Third Point Investors Ltd - Third Point Releases Q3 2024 Investor Letter
Third Point Publishes Q3 2024 Investor Letter
Highlights:
-- Third Point’s flagship Offshore Fund (the “Master Fund”) generated a
3.9% gain in the Third Quarter, driven by equity investments in
industrials, utilities, materials, and other housing-sensitive sectors,
as well as a private position in R2 Semiconductor .
-- For the year-to-date period, the Master Fund has posted a 14.0% net
return.
-- Third Point LLC (“Third Point” or the “Investment Manager”) outlined its
view on the macroeconomic environment as well as several portfolio
positions, including DSV, Cinemark, and R2 Semiconductor . It also
provided updates on the corporate credit and structured credit
portfolios.
Performance
-- Third Point returned 3.9% in the Master Fund during the Third Quarter of
2024, bringing the year-to-date return to 14.0%.
-- The top five positive contributors for the quarter were R2
Semiconductor, Pacific Gas & Electric Co. , Vistra Corp., KB Home, and
Danaher Corp.
-- The top five negative contributors for the quarter were Bath & Body
Works Inc., Amazon.com Inc., Advance Auto Parts Inc., Alphabet Inc., and
Microsoft Corp.
Outlook and Market Commentary:
-- Global equity markets continued their strong performance, but returns
were driven by substantially more market breadth than over the previous
year and a half. Rate sensitive stocks and cyclicals significantly
outperformed the “Magnificent Seven” as the market shifted its focus to
the Fed’s long-awaited easing cycle.
-- Third Point has a broad range of investment themes outside of large cap
technology, and these types of investments in industrials, utilities,
materials, and other housing-sensitive stocks led the portfolio for the
Third Quarter.
-- Many pundits saw the market selloff in the beginning of August as a
warning that the market had more room to drop. While Third Point was
affected by this volatility, it stayed committed to its positions, took
the view that this market rotation would continue, and increased its
investments in event-driven and value-oriented positions.
-- Third Point believes the likelihood of a Republican victory in the White
House has increased, which it believes will have a positive impact on
certain sectors and the overall market. The Investment Manager also
believes Republican should garner a majority in the Senate , regardless
of the outcome in the presidential race.
-- A Republican administration would likely increase domestic
manufacturing, infrastructure spending, and prices of certain materials
and commodities, and less onerous regulation should unleash productivity
and a wave of corporate activity, which Third Point believes will
benefit its event-driven positions.
-- In the economy, the Investment Manager sees slowing inflation and a real
interest rate that still needs to come down. It also believes a
recession is unlikely. This is a positive set-up for event-driven
investing, in Third Point’s view.
Position Updates
-- DSV
o During the Third Quarter, Third Point initiated a new position in the
Danish freight forwarder DSV. DSV has come a long way from its origins
as a Nordic road-hauler to become the world’s third largest freight
forwarder, with a formidable track record of consolidating the
fragmented global freight forwarding industry.
o DSV emerged as the leading bidder in the auction of DB Schenker, a
subsidiary of German state-owned Deutsche Bahn AG , and one of its
largest competitors. DB Schenker is similar in size to DSV but only
half as profitable. Third Point believes the integration and synergy
capture expected from this combination will follow a proven playbook
and drive earnings accretion in excess of 30%.
-- Cinemark
o Earlier this year, Third Point took a stake in Cinemark, the third
largest movie theatre chain in the U.S. The Investment Manager
believes Cinemark is poised for underappreciated growth over the next
few years as the supply of theatrical releases rebounds from pandemic-
and strike-related headwinds.
o In addition, Third Point believes Cinemark will gain share from
undercapitalized competitors.
-- R2 Semiconductor
o In March 2024 , Third Point disclosed that it was supporting R2
Semiconductor , a private company in which the firm invested in over 15
years earlier, as it sought to enforce its patented technology against
Intel.
o The technology, developed by R2’s founder David Fisher , relates to
integrated voltage regulation, which plays an essential part in
reducing power consumption by microchips while maintaining product
reliability.
o At the end of August, Intel announced that its dispute with R2 had
been fully settled in all jurisdictions. The terms of the settlement
are confidential, but Third Point is pleased with the outcome, which
resulted in a significant gain in the position for the quarter.
Credit Updates
-- Corporate Credit
o The high yield market returned 5.3% during the quarter, in line with
the strong performance of the S&P 500. Spreads tightened marginally
with most of the return driven by the decline in interest rates.
o Third Point’s corporate credit portfolio slightly lagged the high
yield market during the quarter, due mostly to its positions in
telecom/cable, which generally have been poor performers year-to-date
due to the overhang of competition from wireless cable and increased
fiber builds.
o Late in the quarter, however, the cable sector re-rated on two
developments that highlighted the value in the space: Lumen’s
announcement that it was building fiber infrastructure to support AI
growth, and Verizon’s acquisition of Frontier Communications.
o While the high yield market has rallied, Third Point continues to find
opportunity in a few areas. The firm has bought into several credits
that have gone through liability management deals. These businesses
were improving, and recapitalization was comprehensive enough to fix
the balance sheet. The Investment Manager is also finding value in
several loan-only structures that have lagged the rally in the high
yield market.
-- Structured Credit
o While the Treasury market has likely overestimated the magnitude of
potential Fed rate cuts for this year, Third Point took advantage of
that market window and exercised its call rights on eight reperforming
mortgage deals during the quarter.
o The Investment Manager priced a new mortgage securitization in August
with AAA’s pricing inside of 5%, closer to the investment grade yields
seen in 2019 and early 2020.
o As insurance companies and private credits funds actively look for
investment grade risk, Third Point has been able to access, in its
view, attractive cost of funds across structured credit loans.
o Given the decline in new mortgage originations and newly issued
mortgage-backed securities, the Investment Manager has seen an
improvement in the technical backdrop for existing securities and
loans. Third Point believes this dynamic gives the firm an advantage
as it continues to sell and optimize its existing mortgage portfolio.
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
About
About
