Third Point Investors Ltd - Third Point Releases Q1 2024 Investor Letter
Third Point Publishes Q1 2024 Investor Letter
Highlights:
-- The Master Fund performed well, generating a 7.8% gain in the First
Quarter, driven by the strong performance of large cap tech companies as
well as continued gains from event driven positions including Bath &
Body Works and Vistra.
-- Third Point continues to be constructive on the current risk-taking
environment, believing that absolute and real interest rates are near or
at the top of their ranges, and with important themes such as Artificial
Intelligence (AI) presenting interesting opportunities across sectors.
-- The Investment Manager outlines in detail several positions that are
leveraged to the AI theme, which is a key element in the thesis of
nearly half of the firm’s equity positions currently. It also provides
an update on its activist position in Advance Auto Parts.
Performance
-- Third Point LLC (“Third Point” or the “Investment Manager”) returned
7.8% in the flagship Offshore Fund (the “Master Fund”) during the first
quarter of 2024.
-- The top five positive contributors for the quarter were Meta Platforms
Inc., Vistra Corp., Amazon.com Inc., Bath & Body Works Inc., and
Microsoft Corp.
-- The top five negative contributors for the quarter, excluding hedges,
were Pacific Gas & Electric Co., DuPont de Nemours Inc., Humana Inc.,
Marvell Technology Inc., and a Short Position.
Outlook and Market Commentary:
-- Third Point believes that we are no longer in an inflationary economy
based on an analysis of labour, rents and other key components, and
thus, absolute and real interest rates are at or near the top of their
ranges.
-- The firm continues to be in the “soft landing” camp, but sees some
impending weakness in labour, which could impact demand in certain
sectors. However, it expects that future action from the U.S. Federal
Reserve will temper the extent of future economic declines.
-- Third Point sees that unlike in past periods of technological paradigm
shifts, the new technology of AI favours incumbents which are deploying
their financial and intellectual war chests to win the AI arms race.
-- This is most obviously apparent at “legacy” technology leaders such as
Microsoft and Amazon, but can also be seen in a diverse set of sectors,
including energy (Vistra) and market data (London Stock Exchange Group).
Position Updates
-- Vistra Corp.
o Vistra is one of the largest independent power producers (“IPPs”) and
retail electricity providers in the U.S. , which has been valued at a
steep discount to the utility sector and broader market due to
supply/demand imbalances keeping U.S. electricity prices low.
o The company, however, has been a smart capital allocator, and in March
2023 acquired the nuclear generation assets of Energy Harbor , which
served as the catalyst for Third Point acquiring shares.
o More recently, nuclear generation assets have come to be appreciated
as a reliable and clean source of power for data centre buildouts as
the AI arms race commences.
o Third Point believes Vistra is in a good position to capitalize on
these trends, and it expects the discount applied to their assets to
continue to narrow as their business becomes increasingly essential to
serving domestic power demand.
-- London Stock Exchange Group
o During the first quarter, Third Point added to its position in LSEG a
mission-critical capital markets data provider that it believes will
be a beneficiary of Generative AI adoption in financial services.
o LSEG is now the only scale vendor working with Microsoft to
democratise access to financial data and embed it directly into
Office365. Third Point also expects that LSEG/MSFT will co-develop a
powerful Research Assistant application sitting on top of both LSEG’s
and clients’ data estates that will meaningfully reduce the time and
manpower needed to analyse data.
-- Alphabet
o During the first quarter, Third Point made a substantial investment in
Alphabet as the market worried about the impact of new AI entrants on
Google Search.
o With Generative AI poised to take content creation costs to zero, much
like when the internet took distribution costs to zero, there will be
a proliferation of information. Against that backdrop, the Investment
Manager believes that Google Search will be increasingly important as
a source of truth.
o In addition, Third Point is encouraged by marginal improvements to
control expense growth as well as decisive handling of employee
unrest.
-- TSMC
o During the first quarter, Third Point added to its investment in TSMC,
which it sees as the “toll road” of the semiconductor industry,
particularly for AI compute.
o Today, TSMC derives a relatively small percentage of its revenue from
AI processors, largely from Nvidia, but Third Point believes that
percentage will rise quickly as AI compute broadens and as companies
such as Amazon, Microsoft and Meta all increasingly rely on TSMC to
build their own chip designs.
o The main concern weighing on TSMC shares is Intel’s entry into the
semiconductor foundry market, however, Third Point believes it will
prove difficult for Intel to challenge TSMC’s dominance.
-- Advance Auto Parts
o Third Point established an activist position in Advance Auto Parts in
the fourth quarter of 2023 and subsequently went public with the
position in the first quarter of 2024.
o Advance operates in the highly attractive auto aftermarket industry,
which has proven resilient in various consumer cycles and is currently
supported by increasing vehicle complexity, a growing and aging fleet
of vehicles on the road, and supply and affordability challenges.
o While Advance has significantly underperformed peers over the past
several years, which presented a compelling entry point, Third Point’s
work suggests that many of these shortcomings are not structural.
o Feedback has been consistent that a lack of relevant industry
experience in key roles has led to years of inconsistent execution.
Third Point believes that a portion of the performance gap versus
peers can be closed with new leadership and advisors in place.
o Following engagement with Third Point, the company recently added
three new directors, who each bring unique and highly relevant
industry experience that the previous Board lacked.
o Third Point believes that even minor operational improvements at the
core will drive considerable upside to shares, and it is confident
that the company now has the right leadership in place to deliver.
Press Enquiries
Buchanan
Third Point
Charles Ryland
Elissa Doyle , Chief Communications Officer and Head of charlesr@buchanan.uk.com
ESG Engagement
Tel: +44 (0)20 7466 5107
edoyle@thirdpoint.com
Henry Wilson
Tel: +1 212-715-4907
henryw@buchanan.uk.com
Tel: +44 (0)20 7466 5111
Notes to Editors
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