The fund seeks “maximum total return” through a combination of capital appreciation and income. The fund invests in undervalued securities, mostly mid- to large-cap dividend paying stocks. The manager has the option of investing in REITs, master limited partnerships, royalty trusts, preferred shares, convertibles, bonds and cash. The manager invests in companies “that it understands well.” The managers also generate income by selling covered calls on some of their stocks. The portfolio currently consists of about 30 holdings, 16 of which are stocks.
Centaur Capital Partners, L.P., headquartered in Southlake, TX, has been the investment advisor for the fund since September 3, 2013. Before that, T2 Partners Management, LP advised the fund with Centaur serving as the sub-advisor. The first “T” of T2 was Whitney Tilson and this fund was named Tilson Dividend Fund. Centaur is a three person shop with about $90 million in AUM. It also advises the Centaur Value Fund LP, a hedge fund.
Zeke Ashton, founder, managing partner, and a portfolio manager of Centaur Capital Partners L.P., has managed the fund since inception. Before founding Centaur in 2002, he spent three years working for The Motley Fool where he developed and produced investing seminars, subscription investing newsletters and stock research reports in addition to writing online investing articles. He graduated from Austin College, a good liberal arts college, in 1995 with degrees in Economics and German.
Management’s Stake in the Fund
Mr. Ashton has somewhere between $500,000 and $1,000,000 invested in the fund. One of the fund’s two trustees has a modest investment in it.
That’s dependent on market conditions. Mr. Ashton speculates that he could have quickly and profitably deployed $25 billion in March, 2009. In early 2016, he saw more reason to hold cash in anticipation of a significant market reset. He’s managed a couple hundred million before but has no aspiration to take it to a billion.
March 16, 2005
$1,500 for regular and tax-advantaged accounts, reduced to $1000 for accounts with an automatic investing plan.
1.95% after waivers on an asset base of $27 million.
You’d think that a fund that had squashed the S&P 500 over the course of the current market cycle, and had done so with vastly less risk, would be swamped with potential investors. Indeed, you’d even hope so. And you’d be disappointed.
Here’s how to read that chart: over the course of the full market cycle that began in October 2007, Centaur has outperformed its peers and the S&P 500 by 2.6 and 1.7 percent annually, respectively. In normal times, it’s about 20% less volatile while in bear market months it’s about 25% less volatile. In the worst-case – the 2007-09 meltdown – it lost 17% less than the S&P and recovered 30 months sooner.
$10,000 invested in October 2007 would have grown to $18,700 in Centaur against $16,300 in Vanguard’s 500 Index Fund.
Centaur Total Return presents itself as an income-oriented fund. The argument for that orientation is simple: income stabilizes returns in bad times and adds to them in good. The manager imagines two sources of income: (1) dividends paid by the companies whose stock they own and (2) fees generated by selling covered calls on portfolio investments. The latter, of late, have been pretty minimal.
The core of the portfolio is a limited number (currently about 16) of high quality stocks. In bad markets, such stocks benefit from the dividend income – which helps support their share price – and from a sort of “flight to quality” effect, where investors prefer (and, to an extent, bid up) steady firms in preference to volatile ones. Almost all of those are domestic firms, though he’s had significant direct foreign exposure when market conditions permit. Mr. Ashton reports becoming “a bit less dogmatic” on valuations over time, but he remains one of the industry’s most disciplined managers.
The manager also sells covered calls on a portion of the portfolio. At base, he’s offering to sell a stock to another investor at a guaranteed price. “If GM hits $40 a share within the next six months, we’ll sell it to you at that price.” Investors buying those options pay a small upfront price, which generates income for the fund. As long as the agreed-to price is approximately the manager’s estimate of fair value, the fund doesn’t lose much upside (since they’d sell anyway) and gains a bit of income. The profitability of that strategy depends on market conditions; in a calm market, the manager might place only 0.5% of his assets in covered calls but, in volatile markets, it might be ten times as much.
Mr. Ashton brings a hedge fund manager’s ethos to this fund. That’s natural since he also runs a hedge fund in parallel to this. Long before he launched Centaur, he became convinced that a good hedge fund manager needs to have “an absolute value mentality,” in part because a fund’s decline hits the manager’s finances personally. The goal is to “avoid significant drawdowns which bring the prospect of catastrophic or permanent capital loss. That made so much sense. I asked myself, what if somebody tried to help the average investor out – took away the moments of deep fear and wild exuberance? They could engineer a relatively easy ride. And so I designed a fund for folks like my parents. Dad’s in his 70s, he can’t live on no-risk bonds but he’d be badly tempted to pull out of his stock investments at the bottom. And so I decided to try to create a home for those people.”
And he’s done precisely that: a big part of his assets are from family and friends, people who know him and whose fates are visible to him almost daily. He’s served them well.
You’re certain to least want funds like Centaur just when you most need them. As the US market reaches historic highs that might be today. For folks looking to maintain their stock exposure cautiously, and be ready when richer opportunities present themselves, this is an awfully compelling little fund.