Third Point Investors Ltd - Third Point Releases Q2 2024 Investor Letter

23 August 2024

Third Point Publishes Q2 2024 Investor Letter

Third Point LLC, the Investment Manager of Third Point Investors Limited (“TPIL” or the “Company”) announces that it has published its quarterly investor letter for Q2 2024. The full letter can be accessed at the Company’s website: https://www.thirdpointlimited.com/resources/portfolio-updates

Highlights:

• Third Point’s flagship Offshore Fund (the “Master Fund”) generated a 1.8% gain in the Second Quarter, with strong performance from positions connected to the AI thematic tempered by consumer-oriented event-driven names.

• During the first half of 2024, the Master Fund generated profits across all strategies, posting a 9.8% net return for the year-to-date.  

• Third Point LLC (“Third Point” or the “Investment Manager”) provided updates on several positions, including Apple Inc., Corpay Inc. and Intercontinental Exchange Inc., as well as updates on the corporate credit and structured credit portfolios.

Performance Key Points:

• Third Point returned 1.8% in the Master Fund during the second quarter of 2024, bringing the year-to-date return to 9.8%.
• The top five positive contributors for the quarter were TSMC, Alphabet Inc., Amazon.com Inc., Vistra Corp., and Apple Inc.
• The top five negative contributors for the quarter were Bath & Body Works Inc., Advance Auto Parts Inc., Ferguson PLC, Airbus SE and Corpay Inc.    

Outlook and Market Commentary:

• While indices have largely bounced back after the volatility experienced in August, Third Point expects that volatility will persist for the rest of the year with macroeconomic and geopolitical events contributing to a choppy environment. However, the economic backdrop looks relatively constructive, with decreasing inflation, declining interest rates competing with a gradually slowing economy.

• Companies continue to invest in AI infrastructure and look for applications to their businesses, so the Investment Manager continues to hold investments in cloud infrastructure providers, consumer AI distribution platforms and semiconductors.
• However, Third Point is also finding many investments in the “physical world” to be equally attractive, including those that are difficult to disrupt due to competitive moats, consolidated industry structures, unique products, or capital intensity that deter competitive investment. Examples of these include aggregates, nuclear power, life science tools, specialty alloy manufacturers, and commercial aerospace.
• The Investment Manager also believes that the lower rate environment should produce a wave of activity in credit transactions – both public and private – as well as a burst of M&A transactions. Such a period would be welcome for Third Point’s event-driven and credit strategies.

Position Updates

• Apple
  • In April, the Investment Manager took a position in Apple, the world’s leading consumer technology franchise.
  • Despite its dominance as a business, the stock had become increasingly under-owned by institutional investors and its relative multiple had compressed toward a multi-year low due to several years of stagnant earnings growth, exacerbated by more recent fears that Apple may turn out to be an AI loser.
  • Third Point’s research led it to a belief that AI-related demand could drive a step change improvement in Apple’s revenue and earnings over the next few years.
• Corpay
  • Third Point added to its position in Corpay during the quarter after having established a position in Q4 2023.
  • Corpay is a collection of network assets in the payments space, most notably a fuel card business, where the company processes fuel purchases by commercial vehicle operators, and a B2B payments business where Corpay facilitates vendor payments for midmarket clients.
  • Over the last five years, Corpay has seen its P/E multiple significantly de-rate from the mid-20s to ~13x as market sentiment toward the company's core fuel card business soured. Firstly, growth in the segment has slowed as the market has matured. Secondly, the rise in popularity of electric vehicles (EVs) as a theme has made investors question the terminal value of a business whose main function is to process gasoline and diesel payments.
  • Third Point believes Corpay has adequately planned for an EV transition, which is also likely to take longer than expected. The Investment Manager also sees rapid growth for the company’s payment business, which should eventually overtake the fuel card business.
• Intercontinental Exchange (ICE)
  • Third Point also added to its position in Intercontinental Exchange after having established a position in April 2023, when the company’s proposed acquisition of Black Knight impacted the share price.
  • While the deal overhang has lifted, the Investment Manager believes there is a re-rating opportunity stemming from a structural and cyclical acceleration of growth.
  • The main areas of opportunity, in Third Point’s view, are in ICE’s energy and mortgage divisions. Energy is expected to continue its fast growth by virtue of the increased demand for natural gas and the globalization of the natural gas market. The mortgage business, Third Point believes, now has the building blocks to automate the highly analogue and parochial mortgage origination and servicing ecosystem in the United States.
• London Stock Exchange Group
  • 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.
  • 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.

Credit Updates

• Corporate Credit
  • Corporate Credit experienced relatively muted performance in the first half of 2024, due to a slower-than-anticipated realization of the deal events that Third Point expects to drive its positions higher.
  • Looking ahead, Third Point believes the table is set for increasing volatility and a broader opportunity set is already emerging. Overall credit spreads are tight, however this belies the underlying dispersion in the market. BB spreads are near their tightest levels ever in comparison to BBBs, while the ratio of CCC to B spreads is at its highest in history. Third Point believes that this dispersion partly reflects a recognition that the long and variable lags associated with changes in monetary policy are beginning to manifest.
  • The Investment Manager believes that public credits will face increasing stress as the impact of higher rates hits fixed rate issuers that have to refinance at higher rates. Third Point expects these pressures to provide a wealth of opportunity in secondary markets for public credit.
• Structured Credit
  • Third Point anticipates increased opportunities in the corporate and real estate structured finance markets as credit deteriorates. In the firm’s US residential housing exposure, Third Point remains excited about the current return profile and capital appreciation potential as rates trend lower. The structured credit portfolio is long duration in its mortgage exposure, and the rate rally provides a promising tailwind to the projected return profile.

Press Enquiries

Notes to Editors

About Third Point Investors Limited

www.thirdpointlimited.com

Third Point Investors Limited (LSE: TPOU) was listed on the London Stock Exchange in 2007 and is a feeder fund that invests in the Third Point Offshore Fund (the Master Fund), offering investors a unique opportunity to gain direct exposure to founder Daniel S. Loeb’s investment strategy. The Master Fund employs an event-driven, opportunistic strategy to invest globally across the capital structure and in diversified asset classes to optimize risk-reward through a market cycle. TPIL’s portfolio is 100% aligned with the Master Fund, which is Third Point’s largest investment strategy. TPIL’s assets under management are currently $500 million.

About Third Point LLC

Third Point LLC is an institutional investment manager that actively engages with companies across their lifecycle, using dynamic asset allocation and an ethos of continuous learning to drive long-term shareholder return. Led by Daniel S. Loeb since its inception in 1995, the Firm has a 44-person investment team, a robust quantitative data and analytics team, and a deep, tenured business team. Third Point manages approximately $11.2 billion in assets for sovereign wealth funds, endowments, foundations, corporate & public pensions, high-net-worth individuals, and employees.