Lockstep’s Monthly Update – November 2022

Our Funds’ Performance for November 2022

Premium Fund

The Premium Fund was up +1.1% for November 2022 and is down -6.0% since launching in February 2022.

 

The Value Fund

The Value Fund was up +6.9% for November 2022 and is down -10.8% since launching in February 2022.

 

Performance vs the Market

The S&P 500 and the Nasdaq Composite continued to recover increasing 5.4% and 4.4% respectively for the month.

Despite the positive month, the extreme volatility in the market continues. Lower-than-expected inflation data at the beginning of November drove a brief rally in the market only to be halted by the Federal Reserve’s (US Central Bank) commentary that interest rate hikes would continue for the foreseeable future. On the final day of the month, however, the Federal Reserve Chairman suggested those hikes would continue but at a lower rate.

“The time for moderating the pace of rate increases may come as soon as the December meeting,” – Jay Powell, Federal Reserve Chairman (Source: FT Article)

Powell’s commentary drove an impressive last-day rally with the S&P 500 and Nasdaq finishing up over 3% and 4% respectively on the day.

Both the S&P 500 and the Nasdaq Composite are down -14.4% and -26.7% year-to-date. We expect the market volatility to continue but this is of little concern to us.

 

Drivers of Performance

The Premium Fund

Performance was again driven by our investment in Seritage Growth Properties (SRG) which continues to liquidate its assets. We expect this liquidation to continue at its current trajectory and for the company to continue paying down its debt. As it does the share price should continue to appreciate until the company starts distributing proceeds to shareholders. We do caution against purchasing shares at these prices, however.

Unfortunately, performance was offset by our Fintech holding which, although reported third-quarter (Q3) results within expectations, failed to deliver on the closing of its bank acquisition. We remain optimistic that the company will complete the acquisition but the timing is unclear which brings other potential risks into play, therefore, we reduced our exposure post this news.

 

The Value Fund

The Value Fund’s top contributors were as per the Premium Fund, namely SRG, our apparel retailer, plus our medical devices business. While a rebound in our tech holdings also contributed towards a second consecutive strong month.

Performance in the Value Fund was partially offset by our manufactured housing company which traded down despite the continued strong results, and by our Chinese streaming company whose share price is experiencing extreme volatility due to the current situation in China.

 

Closing Thoughts

We remain very pleased with both our portfolios.

The Premium Fund is a more concentrated fund of our higher conviction investments which we expect to do well over the long term.

The Value Fund consists of more modestly-sized investments in high-quality businesses and therefore is a more diversified portfolio. During the month we added two new positions to this portfolio;

  • A real estate business in Florida sitting on a large parcel of land which the company plans on developing into properties it will continue to own and operate

  • A media company that is transforming its many print businesses into more sustainable digital offerings.

 

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