Third Point Investors Ltd - Third Point Releases Q2 2024 Investor Letter
Third Point Publishes Q2 2024 Investor Letter
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
-- 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
o In April, the Investment Manager took a position in Apple, the world’s
leading consumer technology franchise.
o 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.
o 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
o Third Point added to its position in Corpay during the quarter after
having established a position in Q4 2023.
o 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.
o 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.
o 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)
o 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.
o 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.
o 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
o 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.
o 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
o 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.
o 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.
o 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
o 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
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
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