REG-Third Point Investors Ltd: Third Point Publishes Q2 2023 Investor Letter

Third Point InvestorsAnnouncement

01/08/2023 07:15

1 August 2023

Third Point Publishes Q2 2023 Investor Letter

Highlights:
* Major indices continued their robust performance during the second quarter,
with a handful of technology-related stocks continuing to represent the
majority of their performance.
* Although Third Point had some exposure to these tech positions, returns were
dampened from losses from market/position hedges, single name short positions,
and several poorly performing long positions.
* While the market has had an impressive – if narrowly led – run to start
the year, Third Point believes there is still upside available given its
constructive view on inflation, rates and the consumer.
* The advent of generative AI will have an enormous impact on markets, and
Third Point has added to positions in AI beneficiaries trading at reasonable
valuations.
* The balance of the equity portfolio remains in undervalued positions that
have important upcoming catalysts such as spinoffs or operational turnarounds.
* Corporate and structured credit have performed well and are anticipated to
be continued sources of valuable, lower volatility returns.
* Updates are also provided on equity positions Shell and Danaher.
 

Third Point LLC, the Investment Manager of Third Point Investors Limited
(“TPIL” or the “Company”) announces it has published its quarterly
investor letter for Q2 2023. The full letter can be accessed at the
Company’s website:
https://www.thirdpointlimited.com/resources/portfolio-updates

 

Performance Key Points:
* Third Point LLC (“Third Point” or the “Investment Manager”) returned
1.1% in the flagship Offshore Fund (the “Master Fund”) during the second
quarter of 2023, compared with the S&P 500 Index return of 8.7% and the MSCI
World Index return of 7.0% in the same period.  
* The top five positive contributors for the quarter were Pacific Gas &
Electric Co., Microsoft Corp., Amazon Inc., Alphabet Inc., and Ferguson PLC. 
* The top five negative contributors for the quarter were Alibaba Group
Holding Ltd., Danaher Corp., Catalent Inc., International Flavors & Fragrances
Inc., and a private position.
 

Outlook and Market Commentary:
* Last October, Third Point correctly observed that markets bottom when
economic data looks most bleak. Unfortunately, instead of expressing this
constructive view by investing in high quality companies with earnings growth,
Third Point committed capital primarily to value situations, which have
underperformed this year.
* Looking ahead, the Investment Manager continues to see favourable economic
conditions driven by declining inflation, which will eventually lead to a less
hawkish monetary policy. While Third Point is cognisant of consumer
vulnerabilities as savings are depleted, it also sees potential for the US
Federal Reserve to begin easing as consumer run out of cash, which should make
for a mild recession, if any.
* Given this backdrop, Third Point believes there is still upside to the
market, notwithstanding the run to-date. The Investment Manager is finding
many high quality companies trading at reasonable valuations, especially when
considering prospective growth.
* While gross equity exposure remains modest (below 100% on the long side),
Third Point has increased its net exposure to about 70%. Approximately 45% of
this net exposure is composed of direct and indirect AI “winners” trading
at reasonable valuations, as Third Point believes that many stocks have not
yet fully incorporated the resultant business impact of AI. The balance, or
about 55%, is a diversified portfolio of companies such as PCG, Danaher, FIS,
AIG, Jacobs Engineering, and others that are undervalued and have important
upcoming catalysts.
 

Portfolio Updates
* AI-Driven Positions* Third Point has been investing in AI-enabled business
models since its 2016 Series B venture investment in Upstart, which ultimately
became the firm’s most lucrative investment.
* Today, the Investment Manager believes that AI is creating investment
opportunities across the information technology “stack,” starting with
semiconductors at the bottom and proceeding upwards to infrastructure software
and application software.
* Third Point is mindful of the “hype cycle” that currently surrounds AI
and the attendant regulatory risks. However, while the AI investment
opportunity is in its infancy and will take time to mature, the Investment
Manager sees clear evidence that it is already leading to the creation (and
destruction) of large profit pools that the market has not fully realised.
 
* Update on Danaher (DHR)* Danaher is the portfolio’s longest held
investment and remains a top 5 position.
* The company has underperformed the market this year due to a slowdown in the
bioprocessing industry and more cautious spending by biopharma customers.
Third Point anticipates that this slowdown is temporary, and that the
bioprocessing industry will return to normalized growth of high-single digit
to mid-teens in 2024 and beyond.
* Danaher is also on track to spin off its Environmental & Applied Solutions
division in Q4, which marks the last step in its transformation into a
pure-play life sciences tools and diagnostics company.
 
* Update on Shell (SHELL NA)* Third Point initiated a position in Shell in the
summer of 2021 and highlighted the company’s significant discount to
intrinsic value as well as to US-listed peers after decades of poor
performance.
* While shares have performed well since the initial investment, the shares
still trade at a staggering discount to intrinsic value, and Third Point
believes it represents a compelling investment at current levels.
* Third Point is encouraged by the upgrade of its management team, with the
appointments of Wael Sawan as CEO and Sinead Gorman as CFO. They have
demonstrated an unwavering commitment to shareholder value, capital
discipline, and improved returns.
 
* Update on Corporate and Structured Credit* High yield spreads have traded in
a tight range this year, but dispersion has been relatively broad, and Third
Point has identified improving situations despite the uncertain macro
backdrop.  Additionally, events such as the short lived “banking crisis”
created attractive trading opportunities that the credit team capitalized on.
* The corporate credit portfolio consists largely of bonds or bank debt at the
top of capital structure, and the Investment Manager has favoured industries
that should outperform if the most forecast recession in history finally
materializes. Third Point is finding attractive opportunities in healthcare,
telecommunications and select sectors/credits within commercial real estate.
* While timing is difficult to predict, Third Point believes high yield
spreads will widen as defaults surface, driven by a weaker economy or
refinancing challenges from higher interest rates.
* Within structured credit, residential mortgages and consumer credit
outperformed to start the year, as house prices remained resilient and legacy
borrower performance has been steady, given their locked in low mortgage rates
and 40-50% equity held in their homes.
* With the regional banking crisis in March, banks and credit unions are now
also selling loans to right-size their asset and liabilities. While most
headlines suggest that banks will sell commercial real estate loans, Third
Point believes that most selling will be focused on consumer loans given the
lower duration and mark-to-market impact. The Investment Manager will look for
forced selling situations to potentially add exposure.
 

 

- Ends -

 

 

 

Press Enquiries

 Third Point Elissa Doyle, Chief Communications Officer and Head of ESG Engagement edoyle@thirdpoint.com Tel: +1 212-715-4907  Buchanan  Charles Ryland charlesr@buchanan.uk.com Tel: +44 (0)20 7466 5107 Henry Wilson henryw@buchanan.uk.com Tel: +44 (0)20 7466 5111  

 

 

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 $600 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 39-person
investment team, a robust quantitative data and analytics team, and a deep,
tenured business team. Third Point manages approximately $11.5 billion in
assets for sovereign wealth funds, endowments, foundations, corporate & public
pensions, high-net-worth individuals, and employees.

 



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