In earlier posts, we reviewed the investment style of Third Point Management Co LLC’s Daniel Loeb, and we also covered two quarterly performance reviews of the Guru’s portfolio – Q4-2017 and Q1-2018. Today, we’ll look at how the portfolio has performed during Q2-2018. As always, it is our intention to not only review the portfolio, but to also discern whether there is one (or two, or ten) idea that could be a take-away investment idea for our readers.
The Portfolio Dissected
Before we dissect the portfolio in detail, let’s take a high-level look at what Third Point’s 13F reveals about the overall holdings:
- The number of holdings has decreased in Q2-2018 to 38 from 40 in Q1-2018
- The overall portfolio value has increased by roughly $10B, and stood at $14.35B ($13.32B) – a net increase of about 7.73%
- The value of this Guru’s Top-10 holdings has increased by approximately $1.094B ($9,466,148,000 Vs $8,371,318,000), marking a nearly 13% increase (from the previous quarter) in Top-10 position value
The table above also provides some additional highlights of Loeb’s Q2-2018 portfolio. As we can see, the Top-3 positions comprise of over 33% of the entire holdings, making it a rather focused/concentrated portfolio. Also, the overwhelming amount of this portfolio (nearly 2/3rd) is held in just 10 of the 38 holdings. Tech, Industrials (Aerospace/Defense) and Healthcare/Pharma appear to be Loeb’s favorite sectors, with his Top-3 holdings, Baxter International Inc. (BAX), United Technologies Corporation (UTX) and NXP Semiconductors N.V. (NXPI), coming from these sectors.
So, what do we learn when we take a closer look at Third Point’s overall portfolio, specifically the Top-10 positions?
The table above is a drill-down into the Top-10 positions for Q2-2018. If you review our previous coverage of Third Points Q1-2018 positions, you will note that NPX Semiconductors, Paypal Holdings and Sotheby’s new to the Top-10 list this quarter. While Sotheby’s isn’t a net-new name (it was 14th in position size in Q1-2018), there have been no changes to Loeb’s holdings in the name. However, it has risen into the Top-10 list as a result of displacements in Alphabet, Time Warner and Blackrock’s place in the previous list.
ThirdPoint employs a long/short investing strategy.
For the period, ThirdPoint reported a return of 0.8% on a YTD basis, compared to a 2.6% return by the S&P 500 Index. However, since ThirdPoint really is in for the long-haul, investors could take an optimistic view of the above returns when they compare them to the Hedge Fund’s returns (15.4%) since its inception (1696). The S&P 500 Index only returned approximately 8% over that timeframe.
For Q2-2018, the Fund returned 1.5%, compared to 3.4% by the S&P 500 Index.
On a sector-basis, an analysis of the Top-20 positions show us that Guru Loeb loves Healthcare, which accounts for 28% of his Top-10 holdings.
Both Industrials and Consumer Cyclicals are equally represented (20%) amongst the Top-10 names, with Technology (18%) the only other sector representing double-digit holding values. Financial Services (9%) and Consumer Defensive (5%) names round up the Top-10 investments.
If you are planning to build a portfolio that mimics that of Third Point – albeit with far fewer positions and a lot smaller dollar value, then one stock that you should probably consider adding is PayPal Holdings, Inc (PYPL). In his Q2-2018 letter to investors, Guru Loeb believes PayPal’s share price could hit $125 within the next 18-months or so. Given that the shares of this online fin-tech giant are currently trading at $87.29 (intra-day Aug 13th), that’s a neat 43.20% upside potential for anyone that gets into PayPal – assuming Guru Loeb is right!
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Author does not have investment in stock discussed in this article.