Morning Brief: Dan Loeb’s Third Point Moves Away From Trump Trade

So much for the Trump Trade. Dan Loeb’s Third Point says in its second-quarter letter that the firm has reduced its exposure to banks, exited reflationary macro trades and is moving the portfolio towards companies that benefit from low inflation. In other words, the opposite of what worked immediately following the election, when there was much more optimism over potential economic growth in the U.S. It’s been “generally disappointing, particularly relative to expectations,” Third Point said in the letter. Meanwhile, the multi-strategy firm calls Europe a bright spot, saying “our exposure there is higher than it has been since 2010.” For example, Third Point recently disclosed an investment in Nestlé. “Our portfolio is well balanced across equity sectors but with declining exposure to credit strategies,” the firm said in the letter.

In the second half of the year, the hedge fund believes central banks will play an important role. “While it might be too early to say that the key central banks have turned hawkish, their tone is changing and they are well past the point where any hiccup in the market will prompt increased accommodation,” the hedge fund said in the letter. In the U.S., Third Point thinks the next rate hike is on hold because current levels of inflation are low and retail sales have declined. Still, the firm says it continues to find “compelling investment opportunities, particularly with global growth intact.” At the same time, Third Point is finding single name shorts it believes are overpriced to hedge the portfolio.

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Paul Singer’s Elliott Management boosted its stake in Peabody Energy, the world’s largest coal company, to more than 35.3 million common shares, including more than 14.1 million shares of common that are issuable upon the conversion of preferred stock. This works out to 30.9 percent of Peabody’s common shares. Elliott also owns 39.2 percent, or 7.2 million shares, of its preferred stock. In a regulatory filing, Elliott continues to assert the securities “are significantly undervalued and represent an attractive investment opportunity.” Elliott is one of six hedge funds that owned stakes in Peabody when it exited bankruptcy earlier this year. Other major holders included Discovery Capital Management and PointState Capital.

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Facebook reported very strong results in a wide variety of metrics for the most recent quarter, including earnings that easily beat expectations. Even so, shares of the social media pioneer barely inched up in after-hours trading. Facebook is the most widely held stock among hedge funds.

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Credit Suisse Group raised its price target on Caterpillar to $133, from $123, noting the company is delivering “impressive” earnings per share “despite markets that are still trending well below prior peak levels.” The heavy equipment maker is one of Credit Suisse’s top picks. The stock fell nearly one percent to close at $113.52.