By Svea Herbst-Bayliss
NEW YORK (Reuters) – Daniel Loeb’s $16 billion Third Point LLC said on Tuesday that the firm’s investments in energy credits drove positive returns during the first half of the year and is devoting over $1 billion to energy corporate credits.
“We came into the year with a short credit portfolio that we reversed sharply in February, getting long over $1B in energy credit,” Third Point said in its latest quarterly letter to clients.
According to the letter, Third Point’s Offshore Fund posted returns of 4.6 percent during the second quarter ended June 30, compared with the Standard & Poor’s 500 which returned 2.5 percent.
Third Point, overseen by Loeb who is one of the industry’s most closely followed investors in part because of his record where he has delivered an average 16 percent return every year since launching his firm in 1996, said the firm reduced “more concentrated long investments” in health care.
Third Point sold out of its stake in Amgen Inc because “we saw better opportunities elsewhere,” the letter said. Third Point also said the firm continued to hold its Allergan stake.
Its largest investment in the portfolio – Baxter International, a global manufacturer and supplier of health care products – has generated a nearly 20 percent internal rate of return (IRR) since its inception last June.
“Despite this meaningful move in performance, its current size is consistent with our conviction about the company and its leadership and the potential we see for meaningful upside from these levels,” Third Point said.
Third Point has reduced its structured credit book of housing-related bonds from its highs and focused increasingly on new areas of opportunity in consumer lending, the letter said.
“The year’s positive performance reflects contributions from nearly all of the strategies we employ; the top five winners include a constructive long equity position, a sovereign debt investment, high-yield debt investments in energy companies, an event-driven long position, and a short equity position in the pharmaceutical industry,” Third Point said.
Overall, Third Point’s bet on energy credits is paying off handsomely.
Third Point said it sensed a bottom in energy around mid-February, with rumors swirling around Chesapeake’s imminent Chapter 11 filing and another rumor that OPEC was willing to cut production.
“This led oil prices to bottom, finally,” Third Point said.
Third Point said it is currently focused on debt of “companies with high-quality assets and deleveraging catalysts where we can make good returns while limiting downside risk should commodity prices stagnate.”
(Reporting by Jennifer Ablan and Svea Herbst-Bayliss; Editing by Leslie Adler, Bernard Orr and Chris Reese)