Dan Loeb`s Third Point filed its latest 13F with the SEC last week, detailing its long positions at the end of a self-admittedly poor year for the fund. The fourth quarter was particularly harsh, as Third Point’s flagship Offshore Fund dipped 0.3%, compared to the S&P 500’s overall rise of 4.9%. For the year, the Offshore Fund was up 5.7%, which outperformed many hedge funds, but was nonetheless well below the S&P 500’s 13.7% rise. Despite the off year, Loeb’s fund has averaged an annualized return of 17.3% since its December, 1996 inception, compared to a 7.7% annualized rate of growth in the S&P 500.
Dan Loeb founded Third Point in 1995, and the New York-based hedge fund has been one of the best performing funds in the world ever since. Third Point has achieved several noteworthy successes in recent years, including a massive 41.7% return from its flagship fund in 2010, and a 21.2% return in 2012 when many hedge funds failed to beat the stock market. He was also successful in ousting former Yahoo! Inc. (NASDAQ:YHOO) CEO Scott Thompson and replacing him with current one Marissa Mayer. Yahoo shares are up 180% since that shakeup.
In Third Point’s 2014 fourth quarter investor letter, Loeb cited some of the reasons for the fund’s struggles, including “poor trading during market volatility and bad judgment in exiting positions for reasons ranging from “overstaying our welcome” to impatience seeing our thesis through in choppy markets.”
The most notable of those was likely Rackspace Hosting, Inc. (NYSE:RAX), which Third Point opened a big position on during the second quarter of 2014 with 7.25 million shares, making it the fund’s seventh largest position at the time, only to close the position by the end of the next quarter, a turbulent one in which Rackspace would dip 3.2%. That would prove unwise, as Rackspace would enjoy a strong fourth quarter, soaring 43.8%, and is up another 6.84% since.
Those are lessons learned that should prove invaluable throughout the coming year, one that looks to be even more turbulent than the last. Already this year, there have been nine “haunted house” scares according to Loeb, which have been:
1) signs of lower growth across the globe despite falling oil prices; 2) the depegging of the Swiss Franc, which caused an overnight 15% move; 3) declining currencies from Japan to Europe putting pressure on US companies’ earnings and competitive position; 4) a disconnect between when the Fed expects to raise rates and what the market is forecasting; 5) the rise of populism and the anti-austerity left in Europe which has underscored how fragile the “union” of this fragmented continent is today; 6) Russian incursions into the Ukraine; 7) chaos in the Middle East; 8) a surprising lack of leadership on the international stage by the United States and an apparent unwillingness to take decisive action to promote democracy abroad; and 9) a seeming decline in government respect for rule of law, shown by numerous executive actions, confiscations of property, and use of various departments — ranging from the IRS to the Treasury — to intimidate citizens and interfere with legal commerce.
In this environment, Third Point intends to focus on companies with sizable cash flows and which have demonstrated steady growth. They will also continue to seek out opportunities to do what they do best: activist investing, particularly in large cap companies which have not yet had to answer to shareholders, and may be severely underperforming as far as shareholder value as a result.