Third Point LLC, a hedge fund based in the United States, underperformed the U.S. market in the second quarter.
According to the information obtained by Zhongtong Finance APP, the flagship fund of Third Point LLC, a hedge fund in the United States, underperformed the U.S. market in the second quarter, with only a 1.1% increase. Previously, the company held only "tiny" positions in several technology giants that drove the rise of the S&P 500 index. Now, Daniel Loeb, the head of the Third Point fund, wrote in a letter to investors that the fund is shifting towards holding more stocks of potential winners in the artificial intelligence revolution. The company holds fewer shares in companies such as Microsoft (MSFT.US) and Google's parent company Alphabet (GOOGL.US), which are benefiting from the growth of artificial intelligence, and this is one of the reasons for the fund's underperformance.
The stock prices of these two companies rose by at least 15% in the second quarter, pushing the S&P 500 index up by more than 8.7%. The performance of Third Point's offshore fund, Third Point Offshore Fund, highlights the difficulties faced by active fund managers in the U.S. stock market, which is driven by seven technology giants.
Loeb said that his team correctly predicted the market bottom in October last year and predicted that the economy would begin to stabilize and inflation would ease. However, the company did not bet on growth stocks, but remained cautious and focused on value stocks, reflecting the bearish sentiment prevalent among professional investors at the end of last year and the beginning of 2023.
Loeb wrote in the letter: "Unfortunately, we did not express this constructive view by investing heavily in high-quality technology companies with profit growth (in hindsight, this was an obvious choice), but mainly invested in value stocks that performed poorly afterwards."
The total return of the Russell 1000 Value Index in the second quarter was about 4%. Although Third Point's performance lagged behind the U.S. stock market, the fund did outperform the Credit Suisse Hedge Fund Event Driven Index, which rose by about 1%.
Third Point believes that artificial intelligence will have a profound impact on the economy, stock market, and society. About 45% of the fund's net long exposure includes direct and indirect beneficiaries of artificial intelligence, such as Microsoft and semiconductor companies.
Loeb wrote: "We note the 'hype cycle' surrounding artificial intelligence and the accompanying regulatory risks. Although investment opportunities in artificial intelligence are still in their early stages and will take time to mature, we see clear evidence that it has already led to the creation and reconstruction of large profit pools, and many stocks will benefit from it." In addition, Loeb has been reducing short positions. Loeb stated that due to factors such as discussions on the retail investor forum Reddit, meme stock prices may be pushed up, posing a challenge to betting on the decline of a particular company's stock.
Loeb wrote, "Fundamental analysis is increasingly giving way to monitoring daily options expiration dates and Reddit message boards, as evidenced by the massive shorting and manipulation of stocks such as AMC Theatres (AMC.US) and GameStop (GME.US) in 2021." Loeb added that he has not given up on shorting, but is reducing short positions in individual companies to support market hedging.
In the first half of this year, the company's corporate credit return rate was 8.7%. Third Point believes that the high-yield risk premium (or spread) will expand due to economic weakness or rising interest rates, making refinancing more difficult.