(Bloomberg) -- The flagship fund at Daniel Loeb’s Third Point LLC trailed the broader US equity market by two percentage points last quarter as bets on big tech darlings from Amazon.com Inc. to Microsoft Corp. faltered.

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Third Point reported a 3.9% return for its TP Offshore Fund in the three months ended Sept. 30, according to a Oct. 16 letter sent to investors and obtained by Bloomberg News. The S&P 500 Index returned 5.9% in the same period, including dividends. Microsoft and Amazon each lost at least 3.5%, while Alphabet Inc. — another tech giant Loeb said was among the fund’s biggest decliners — fell roughly 9%. That was too much to offset gains of at least 27% in Vistra Corp. and KB Home.

“Returns were driven by substantially more market breadth than over the previous year and a half,” Loeb wrote, adding that “the ‘Magnificent Seven’ trailed the broader market (albeit modestly) for the first time since Q4 2022.”

Third Point held to its equity positions during the early-August market turbulence. “We took our lumps for a few days,” Loeb said, and ultimately increased investments in “event-driven and value-oriented stocks.”

The fund manager said the firm sees “no evidence” of a recession, and highlighted that inflation is slowing and real interest rates “still need to come down.”

A private position in R2 Semiconductor, Pacific Gas and Electric Co., and Danaher Corp. rounded out the top five performers for the quarter, while Bath & Body Works Inc. and Advance Auto Parts Inc. were among the larger drags alongside the tech heavyweights, the letter said.

The flagship fund returned just 1.8% in the three months through June, trailing the S&P 500 Index’s 4.3% gain on a total return basis in the same timeframe, Bloomberg reported in August. It also trailed the market’s strong start to the year, when the firm leaned into the artificial intelligence trade in the first quarter just as investors started souring on it.

Turning to the election, Loeb said his firm sees an increasing likelihood that Donald Trump will return to the White House and the Republican’s plan to impose broad tariffs will boost US manufacturing, infrastructure spending and some materials prices. A reduction in regulations will increase productivity and “corporate activity,” Loeb said.

“We have increased certain positions that could benefit from such a scenario via both stock and option purchases and continue to shift our portfolio away from companies that will not,” he wrote, without specifying which sectors or stocks Third Point is targeting.

A raft of Wall Street economists have warned that Trump’s tariff-hike plans will send inflation higher and curb economic growth, particularly if US trading partners retaliate. A Morgan Stanley model indicated a 0.9 percentage point bump in inflation over 12 months, and a 1.4 percentage-point hit to GDP growth over several quarters.

--With assistance from Christopher Anstey.

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