Lockstep’s Performance Update: June 2023

Our Funds’ Performance for June 2023

Premium Fund

The Premium Fund was up +12.5% for June 2023 and is up +1.72% Year-to-Date.

The Value Fund

The Value Fund was up +11.0% for June 2023 and is up +13.0% Year-to-Date.

 

Market Performance

It was another strong month for the S&P 500 and the Nasdaq Composite, up +6.5% and +6.6%, respectively. Even the Dow Jones Industrial (DJI) was up +4.3% for June.

Positive economic news helped drive the market higher during the month, including Congress passing the Debt Ceiling Bill, the labour market being more robust than expected, inflation declining to 4%, and the Federal Reserve (US Central Bank) keeping rates flat.

The month finished with US Consumer Confidence coming in at its highest in 18 months, new homes sales up 12.2% for May compared to April and manufacturing expenditure up considerably since the Chip Act was signed into law mid-2022.

 

A solid first half of 2023

It’s been an incredible first half of the year for the market, with the S&P 500 up 15.9% Year-to-Date (YTD) while the Nasdaq Composite is up an incredible 31.7% YTD, the strongest first-half return since 1983. The DJI, however, is up only +3.80% for the year.

We have written extensively about how only a few Mega-Cap tech stocks are driving the S&P 500 returns. The variance between the S&P 500 and the DJI illustrate this and why the DJI is a more accurate reflection of the US economy at this point in time.

 

Expectations for the rest of 2023

It would be pure speculation to comment on what the second half of the year will bring, as nobody knows.

We can say with some confidence that as long as the Federal Reserve believes inflation is too high and threatens to continue raising interest rates, market volatility will continue, and certain sectors, such as real estate, should continue to lag.

And as long as a handful of stocks are driving the market higher, most of which are overvalued, there is a risk that the first-half returns might not be sustainable.

 

Drivers of Performance

Positive Contributors

It was a solid month for both of our portfolios in June, with SRG and LEGH the most significant contributors to our performance.

SRG, a real estate company liquidating its assets, recovered somewhat during the month as it reduced its debt by almost one-third after selling off more properties. While the share price was up 20% for the month, it remains far below our expectation of the distribution payout. Although increasing interest rates remains a risk for the company, we expect SRG to continue selling assets and paying down its debt. Based on management’s recent comments, SRG should be close to debt free by the end of the year.

Our manufactured housing business LEGH had a better month than May despite no stock-specific news. LEGH remains undervalued even after the share price appreciated 22% in June.

Another contributor to both portfolios was INMD, our cosmetic therapy company, also up with no specific news. While CUBI, our community bank investment, contributed to the Value Fund’s performance as the financial sector recovered.

 

Negative Performers

Given the outstanding month for both portfolios, there is little to comment on regarding negative contributors. The largest detractor to performance was our pharmaceutical holding company, INVA, which traded down slightly even though its drug Xacduro received FDA approval in May, and Sarissa Capital continued to buy shares at these bargain prices.

 

Closing Thoughts

It has been a strong first half of the year for the Value Fund, and even though we trail the S&P 500 we are incredibly proud of our performance given that we hold only one of the Mega-Cap tech stocks that have skewed market performance. Despite the solid first half, the portfolio remains attractive.

The Premium Fund, due to its higher concentration, has not faired as well; however, there is a lot of room for growth as we remain excited about the companies we own and the long-term prospects.

 

 

Share Article

Welcome

Install Lockstep App
×
Enable Notifications OK No thanks