Billionaire investor Loeb cuts bearish bets to avoid short squeezes-letter
01/08/2023 13:48
By Nell Mackenzie
LONDON, Aug 1 (Reuters) - Billionaire investor Daniel
Loeb has reduced the size of short bets on single named
companies to limit the vulnerability of his hedge fund, Third
Point, to short squeezes, he said in a letter on Tuesday.
"The short-selling environment is much more challenging than
it has been historically," said Loeb in the letter. Analysing a
company's economic prospects has taken a backseat to watching
Reddit message boards and options expiries, the letter said.
A short squeeze occurs when a stock price rises so much that
bearish bets become too expensive to hold and investors are
forced to buy them back, sometimes at a loss.
Loeb, who runs Third Point - which had around $12.6 billion
in assets under management at end-February - said his top five
winners this quarter included utility Pacific Gas and Electric
PCG_pa.A , tech companies Microsoft MSFT.O , Amazon AMZN.O
and Alphabet GOOGL.O as well as and plumbing and heating
product Ferguson FERG.L .
Loeb said his worst-performing stocks for the quarter were
the tech Alibaba Group Holding 9988.HK , bioprocessing company
Danaher DHR.N , Catalent CTLT.N , International Flavors &
Fragrances and an undisclosed private position.
The nine companies did not immediately return a request for
comment.
The Third Point Offshore Fund returned 1.1% for the quarter
but was still down 3% for the year through June 30, according to
the letter.
Almost half of Loeb's net long exposure includes companies
that will benefit from developments in artificial intelligence,
the letter said.
AI will need more plumbing to power programmes like Chat
GPT4 as it gets better at gathering and learning on data and
then, spitting out answers, the letter said.
This will benefit the biggest providers of cloud-based
software which outsource servers and storage like Microsoft
Azure, Amazon Web Services, and Google Cloud Platform, it said.
Elsewhere at Third Point, Loeb's corporate credit team
returned a net 8.7% for the quarter after market instability in
the March banking crisis created opportunities for the fund,
Loeb said.
Loeb's residential mortgage and structured credit portfolios
are both up a net 3.2% and 4.1% for the year so far, the letter
said.
(Reporting by Nell Mackenzie; Editing by Amanda Cooper)
((Nell.Mackenzie@thomsonreuters.com; https://twitter.com/nellmooney;))