Billionaire hedge-fund manager Dan Loeb is betting that the Federal Reserve will act sooner rather than later as the U.S. economy rebounds.
“We believe Q3 economic data will be decisive and likely drive action by the U.S. Fed during the second half of the year,” Loeb said today on a conference call discussing results at Third Point Reinsurance Ltd., the Bermuda-based company that counts on his hedge fund to oversee its investment portfolio.
The Fed has begun to wind down its bond-buying program, known as quantitative easing, as the U.S. labor market improves and consumers increase spending. The central bank is also weighing when to lift its target interest rate, which has been near zero since 2008.
Loeb focuses on event-driven investing, buying and selling stocks or bonds of companies going through changes like spinoffs or mergers. He also bets on macroeconomic trends. Through his hedge-fund firm Third Point LLC, he has pushed companies including Yahoo! Inc. and Sony Corp. to shift strategies with the goal of driving up share prices.
“The environment for event-driven investment continues to be attractive, and we have initiated several new investments recently,” he said on today’s call. “We expect market volatility will create compelling entry points across the capital structure during the second half of the year.”
Loeb said in February that volatility would rise this year, a forecast that proved wrong through June. The trend reversed last month amid fighting in the Middle East and Ukraine and investors’ concern that a rally in the Standard & Poor’s 500 Index had inflated valuations.
The Chicago Board Options Exchange Volatility Index, which measures investors’ expectations for price swings, closed yesterday at 16.66, after touching a low this year of 10.3 on July 3. The index’s average is about 20 since 1990.
Loeb’s hedge fund firm has been assessing its strategy in Japan after some of its stock bets slumped this year. The Bank of Japan announced record stimulus in 2013 to help the world’s third-largest economy overcome more than a decade of malaise. That sent the Topix index up 51 percent last year. The index is down 5.7 percent since Dec. 31.
“Japan remains an interesting place to find individual securities,” Munib Islam, a partner at Third Point LLC, said on the call. “The BOJ was very aggressive last year and since that time has been on hold, and I think with the more recent economic performance in Japan, we now are at the point where I think BOJ may require incremental” quantitative easing.
Islam reiterated that Third Point still sees opportunity in Argentina even after Standard & Poor’s declared the country in default late last month. The South American country has been in a legal dispute with holdout creditors from its 2001 default, a clash that led to a U.S. court this year blocking the country from making interest payments.
Third Point said in a letter to clients last month that the country could rebound once it settles with creditors and regains access to global capital markets. Loeb’s firm said it was looking for additional opportunities in the country.
“We do remain bullish” on Argentina, Islam said today. “Obviously the more recent default is, at least in our opinion, a roadblock.”
Third Point Re rose 3.3 percent to $15.20 at 11:37 a.m. in New York after reporting second-quarter profit yesterday that beat analysts’ estimates. Net income rose 19 percent to $31.3 million in the period, the company said in a statement.