Billionaire Dan Loeb’s Top Small-Cap Picks: Sothebys (BID), Third Point Reinsurance Ltd (TPRE), and Intrexon Corp (XON)

Billionaire activist hedge fund manager Dan Loeb of Third Point LLC recently filed his 13F with the Securities and Exchange Commission (SEC) for the reporting period of March 31. The total public equity portfolio value of the fund came in at $10.8 billion, a slight decrease from the more than $11 billion it held at the end of 2014. Loeb started the fund with $3.3 million in assets under management (AUM) in 1995 and over the years has grown it into one of the largest and most successful activist hedge funds on the Street, with AUM crossing the $17.5 billion-mark in September, 2014. Although Third Point has made a reputation for itself by taking activist stakes in several well known large-cap companies, in this article we will focus on Third Point’s and Dan Loeb’s top small-cap picks: Sothebys (NYSE:BID), Third Point Reinsurance Ltd (NYSE:TPRE), and Intrexon Corp (NYSE:XON).

Third Point

In the last few years activist hedge funds have outperformed the broader hedge fund industry by a wide margin and Third Point has been leading that pack. When activists get involved in a company, most of the changes they push for are beneficial not only for their own investors, but also for all the shareholders of that company. However, instead of paying the 2/20 (2% of AUM annually and 20% of all profits made in a year) fees to hedge funds, average investors can emulate the same strategy in their portfolio at much lower costs by following the top holdings of such funds. Our research has shown that in the period between 1999 and 2012, the top 15 small-cap holdings of hedge funds outperformed the broader market by an average of nearly 1 percentage point each month, whereas the top holdings of hedge funds overall (mostly large-cap stocks) underperformed the market by 7 basis points monthly on average. In the 32 months since the launch of Insider Monkey’s small-cap strategy in August 2012, it has returned 144.4%, decimating the broader market by over 84 percentage points.

Dan Loeb
Dan Loeb
Third Point

Third Point initiated its stake in Sothebys (NYSE:BID) in August 2013 and in October of the same year the fund announced that it was now the largest shareholder of the company. As of March 31, Sothebys (NYSE:BID) remained the top small-cap holding of Third Point, while the fund remains the company’s largest shareholder with 6.65 million shares valued at $281.03 million. In November 2014, after facing constant criticism from Dan Loeb, Sothebys (NYSE:BID) chairman and CEO William F. Ruprecht announced his resignation, causing the company’s stock to surge 7%. In its latest quarterly earnings report, Sothebys (NYSE:BID) declared an EPS of $0.07, compared to the EPS loss of $0.09 it reported for the same quarter last year. Apart from Third Point, Richard McGuire’s Marcato Capital Management is another major shareholder og the company.