Daniel Loeb’s Third Point gained nearly $400m in a bullish bet on the outcome of the US election, positioning the billionaire as one of the hedge fund winners from recent market gyrations.

A Financial Times analysis of regulatory filings and an investor letter from Mr Loeb show the hedge fund manager stood to gain from the market reaction to the election result that had wrongfooted some investors.

Jitters knocked around 6 per cent off the S&P 500 between mid October and the day before the election with traders preparing themselves for a bout of intense turbulence in the wake of the poll.

What actually materialised was one of the biggest post-election bounces in history, with the S&P 500 soaring 7 per cent last week alone.

Column chart of S&P 500 (daily change, %) showing US election and Pfizer vaccine development fire up Wall Street

Mr Loeb told his fund’s clients several weeks ago that he had maintained his exposure to stocks — a much larger bet on rising prices than falling prices — as election day loomed, according to a letter seen by the FT.

In a video call with investors from his home office around that time, Mr Loeb had explained how, as a result of the firm’s research and use of data providers, he was not overly worried about the effect of the election on markets, said a person who had seen the call. Many fund managers had eschewed making bets on the election, having been burnt by Donald Trump’s shock win in 2016 and the ructions that followed it.

Mr Loeb’s $13.5bn-in-assets hedge fund gained 4.3 per cent between November 1 and 4, a period that included the big bounce on the day immediately after the election, when investors cheered the prospect of a Joe Biden presidency restrained by a divided Congress, regulatory filings showed.

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Mr Loeb has since made around a further $200m, taking gains this month to a total of around $600m, or 7 per cent. His fund was helped by Monday’s rally that lifted some of his biggest holdings such as Prudential and Walt Disney. Third Point did not respond to a request for comment.

Jeffrey Talpins positioned for Pfizer vaccine jolt

Jeffrey Talpins, a billionaire hedge fund manager, also positioned himself for the big rotations in markets over the past week.

Having profited from bets on falling stocks since late summer, the secretive Element Capital founder announced to clients in a letter dated October 26 that he had switched to a positive stance, wagering that the results from drug giant Pfizer’s phase 3 vaccine trials would stun investors. 

“Our view is that the results will not only exceed the necessary 50 per cent threshold for efficacy, but will surprise to the upside by realising the higher end of efficacy expectations at a 75-90 per cent level,” Mr Talpins wrote in the letter, a copy of which has been seen by the FT. “This development would obviously be favourable for equity markets,” he added.

Pfizer and BioNTech on Monday announced their vaccine had been found to be more than 90 per cent effective, well above the expectations of many investors.

The reaction in global equity markets was fierce. The US benchmark S&P 500 rose as much as 3.9 per cent to hit an intraday record high, before closing 1.2 per cent higher. In Europe, the Stoxx 600 gained 4 per cent in its best day since May.

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Mr Talpins, a low-profile figure who charges some of the industry’s highest fees at his $16bn-in-assets fund, had until recently been betting stocks looked expensive and that there would be little positive news on the pandemic. His bet had primarily been against European stocks, given the “less aggressive” fiscal and monetary support in the region than in the US.

However, in the October letter, which came a week before the US election, he said he expected “sizeable potential catalysts over the coming days that could be very supportive for equity markets”, without naming a specific region. He added that the vaccine news would mean “the dialogue [among investors] will shift toward a resumption of more normal economic activity levels”.

Element Capital did not respond to a request for comment.

laurence.fletcher@ft.com

Via Financial Times