“This is not a time to be rewarded for long market exposure…”
Those are the warning words from yet another billionaire hedge fund manager as expectations of further market disruptions loom.
A day after the largest hedge fund in the world shifts to a net short equities position, as Ray Dalio’s Bridgewater no longer “feels pretty stupid” about being out of US stocks; Dan Loeb’s Third Point puts his money where his mouth is and dramatically increases his short bets.
Billionaire Loeb wrote in his letter to investors last week :
Market shifts are inherently difficult to anticipate and when they happen, they do not ring a bell but they do blow a dog whistle, as we have said in the past. Our job is to listen carefully and to take decisive action when we suspect change is afoot. We believe that the increase in our short book and our reduced net and gross reflect what we are hearing.
And this morning, on an earnings conference call for Third Point Re., where he oversees investments, Loeb told investors:
“It’s a good time to have more balance on the short side,”
…adding that he sees more opportunities to find companies that will “go down or materially underperform the rest of the portfolio.”
As Bloomberg reports, the hedge fund manager said investors have become increasingly concerned about stock multiples, since after years of low interest rates, there’s finally an alternative to equities in the form of “relatively riskless” two-year treasuries.
And while hedgies have been waiting for a return of volatility to exploit price movements after several years of crazy-calm markets, Loeb’s response has been to add to his hedge fund’s equity short portfolio, he said on the call.
“We intend to further increase short exposure to fundamental single names and quantitative derived baskets in 2018 and rely less on market hedges to dampen volatility and reduce net exposure,” he said.
So, like Dalio, Loeb is notably derisking his gross book overall and pushing his positioning to the short side (for stocks). Wonder what Warren Buffett thinks of that?
Finally, Loeb said his firm is watching to see if a recession, which it doesn’t think is near, might be closer that market believes – as he noted previously:
“as manufacturing indices (PMI’s) cool from elevated levels, there is a real question about just which inning of the late cycle we are in. While we don’t believe a recession is close, there is definitely a concern that it is getting closer.