That’s why the Third Avenue Small-Cap Value Fund sold Sphere Entertainment Co. (SPHR)

June 28, 2024

Third Avenue Management, a New York City-based investment firm, has released its first quarter 2024 investor letter on the Third Avenue Small-Cap Value Fund. A copy of the letter can be downloaded here. In the first quarter, the fund returned 6.31% versus 2.90% for its main benchmark, the Russell 2000 Value Index. The fund delivered solid relative and absolute returns in the quarter. Additionally, you can check out the fund’s top 5 holdings to learn its best picks for 2024.

Third Avenue Small-Cap Value Fund highlighted stocks like Sphere Entertainment Co. (NYSE:SPHR) in its Q1 2024 investor letter. Sphere Entertainment Co. (NYSE:SPHR) engages in the entertainment business. Sphere Entertainment Co. (NYSE:SPHR)’s one-month return was -3.34%, and its shares gained 28.81% of their value over the past 52 weeks. On June 27, 2024, Sphere Entertainment Co. (NYSE:SPHR) stock closed at $35.28 per share with a market cap of $1.246 billion.

Third Avenue Small-Cap Value Fund stated the following about Sphere Entertainment Co. (NYSE:SPHR) in its first quarter 2024 investor letter:

“We sold our positions in Sphere Entertainment Co. (NYSE:SPHR) and Comfort Systems. The two closed positions highlight the nuances between managing the portfolio’s Long-Term Compounder (“LTC”) investments and Time Arbitrage/Special Situation (“TA/SS”) positions (see the Portfolio Strategy section below for more information on these investment types).

In last quarter’s letter, we mentioned our disappointment with Sphere’s recent convertible bond offering. In January, Sphere’s share price benefited from the publicity the venue received in the run-up to the Super Bowl in Las Vegas. This provided an opportunity to exit the position as the risk-reward ratio was no longer attractive.

Sphere Entertainment was a typical TA/SS position. We first invested over three years ago when it was still part of the Madison Square Garden Entertainment conglomerate (“MSGE”) and prior to the Sphere spin-off. MSGE was comprised of disparate assets and the capital structure changed significantly during the ownership period. It could have easily been thrown into the “too difficult” pile. Instead, we valued each asset independently and opportunistically exploited valuation distortions in the post-spin-off period. These actions enabled us to generate a 36% return on investment. In TA/SS investments, we tend to be ruthless in valuing and managing the position. We typically exit the position when our conservative net asset values are realized.”

An entertainment manager in a recording studio is making a record for the next hit.

Sphere Entertainment Co. (NYSE:SPHR) is not on our list of the 31 most popular stocks among hedge funds. Sphere Entertainment Co. (NYSE:SPHR) generated total revenue of about $321 million and adjusted operating income of $61.5 million in the third quarter of fiscal 2024. While we recognize the potential of Sphere Entertainment Co. (NYSE:SPHR) as an investment, we believe AI stocks promise higher returns and do so in a shorter period of time. If you’re looking for an AI stock that’s as promising as NVIDIA but trades at less than 5x earnings, check out our report on the cheapest AI stock.

We have discussed Sphere Entertainment Co. (NYSE:SPHR) in another article and shared Ariel Small Cap Value Strategy’s views on the company. You can also find more investor letters from hedge funds and other leading investors on our Hedge Fund Investor Letters Q1 2024 page.

CONTINUE READING: Michael Burry is selling these shares And A new dawn is dawning for US stocks.

Disclosure: None. This article was originally published at Insider Monkey.