Considering that the second-largest holding of Dan Loeb‘s Third Point, Alibaba Group Holding Ltd (NYSE:BABA), lost 19.92% of its stock value during the first quarter, the fund still managed to post impressive returns of 3% during that period according to our methodology, which takes into account the holdings of funds in companies exceeding $1 billion in market cap at the beginning of the quarter. Accordingly, Third Point’s returns were based on 34 of its holdings.
Third Point was founded in 1995 by Loeb with $3.3 million in capital. The market value of the fund’s portfolio at the end of 2014 stood at $11.09 billion. Loeb’s long/short event-driven investment approach is geared towards capitalizing on changes in a target company’s corporate structure, mergers and acquisitions, or even bankruptcies, which he has had quite a history with. In the early years of his career while working for Jeffries & Company he made himself and other investors a significant sum of money from Lambert Drexel’s bankruptcy by identifying that Drexel’s CBI-As, or certificates of beneficial interest were much cheaper than their intrinsic value. 29% of Third Point’s holdings are in the healthcare sector, which was one of the best performers for the first quarter as well. Top picks included Amgen, Inc. (NASDAQ:AMGN), Alibaba Group Holding Ltd (NYSE:BABA), Dow Chemical Co (NYSE:DOW) and Actavis plc (NYSE:ACT), and they represented over 41% of the fund’s portfolio value.
Third Point is a fund that we have been following for the last couple of years along with over 700 other institutional investors. We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are 45 days delayed. We used a 60-day delay in our research has shown that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these stocks since the end of August 2012. These stocks returned 132% over the last 2.5 years, outperforming the S&P 500 ETF by nearly 80 percentage points (see more details here).
Amgen, Inc. (NASDAQ:AMGN)’s stock price advanced by about 0.88% in the first quarter, slightly underperforming the S&P 500’s total return of 0.9%. Third Point held some 10.68 million shares valued at $1.70 billion in the pharmaceutical company. Among the hedge funds that we track, 60 had investments totaling $4.21 billion in Amgen at the end of the fourth quarter as compared to 62 funds with $3.15 billion a quarter earlier. Samuel Isaly’s Orbimed Advisors was one of them as it held about 2.71 million shares valued at $431.36 million.The FDA recently accepted Amgen, Inc. (NASDAQ:AMGN)’s supplemental New Drug Application for Kyprolis, which treats multiple myeloma, the second-most common blood cancer.
Loeb held nearly 10 million shares of Alibaba Group Holding Ltd (NYSE:BABA) valued at $1.04 billion in his fund’s portfolio at the end of 2014. The e-commerce giant was also spotted in the portfolios of Rob Citrone’s Discovery Capital Management and George Soros‘ Soros Fund Management. Alibaba might continue to experience the same selling pressure on its stock as the post IPO-lockup period expired last month. The $212.27 billion company missed revenue estimates by 5.6% for its fiscal 2015, third quarter financial results. Analysts had expected the sales frenzy of Single’s Day to add to the company’s quarterly performance, which it did, but it also meant that sales got concentrated on that particular day with the rest of the quarter attracting less consumers. The company has also recently come under criticism from a Chinese government agency regarding the knockoff merchandise sold on its platforms.
Dow Chemical Co (NYSE:DOW) posted 6.15% returns during the first quarter. Third Point ‘s stake in the company amounts to 22 million shares valued at about $1.0 billion. Upon pressure from Loeb, Dow announced the separation of its petrochemicals business from its chemicals segment. The company is aiming to split its U.S. Gulf Coast Chlor-Alkali and Vinyl, Global Chlorinated Organics and Global Epoxy businesses and merge them with Olin Corporation (NYSE:OLN). According to the company, the tax efficient consideration of the deal stands at $5 billion. Daniel S. Och‘s Oz Management held 13.70 million shares of Dow Chemical Co (NYSE:DOW) valued at $624.93 million at the end of the fourth quarter.
Actavis plc (NYSE:ACT) appreciated the most, by 15.62%, which helped offset Alibaba Group Holding Ltd (NYSE:BABA)’s abysmal quarterly performance. With 3.45 million shares valued at $888.06 million, the holding represented 8.01% of the fund’s portfolio value. Another significant investor of the healthcare company is Andreas Halvorsen’s Viking Global, which also increased its stake by 80% on the quarter. Actavis plc (NYSE:ACT) recently completed its acquisition of Allergan for $66 billion.
Disclosure: None
