Here’s Why Third Avenue Small-Cap Value Fund Sold Sphere Entertainment Co. (SPHR)

Third Avenue Management, an investment management company based in New York City, released its “Third Avenue Small-Cap Value Fund” first quarter 2024 investor letter. A copy of the letter can be downloaded here. In the first quarter, the fund returned 6.31% versus the 2.90% for its most relevant benchmark, the Russell 2000 Value Index. The fund delivered solid relative and absolute returns in the quarter. In addition, you can check the top 5 holdings of the fund to know its best picks in 2024.

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

Third Avenue Small-Cap Value Fund stated the following regarding 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 investments (“LTC”) versus Time Arbitrage/Special Situation (“TA/SS”) positions (see Portfolio Strategy section below for more on these investment types).

In last quarter’s letter, we mentioned our disappointment in Sphere’s most recent convertible debt offering. In January, Sphere’s share price benefited from the publicity the venue received leading up to the Super Bowl in Las Vegas. It provided an opportunity to exit the position as the risk/return trade-off was no longer attractive.

Sphere Entertainment was a hallmark TA/SS position. We first invested over three years ago when it was part of the Madison Square Garden Entertainment (“MSGE”) conglomerate and before the Sphere spin-off. MSGE comprised disparate assets, and the capital structure changed considerably over the ownership period. It easily could have been thrown into the “too hard” pile. Instead, we valued each asset independently and opportunistically took advantage of valuation distortions in the post-spin-off period. Those actions allowed us to generate a 36% return on the investment. For TA/SS investments, we tend to be ruthless with valuation and managing the position. We usually exit the position when our conservative net asset values are realized."

An entertainment executive in a recording studio, cutting a record for the next hit song.

Sphere Entertainment Co. (NYSE:SPHR) is not on our list of 31 Most Popular Stocks Among Hedge Funds. Sphere Entertainment Co. (NYSE:SPHR) generated total revenues of approximately $321 million and adjusted operating income of $61.5 million for the fiscal ’24 third quarter.  While we acknowledge the potential of Sphere Entertainment Co. (NYSE:SPHR) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

We discussed Sphere Entertainment Co. (NYSE:SPHR) in another article and shared Ariel Small Cap Value Strategy's views on the company. In addition, please check out our hedge fund investor letters Q1 2024 page for more investor letters from hedge funds and other leading investors.

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