Third Point Investors Ltd - Third Point Releases Q3 2024 Investor Letter

18 October 2024

Third Point Publishes Q3 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 Q3 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 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 Key Points:

• 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
  • 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.
  • 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
  • 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.
  • In addition, Third Point believes Cinemark will gain share from undercapitalized competitors.
• R2 Semiconductor
  • 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.
  • 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.
  • 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
  • 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.
  • 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.
  • 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.
  • 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
  • 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.
  • 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.
  • 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.
  • 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

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 46-person investment team, a robust quantitative data and analytics team, and a deep, tenured business team. Third Point manages approximately $11.3 billion in assets for sovereign wealth funds, endowments, foundations, corporate & public pensions, high-net-worth individuals, and employees.