Third Point's Dan Loeb said he's shifted his strategy to focus on identifying innovation disruptors, and he's taking an early victory lap as his high-growth picks became top-performing stocks in his otherwise lackluster hedge fund. The long-time manager has been dabbling into start-ups and special purpose acquisition companies, joining the likes of Cathie Wood to bet on tech companies with superior growth. Third Point has "moved decisively into building our capability to invest in 'hyper-growth' companies, focusing on early-stage ventures," Loeb said his latest investor letter released Friday. "I see these early stage investments, although they begin as a small part of our portfolio, as an indispensable way for us to create significant positions which we would never be able to replicate by waiting for such companies to come public." His two biggest winners this year — Upstart and SentinelOne — were bought at times when they had only a basic product and were at the earliest stages of revenues, Loeb said. Upstart Holdings , an artificial intelligence lending company, had a blockbuster IPO in December. The stock has surged more than 230% this year. In June, SentinelOne debuted on the New York Stock Exchange as highest-valued cybersecurity IPO ever. Since then, the shares rallied about 45%. The stock was Loeb's best performer in the second quarter. "While valuation always matters, our analysis is more focused today on business quality, differentiation, innovation, disruption and market structure," Loeb said. "This contrasts with our previous focus as an event-driven fund on using 'events' (spinoffs, recaps, mergers, etc.) as opportunities to find 'cheap' stocks." Overall, Third Point's offshore fund gained 3.7% in the second quarter, lagging the S & P 500's 8.5% return. Year to date, the hedge fund has rallied 15.2%, matching the boarder market's performance thanks to a strong first quarter. Third Point's other top performers in the last quarter were Intuit, Danaher, IQVIA Holdings and Social Finance , the hedge fund manager revealed. "Today, we see many high-quality companies 'hiding out' behind the opaque curtain of corporate reorganizations, or smeared by the taint of having come public in an unorthodox manner and bearing the four scarlet letters 'S-P-A-C,'" Loeb said. Third Point participated in the SPAC Foley Trasimene Acquisition Corp. II last year via a PIPE transaction, or a private investment in public equity. The blank-check company took payments platform Paysafe public in March on the NYSE. Loeb said he remains bullish on the overall stock market on the back of supportive monetary and fiscal policies. "The backdrop for risk assets remains constructive – financial conditions are loose, fund flows are healthy, savings rates are high, and policy is broadly supportive," Loeb said in his letter.
Daniel Loeb, founder and chief executive officer of Third Point LLC
Jacob Kepler | Bloomberg | Getty Images
Third Point's Dan Loeb said he's shifted his strategy to focus on identifying innovation disruptors, and he's taking an early victory lap as his high-growth picks became top-performing stocks in his otherwise lackluster hedge fund.