Hedge fund manager Daniel S. Loeb, the founder of Third Point LLC, expects his firm to do well during the Trump administration.
“We expect the favorable environment for our investing style to continue for three reasons: 1) Corporate activity should pick up as President Trump’s tax plans are detailed and enacted; 2) Opportunities for activist and constructivist investing are robust; and 3) Combining security selection with a reasonable interpretation of the macro continues to be critical,” Loeb wrote in his fund’s first quarter letter to investors.
He went on recognize the pro-business environment under President Trump and even made a dig at the Obama administration’s view of business.
“While we recognize that we are in the late stages of an economic cycle, experience has taught us not to miss the end of an expansive period. This is especially true following Trump’s election. Animal spirits matter in markets and despite the obstacles that the new administration will face in passing legislation, the overall pro-business environment is in sharp contrast to the last ‘you didn’t build it’ administration attitude toward business, enterprise, and free markets.”
In the letter, Loeb writes that his fund is seeing more opportunities in Europe due to strong and improving economic data. He also expects this trend to continue now that the French elections have passed “without incident.”
That said, he does see some reasons for market participants to be concerned.
“While we think legislative failure on tax reform could be negative in the back half of this year, we are encouraged that BAT seems to be off the table,” Loeb wrote. “There is a risk of inflation catching the Fed flat-footed, but we see this surfacing later in 2018 or 2019, if at all. Recent dampening of data in the US, particularly in consumer spending, has raised a red flag and we will know more when we see Q1 GDP. Chinese nominal GDP growth has potentially peaked, but the main event there will be the change of government this fall and so we expect a muted status quo until then.”
He noted that Third Point has positioned itself for potential sell-offs in the S&P 500.
“We continue to maintain the bulk of our exposure in equities, including in several new initiatives
where we believe the environment is ripe to take actions to remedy poor performance.”
New positions include Honeywell ( HON), which he would like to see spin off its aerospace unit to unlock $20 billion in shareholder value. He also initiated a stake in Unicredit, noting the first quarter marked a “turning point” for European financials.
Third Point Offshore Ltd. has returned 5.9% year-to-date compared to the S&P 500’s 6.1% gain.
Julia La Roche is a finance reporter at Yahoo Finance.