By analyzing the 13F filings of Third Point, managed by Dan Loeb, we estimate that his large-cap stock picks (those with market caps between above $20 billion) returned, on average, 0.00% per month between 1999 and 2012. This is worse than the 0.35% monthly total return for the S&P 500 during the same time period. If we adjust for risk by utilizing Carhart’s four factor model, Loeb’s large cap stocks look worse, generating negative alpha of 24 basis points on a monthly basis. His performance gets even worse on a more recent basis (between 2008 and 2012), with Loeb’s large-cap stock picks generating average monthly alpha of negative 47 basis points on a risk-adjusted basis. In general, our research concludes that most investors, including hedge funds, cannot generate enough outperformance to justify their high fees when it comes to larger cap stocks. Our research also shows that hedge fund managers are generally good when it comes to picking small cap stocks. We believe investors can generate better returns if they avoid hedge funds’ larger stock picks and focus on their smaller-cap stocks. By using a similar approach Insider Monkey’s small-cap hedge fund strategy returned 88% since the end of August 2012 and outperformed the market by nearly 50 percentage points (see the details here). Now, we will take a closer look at Loeb’s top five large cap picks.
American International Group (NYSE:AIG) is Loeb’s top large-cap stock, with his 7.5 million shares valued at $385 million. He cut his stake in the multi-line insurance company by 25% during the fourth quarter of 2013 but the stock remains his largest holding, accounting for almost 7% of his entire equity portfolio. Other hedge fund managers holding the stock include Bruce Berkowitz of Fairholme, Harris Associates and William Gray of Orbis Investment Management.
Second on the list is FedEx Corp. (NYSE:FDX), in which Loeb owns 2.5 million shares worth approximately $360 million. He increased his stake by 25% during the fourth quarter, with the $39.4 billion market cap delivery services provider comprising more than 6% of his total equity holdings. He joins other hedge fund managers that are bullish on the shares, including Mason Hawkins of Southeastern Asset Management, Harris Associates and Edgar Wachenheim of Greenhaven Associates.
Dow Chemical Co. (NYSE:DOW) is third in line among Loeb’s large cap holdings, with his 7.7 million shares worth about $345 million. This was a new position initiation during the fourth quarter, with the chemical products manufacturer making up almost 6% of the fund’s portfolio. Loeb joins Colin Hall and James Davidson of Long Oar Global Investors, Stephen Loukas, David A. Lorber and Zachary George of FrontFour Capital Group, Daniel Lascano of Lomas Capital Management and other hedge fund managers in taking a bullish view on the stock.
Fourth on the list is Yahoo Inc. (NASDAQ:YHOO), in which Loeb owns 8.0 million shares valued at approximately $325 million. This was a new position for him, with the technology company making up about 6% of Third Point’s portfolio. Other shareholders we track that own the stock include Alex Sacerdote of Whale Rock Capital Management, Josh Resnick of Jericho Capital Asset Management and Jesse Ro of Tiger Legatus Capital.
Rounding out Loeb’s top five large cap list is T-Mobile US Inc. (NASDAQ:TMUS), in which he owns 7.6 million shares worth roughly $260 million. This was also a new position for Loeb’s equity portfolio, more than 4% of which is accounted for by the wireless telecommunications provider. Other hedge fund managers that are shareholders include John Paulson of Paulson & Co., Rob Citrone of Discovery Capital Management and James Dinan of York Capital Management.