Loeb’s Third Point Adds Apple Shares, Still Can’t Beat S&P 500

Daniel Loeb’s Third Point LLC failed to beat the S&P 500 Index last quarter despite holding some of the best-performing megacap technology stocks in its flagship fund, according to a Friday letter to investors from the fund. 

The flagship Offshore Fund rose 1.8% in the second quarter, trailing the S&P 500 Index’s 4.3% gain on a total return basis in the same timeframe. It’s a similar story to the first quarter, when the fund also trailed the broader market despite having nearly half of the equity portfolio in companies linked to artificial intelligence. 

The fund added to its AI bid in the second quarter, picking up shares of the Magnificent Seven’s Apple Inc. The fund took a position in April, when it saw the iPhone maker as under-owned by institutional investors with a compressed multiple.

“We believe that this was due to several years of stagnant earnings growth, exacerbated by more recent fears that Apple may turn out to be an AI loser. Our research led us to a different conclusion: we believe AI-related demand could drive a step change improvement in Apple’s revenue and earnings over the next few years,” Third Point wrote.

In the second quarter, hedge funds overall trimmed positions in most of the so-called Magnificent Seven mega-caps, with the exception of Apple Inc. and Amazon.com. The iPhone maker saw the biggest increase in hedge fund purchases by market value in the three months through the end of June, with an aggregated net buy of more than 8.5 million shares, according to Bloomberg analysis of 13F filings.

“In a market consumed with technological disruption, we are focused on finding companies that are difficult to disrupt due to competitive moats, consolidated industry structures, unique products, or capital intensity that deter competitive investment,” Third Point wrote in the letter, saying that while the market narrative is dominated by the Magnificent Seven, they see “even more reason” to add other names to the portfolio. 

Positions in Taiwan Semiconductor Manufacturing Company Ltd., Alphabet Inc., Amazon.com Inc. and Vistra Corp. rounded out the top five performers during the quarter, the letter said. The fund also added to positions Corpay Inc., Intercontinental Exchange Inc. and London Stock Exchange Group PLC.

The top five negative contributors for the quarter were Corpay, Bath & Body Works Inc., Advance Auto Parts Inc., Ferguson PLC and Airbus SE, the letter said.

Stocks have whipsawed since the end of the second quarter. Investors rotated out of large companies in mid-July in favor of smaller and riskier sectors. In recent weeks, that’s reversed, with big tech stocks rebounding and the S&P 500 back near all-time highs. 

Third Point expects that volatility will continue through year-end, and said it’s adjusted its portfolio accordingly. The Cboe Volatility Index, or VIX, is trading around 16 after jumping as high as 65 earlier this month.

“We modified certain exposures with this scenario in mind and worked quickly to mitigate losses during the downdraft,” the fund wrote in the letter. “We are eager buyers of dislocated securities, particularly in credit, should we see further turmoil.”

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