Dan Loeb, the activist investor that last month stated that he believes fundamental changes are necessary at Nestlé if the food business is to return to strong growth, has said that while he keeps a close eye on inflation and interest rates in the marketplace, concerns should be raised if investors are overly optimistic about earnings and economic growth.
“The more pressing issue is whether the rosy assumptions that everybody has about earnings growth this year and next year will be met,” Loeb said Thursday on a conference call discussing results for Third Point Reinsurance Ltd., where he oversees investments.
“I’m not saying they won’t be met, but it’s definitely something, given some of the recent economic data which tends to be noisy, we need to keep an eye on.”
Growth Expectations
Equally important is examining “growth expectations,” he said. “I’m not saying that growth is a problem but it’s definitely an issue that we’re looking at.”
U.S. gross domestic product is expected to grow 2.7 percent this year and 2.4 percent in 2019, according to a Bloomberg survey of economists.
Loeb, whose investments returned about 18 percent in 2017, said the stock market this year probably won’t have the same tailwinds it had last year. That includes low volatility, which often hinders performance of hedge fund managers.
“As far as positioning the portfolio, we’ve been in the process of reducing both gross and net, to be more nimble in what we think will be more of a range bound market this year,” he said.
Third Point Reinsurance, based in Bermuda, said net income jumped to $277.8 million for 2017 from $27.6 million the year earlier, helped by Loeb’s investing performance, according to a statement on Wednesday.
Nestlé Investment
Last summer, Loeb’s Third Point hedge fund acquired around 40 million shares in Nestlé, for around $3.5 billion.
In January he suggested that on the acquisition front, Nestlé needs to move faster to “increase its exposure to the high-growth categories highlighted by management, namely coffee, pet care, water, and nutrition.
According to the investor “these categories are growing faster and have higher margins than the rest of Nestlé’s portfolio, are on-trend with modern consumers, and lend themselves well to premiumisation over time.”
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