Event-driven, value-oriented stocks have been winners through market rotation – Third Point

As the market saw equities drop 6% in August, Third Point analysts increased their investments in “event-driven and value-oriented” stocks, they said in their third quarter investor letter.

At the beginning of August, when U.S. stocks (SP500) dropped about 6%, the Nikkei (OTC:NTETF), (NKY:IND) dropped about 20% in a few days, and volatility (VIX) in the U.S. went from 16 to almost 70 – currently at about 19 – Third Point said they turned to “event-driven and value-oriented stocks.”

“Many pundits saw this as a warning that the market had more room to drop and that, in the best case, stocks had become ‘un-investable’ through the election,” wrote Daniel S. Loeb, the CEO. “We…took the view that the market rotation would continue and increased our investments in event-driven and value-oriented stocks.”

Currently, global equity markets are continuing their strong performance – the iShares MSCI ACWI ETF (ACWI) is up 18.22% – “but returns were driven by substantially more market breadth than over the previous year and a half,” he said.

In addition, the “Magnificent Seven” stocks – (MSFT), (NVDA), (AMZN), (META), (AAPL), (GOOGL), (TSLA) – modestly trailed the broader market for the first time since the fourth quarter of 2022, but rate-sensitive stocks and cyclicals significantly outperformed as the markets awaited the Fed’s easing cycle.

Third Point also said they see no evidence of a recession, with slowing inflation, and a real interest rate that “still needs to come down.”

“We believe healthy consumer spending and active levels of individual investing should provide a liquidity backdrop to sustain market levels,” Loeb said. “We think this setup is a particularly good one for event-driven investing, particularly since most of our competitors in this area have retired or moved on.”