Why Dan Loeb’s Third Point Is Underperforming

Hedge fund Third Point’s multistrategy fund is lagging the broad market despite its big Magnificent Seven bets.

Dan Loeb (David Paul Morris/Bloomberg)

Credit: David Paul Morris/Bloomberg

Third Point posted a relatively modest gain in June in what was otherwise a strong stock market.

As a result, the sometimes-activist hedge fund firm continued to underperform heading into the second half of the year. The underperformance is surprising, as three of its five largest long positions are among the Magnificent Seven stocks that have mostly been driving the broader market.

The hedge fund firm headed by Dan Loeb gained 0.9 percent last month. For comparison, the S&P 500 climbed 3.6 percent, including dividends reinvested, according to the firm’s monthly report, seen by Institutional Investor. The multistrategy fund is now up 11.6 percent for the first half of the year, compared with 15.3 percent for the benchmark.

Third Point was led in June by e-commerce giant Amazon, semiconductor maker Taiwan Semiconductor Manufacturing Corp., and an undisclosed private investment, the report says. The firm’s increases for the first six months were mostly driven by its equity strategy, all on the long side.

Long positions kicked in 12.2 percentage points to gross gains, but losses from the short book reduced the total from equities to 10.1 percent. Most of that came from the fundamental and event-driven portion of the equity strategy.

The biggest winner for the first half of the year was energy company Vistra Corp., which surged about 125 percent over the first six months. Three of the four other top winners were members of the Magnificent Seven: Amazon, Facebook parent Meta Systems, and cloud computing giant Microsoft. TSMC rounded out the first-half winners.

On the other hand, the five biggest losers in the first six months were chemicals giant DuPont, retailer Bath & Body Works, European airplane maker Airbus, an unidentified short position, and health insurance giant Humana.

Third Point’s sizable credit book played a minor role in the first half, kicking in just 1.4 percent to gross gains. The firm’s corporate and sovereign strategy made its money on the long side, as virtually all of its gains from structured credit came from short hedges. Privates contributed less than 1 percent to gross gains in the first half.

Heading into the second half, Third Point’s equity book was 83.1 percent net long, down slightly from 86.8 percent the previous month. Most of the difference was the result of the firm’s expanding its short exposure.

Third Point’s five biggest long positions heading into July were utility Pacific Gas & Electric, Bath & Body Works, Amazon, Meta, and Microsoft. The largest credit position at the end of June was Radiate Holdings, a public relations firm that specializes in small, fledgling companies.