DAN LOEB: We used to pick stocks in a 'virtual bubble,' but now the game has changed

The stock-pickers are (kind of) back.

That's according to Third Point, the hedge fund led by Dan Loeb. The fund said in in its third quarter letter sent Tuesday that the hedge fund business "is rapidly evolving."Here's the relevant excerpt from the $14.9 billion firm (emphasis added):

"We have seen a return to a "stock-pickers" market this year. However, that term does not mean what it did fifteen or twenty years ago when we were in our infancy. Then, picking stocks could be done in a virtual bubble and all of our time was spent deep in financial statements. While our analyst team still spends the vast majority of its workday analyzing fundamentals, getting overall portfolio positioning right is equally essential to generating returns. The macro considerations ... must be interpreted correctly and applied successfully. When we add in the use of data sets and "quantamental" techniques that are increasingly important to remain competitive while investing in single-name equities, it is clear that our business is rapidly evolving."

By "quantamental," Third Point is referring to the use of computers to parse through alternative data sets - a sweeping shift in the way traditional fundamental stock pickers previously made investing decisions. The term is loved by some, hated by others, but nonetheless describes a huge shakeup in the hedge fund industry.

Third Point's flagship fund returned 7.2% for the year through September 30.

Third Point managed $14.9 billion at mid-year, according to the Hedge Fund Intelligence Billion Dollar Club ranking.

ValueWalk first wrote about the letter.