for how that plays out.
So, if you want to invest like the Gurus, what makes Daniel Loeb someone to watch? Well, for one, Forbes estimates he has amassed a personal net wealth of nearly $3.2B (as at May 2, 2018). That put him at #240 on the Forbes 400 list. And anyone making the cut into that list can certainly teach ordinary investors, and even most portfolio managers, a thing or two.
More importantly though, is the fact that, since 1996, when Loeb founded his Third Point Offshore Limited fund, it has generated a 15.8% annual return, while his Ultra Limited fund returned an average of 23.7% annually to shareholders. When you compare that to a measly 8% annual ROI from the S&P500 over that period, you understand why it pays to follow Gurus like Loeb!
If you wanted to mimic some of what Loeb’s has been doing in his portfolio, perhaps a closer look at his top-10 positions might give you an indication of what has worked for this Guru. Clearly, with names like BABA, GOOGL, TWX and NFLX in the mix, it would appear that Third Point has a pre-disposition to the FAANG stocks. In fact, these positions make up nearly 60% of Loeb’s Top-10 holdings – so that should offer you one takeaway.
Finally, a glance at the 150-day Price Move chart, in the table above, seems to indicate that BAX and STZ might be great non-technology names to take a closer look at. In fact, BAX has moved from $64.64 since Third Point reported (Q4 2017) to $70.43 at the time of this review – that’s a gain of nearly 9%.
Author does not own any stock mentioned in the article