U.S. hedge fund manager Dan Loeb is betting President Donald Trump will be good for investments thanks to his planned mix of tax cuts, reduced regulation and infrastructure spending.
"This environment is undoubtedly better for active investing—just as active investing was considered to be on its deathbed," Loeb wrote in a letter to clients of his $15 billion Third Point LLC Wednesday.
A shift from government monetary stimulus to measures that will increase personal and corporate spending will create lower correlations between various types of securities and greater dispersion of results within them, such as stocks, Loeb said.
Higher interest rates will also create investment opportunities, Loeb added.
Third Point's main hedge fund lost 1.1 % in the fourth quarter, wrapping up a year that Loeb said was "disappointing". The fund gained only 6.1 % in 2016, below its 15.7 % average annual return since 1996 and less than an approximately 12 % gain for the S&P 500 Index, with dividends.
Loeb wrote he had made changes to New York-based Third Point's investment holdings immediately after Trump's election win, shifting to stocks and away from corporate and structured credit. Third Point now has similar-sized holdings in the healthcare, technology, industrial and financial sectors, according to the letter.
One large change was in securities of financial companies. The sector now represents 11.8 % of the fund, up from 4.4 % on Nov. 8, according to the letter. Loeb's focus is now on banks and brokers and includes exposure to Japan.
"The pendulum in monetary policy has begun to shift away from the past decade of extraordinary easing just as the pendulum in fiscal policy has begun to shift away from austerity and its limiting factors," Loeb wrote. "The U.S. elections served as a marker for these policy shifts which, in our view, are bullish for rate‐sensitive financials."
Loeb did urge some caution on investment during the Trump presidency, noting hedges on Third Point's portfolio. But he said that even volatility could be a boon.
"While America may or may not be made great again, there is no question that the rules are literally being rewritten," Loeb wrote. "We do not plan to trade the tweets but we expect an increasing number of real and, even better, fake dislocations to create some extremely rewarding investing opportunities."
Third Point's offshore hedge fund rose 2.6 % in January, according to a person familiar with the situation who requested anonymity because the information is private.