Third Point, the hedge fund managed by billionaire Dan Loeb, said it reduced investments in the "fading 'Trump Trade'" during the second quarter, according to an investor letter obtained by CNBC.
The firm is instead repositioning the portfolio toward investments in companies that "benefit from low inflation," the letter said.
Third Point reduced investments in bank financials and exited reflationary macro trades. The firm also has been lowering its exposure to credit strategies.
While in a previous letter Third Point said 2017 would be characterized by the Trump administration's push for increased fiscal spending and tax reform, neither has yet to play out. However, Third Point said it was still bullish on the markets due to global growth.
Third Point said its Offshore Fund returned 10.7 percent in the first half of the year, beating the 8.3 percent gain in the S&P 500 through the end of June.
In the second half of the year, Third Point will remain focused on central banks.
"While it may be too early to say that the key central banks have turned hawkish, their tone is changing and they are well past the point where any hiccup in the market will prompt increased accommodation," Third Point wrote.
Third Point called economic growth in the U.S. "generally disappointing," with some choice words for Washington.
"The U.S. economy will continue to have an overhang until Congress and the President show they can get major legislation passed this year," the letter said. "With substantial corporate tax reform promised but not delivered, companies are sitting on their cash hoards and their M&A plans, waiting for clarity."