August 1, 2012 / 6:55 PM / 6 years ago

Loeb's flagship fund declines in second-quarter

NEW YORK (Reuters) - Daniel Loeb’s Third Point Offshore hedge fund posted a 2.5 percent decline for the second quarter, stung by losses in some stocks amid growth fears in the United States and China and continued uncertainty in Europe.

Third Point Offshore, the main fund of Loeb’s $8.7 billion Third Point firm, outperformed the broader stock market, which sank 2.8 percent, but trailed it year-to-date.

“The weakness in overall performance can be explained primarily by our long exposure to cyclical and industrial names, which suffered disproportionately as the risk off trade picked up steam through Q2,” Loeb said in a letter to investors reviewed by Reuters.

The New York money manager, one of the $2 trillion hedge fund industry’s most closely watched names, said some of those positions recovered losses in July.

Hedge funds on average lost 2.3 percent in the last quarter, according to hedge fund tracking firm HFR.

Loeb has achieved annualized returns of 17 percent since launching Third Point in 1996.

In the year through June 30, Third Point Offshore rose 3.9 percent, compared with a gain of 9.5 percent for the Standard & Poor’s 500 index.

The stock market’s second-quarter sell-off was due “mostly to the renewed worries over U.S. weakness and pervasive concerns about a Chinese hard landing, which punished any assets linked to global growth,” Loeb said, noting the “continental chaos” in Europe has been a fixture of the marketplace for 12 months now.

Delphi Automotive was one of Third Point’s biggest losers over the period. Loeb defended the long-time position, pointing to gains of 33 percent for stock this year.

Other top losers were Sara Lee, Abercrombie & Fitch Co (ANF.N), Ivanhoe Mines (IVN.TO) and an undisclosed short position. Sara Lee changed its name to Hillshire Brands Co HSH.N in late June, after the company spun off its coffee and tea unit.

On the winning side, Yahoo YHOO.O, Third Point’s biggest position, topped the list with a gain of 4 percent. Other winners were Progress Energy Resources Corp (PRQ.TO), Vertex Pharmaceuticals Inc (VRTX.O), Ally Financial GKM.N, and Portuguese government bonds.

    Loeb highlighted strides made in the fund’s credit portfolio, with both the distressed and performing credit books up more than 15 percent for the year.

    “Due to Yahoo!’s concentrated size in our funds, this modest appreciation still made it the biggest winner for the period,” Loeb said in the letter, adding, “We were pleased to have favorably resolved the proxy contest we commenced in Q1.”

    He also praised Yahoo’s newly appointed chief executive, Marissa Mayer, who the company poached from Google (GOOG.O).

    Loeb had less kind words for the Obama administration, which he called “openly hostile to most businesses and unable to articulate or implement policies to spark growth and reduce unemployment.”

    Loeb is known for penning witty and acerbic letters to corporate boards, and has been a vocal critic - and supporter - of Obama in the past.

    Third Point added new positions in the second quarter, including a European investment grade bond index called iTraxx.

    “We anticipate Europe’s dysfunctional capital markets to continue generating a steady stream of similar event‐driven, attractive ideas for us to incorporate into our portfolio,” he said.

    Reporting By Katya Wachtel

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