In his recent Q3 2024 Letter, Dan Loeb discussed Third Point’s Q3 results which delivered a nearly 4% gain, achieving a 14% year-to-date return amid stronger market breadth. This was partly driven by rate-sensitive and cyclical stocks outperforming as markets anticipated the Fed’s easing cycle.
Loeb notes the firm’s diversification beyond large-cap tech, with gains in industrials, utilities, and housing-sensitive stocks leading the quarter. Despite recent volatility, including a sharp dip in the Nikkei, Third Point held steady, bolstering event-driven and value-oriented positions.
Loeb foresees strong opportunities in event-driven investing, given current liquidity levels, low recession risks, and a favorable environment for risk arbitrage and corporate activity.
Here’s an excerpt from the letter:
During the Third Quarter, Third Point Offshore generated gains of nearly 4%, bringing year-to-date returns to 14%, net of fees and expenses. Global equity markets continued their strong performance, but returns were driven by substantially more market breadth than over the previous year and a half.
The “Magnificent Seven” trailed the broader market (albeit modestly) for the first time since Q4 2022. Rate-sensitive stocks and cyclicals significantly outperformed as the market shifted its focus to the Fed’s long-awaited easing cycle.
As we highlighted in our Second Quarter letter, our portfolio has a broad range of investment themes outside of large cap tech. These types of investments in industrials, utilities, materials, and other housing-sensitive stocks led the portfolio for Q3.
For most of the nearly thirty years I have run Third Point, the market has been inexorably climbing a wall of worry. At times, the worry turns to despair, most recently in the beginning of August, when the Nikkei inexplicably tanked roughly 20% in a few days and volatility in the US exploded to nearly 70 from 16, all while US markets dropped 6%.
Many pundits saw this as a warning that the market had more room to drop and that, in the best case, stocks had become “un-investable” through the election. While we took our lumps for a few days, we stayed committed to our positions, took the view that the market rotation would continue, and increased our investments in event-driven and value-oriented stocks.
In the economy, we see no evidence of recession, slowing inflation, and a real interest rate that still needs to come down. We believe healthy consumer spending and active levels of individual investing should provide a liquidity backdrop to sustain market levels.
We think this setup is a particularly good one for event-driven investing, particularly since most of our competitors in this area have retired or moved on. The potential for risk arbitrage transactions and corporate activity could usher in a golden age for the strategy. At this point, our gross exposures are low, we have modest nets, are well positioned in our current portfolio, and can deploy fresh capital as opportunities arise.
You can read the entire letter here:
Dan Loeb – Third Point Q3 2024 Letter
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