Dan Loeb dodged April's big sell-off and is finding opportunities in energy, cyclical stocks

Published Mon, May 9 20228:46 AM EDTUpdated Mon, May 9 20228:56 AM EDT

Third Point's Dan Loeb managed to sidestep the market turmoil last month by taking down exposure drastically and picking up opportunities in energy and other cyclical stocks. The hedge fund manager said his main funds only posted a narrow loss of 1% in April, compared to a near 9% decline for the S & P 500 and a 13% drop for the Nasdaq Composite , according to an investor letter obtained by CNBC. The outperformance came after a rough first quarter for Loeb that saw his funds suffer a 11.5% decline as his growth darlings — SentinelOne , Intuit, Upstart Holdings and Rivian Automotive — bore the blunt of the sell-off amid rising rates. The manager adjusted his portfolio swiftly during the volatile period, reducing his exposure to rate-sensitive tech names. "Even after dramatic declines, it is difficult to call a bottom in the high-growth, high-valuation end of the tech sector, especially given that many of these companies relied on stock-based compensation and controversial accounting and reporting techniques," Loeb said. Loeb revealed that his net exposure is lower and buying power higher than at any time during the last 10 years after exiting several large equity positions and both trimmed exposure to and substantially hedged second largest and most volatile position, SentinelOne. Meanwhile, Loeb said he has found "interesting opportunities" in energy and other cyclical stocks. "We initiated positions in oil and natural gas companies in Q1, as well as in other materials companies that we believe will benefit from inflation, supply shortages, and the adoption of EVs and other renewable sources of energy," Loeb said. Glencore Third Point initiated a long position in copper and nickel miner Glencore in the first quarter. Loeb said this is a play on the transition to renewable energy as the two metals are critical inputs for the shift. "We believe that these two metals are undergoing a substantial acceleration in demand that will outpace supply growth as miners maintain capital discipline after a decade of poor returns," Loeb said. The multinational company has headquarters in the U.K. and Baar, Switzerland. Its ADRs, available for U.S. investors, are up almost 20% this year. "With a new management team in place, an improved ESG profile, very strong cash returns to shareholders, and government settlements, we believe that Glencore can close the substantial 28% discount at which it trades to other global miners," Loeb said. PG & E Third Point's Loeb said he continued to see potential in his bet on Pacific Gas & Electric , making the energy name which emerged from bankruptcy just two years ago his biggest position in the portfolio. "Over the next year, we think PG & E will continue to re-rate towards industry averages while also growing earnings at an industry leading 10% per year," Loeb said. "In this type of market environment, the financial equation of consistent earnings growth and multiple re-rating makes for a wonderfully boring story and a solid anchor for our portfolio as Third Point's largest position." The stock in up 3.5% this year so far, outperforming the broader market. Loeb said he's confident in PG & E's new CEO, Patti Poppe, who has transformed the organization and is rethinking the way the company addresses the energy needs of Northern Californians. Shell After building a large position in Shell last fall, Loeb said he has continued to add to the stake as it still trades at "the same deeply discounted multiple" today that it did last year due to a move up in commodity prices. The investor said he's engaged in discussions with management, board members and other shareholders as he believes that Shell's portfolio of businesses ranging from deep water oil to wind farms to gas stations to chemical plants is "confusing and unmanageable." "While Shell continues to trade at a large discount to its intrinsic value, with proper management we believe the company can simultaneously deliver shareholder returns, reliable energy and decarbonization of the global economy," Loeb said. — With reporting by Michael Bloom

Daniel Loeb

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Third Point's Dan Loeb managed to sidestep the market turmoil last month by taking down exposure drastically and picking up opportunities in energy and other cyclical stocks.