Lockstep’s Performance Update: July 2023

Our Funds’ Performance for July 2023

Premium Fund
The Premium Fund delivered an impressive return of +8.9% in July, bringing the Year-to-Date performance to +10.7%.

Value Fund (aka The Portfolio)
The Value Fund had an evening stronger showing, achieving a gain of +9.7% for July and an outstanding +23.9% Year-to-Date.

 

 

Drivers of Performance

These exceptional results were fueled by solid earnings releases, positive news, and a more optimistic market sentiment. We are pleased to share with you the key contributors to each fund’s performance for the month.

 

The Premium Fund

The most significant contributors to the Premium Fund’s performance were INMD, the aesthetics medical business, which released market-beating Q2 2023 results and raised its full-year guidance, along with SRG, our property business. As US interest rates stabilize and the risk of a deep recession diminishes, the probability of SRG successfully selling off its portfolio increases, positively impacting its share price.

Additional contributors included JOE, which posted outstanding Q2 2023 results, continuing the sustainable growth of its property portfolio, and CUBI, our community bank, reporting robust Q2 2023 earnings and alleviating any liquidity concerns. Furthermore, GCI experienced a share price appreciation after its largest debt holder purchased equity in the business.

While most stocks in the Premium Fund contributed to the month’s performance, LEGH, our manufacturer housing developer, and HUYA, the Chinese game streaming company, were the only exceptions.

 

The Value Fund

The most significant performance driver for the Value Fund was CUBI, whose share price appreciated close to 40% in July. Post the regional banking crisis in March 2023, the market feared CUBI would be the next to fail. The Q2 2023 results demonstrated their strength as the bank holds over $3 billion in liquid assets.

Like the Premium Fund, INMD, JOE, and SRG were significant drivers of the Value Fund’s positive performance for the month.

 

 

Market Performance

The broader market continued its upward trajectory in July, with the S&P 500 and Nasdaq Composite up 3.1% and 4.0%, respectively, for the month and an impressive 19.5% and 37.0% year-to-date. The Dow Jones Industrial Average (DJIA), which has had a relatively subdued year, gained 3.3% during the month, as a more diverse set of stocks contributed to the market’s ascent.

Inflation remains a significant factor influencing market direction, but recent data indicates a downward trend, with both June CPI and PPI coming in lower than expected. This trend has positively impacted market sentiment, easing concerns and making the Federal Reserve’s task more manageable.

 

Looking Ahead

As we move into August, earnings season continues, and we will closely monitor companies’ results. If the trend of better-than-expected results persists, combined with a continued decline in inflation, the market may maintain its buoyant state.

 

 

Closing Thoughts

We are thrilled with the exceptional performance of both our funds over the past two months and are incredibly proud that the Premium Fund holds ZERO exposure to big tech stocks, while the Value Fund has less than 3.5% exposure. Additionally, our largest investments in both funds remain close to our purchase price and significantly below our fair value estimates, indicating substantial upside potential.

While we remain optimistic, we acknowledge that short-term uncertainties persist. Nonetheless, our confidence in our investment process and the potential of our holdings for the long term remains firm.

 

 

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