Since inception, Fund positions have delivered -13.12% as of March 31, 2022. This return compares negatively to -10.26% total return delivered by the Russell 2000 Index over the same period.
- Contributors: Event/Special Situations names (Kohl’s, Ironnet), Short Book of securities, Fluor Corp (FLR)
- Detractors: The Children's Place (PLCE), Thor Industries (THO)
- Outlook: Rate hikes and the conflict in Ukraine have provided substantial headwinds and spurred talks of an economic slowdown. We think it is important to avoid investments in companies priced for exponential growth, even those which have already fallen by half or more. We continue to favor companies in the “real” economy, with high normalized earnings relative to their market caps, and which are efficient allocators of capital.
Quarter in review
- The top contributor this quarter was Kohl’s Corp (KSS). KSS gained 23.55% as an activist investor encouraged them to run a competitive sales process, which led to the receipt of several competitive bids.
- As the market's attention turned stayed on the Federal Reserve and the prospect of rate hikes, EOPS benefitted from some sharp drops in some of our short positions. Roblox (RBLX) fell 34.33%, while Carvana (CVNA) fell 36.78%.
- The biggest detractor this quarter was The Children’s Place (PLCE). The stock fell 37.82% as investors weighted the prospects of pandemic stimulus such as the child tax credit rolling off.
- Our book is composed of companies trading inexpensive vs their forward estimates, many of which are aggressively buying back their shares. Our affinity for these types of companies is even greater during a rising interest rate environment, when many tech names with lofty valuations are experiencing violent corrections.
- In a downturn or even a recession, we prefer to own companies with real cashflows and the ability to allocate capital efficiently.
- We continue to identify companies which we believe are prime candidates to be acquired and add them to the portfolio. We are keeping an eye on Lions Gate Entertainment (LGF/A and LGF/B) and The Children’s Place (PLCE), as well as Kohl’s (KSS) which is already engaged in a process.