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Billionaire Dan Loeb’s Top Stock Picks Include American International Group Inc (AIG)

Third Point, an activist and value hedge fund managed by billionaire Dan Loeb, filed its 13F with the SEC in mid May. The information in this filing, which discloses many of a fund’s long equity holdings as of the end of the previous quarter, can be used to develop investing strategies; we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy). It’s also possible to use top managers’ picks as sources of free investment ideas, performing further research on individual names which seem interesting. Read on for our quick take on Loeb’s five largest holdings as of the end of March and compare these picks to previous filings.

Third Point’s largest position for some time has been Yahoo! Inc. (NASDAQ:YHOO), and Loeb played a key role in replacing the company’s former CEO with Marissa Mayer. While the fund trimmed its stake last quarter, it still owned 62 million shares. The stock is up 30% year to date, partly due to the increased dollar value of Yahoo’s Japan assets as the Nikkei index has risen strongly. Yahoo recently announced the purchase of Tumblr with an aim towards gaining access to younger Internet users. Billionaire Ken Griffin’s Citadel Investment Group more than doubled the size of its own Yahoo position between January and March (check out Griffin’s stock picks).

Dan Loeb Third PointThe fund initiated a position of 11 million shares in Virgin Media Inc. (NASDAQ:VMED). Virgin Media is a merger arbitrage play: the company is currently set to be acquired by Liberty Global Inc. (NASDAQ:LBTYA). While unlevered returns on these investments tend to be low, in annualized terms they often look quite attractive considering that they tend to be uncorrelated with the market (since the returns only depend on whether or not the deal closes). As a result, many hedge funds like to buy takeover targets particularly as they are more free to use leverage to amplify their returns. Read more about merger arbitrage strategies.