November 2019 IssueLong scroll reading

Castle Focus (MOATX), November 2019

By David Snowball

Objective and strategy

Castle Focus Fund seeks long-term capital appreciation. They have a bottom-up, absolute value focus, which means a ready willingness to hold substantial amounts of cash when they’re not able to find good companies selling at substantial discounts. The portfolio is typically comprised of 15 to 30 positions. Currently about 30% of the portfolio is in cash and about 30% is invested in non-US companies.


Castle Investment Management, which is headquartered in Alexandria, Virginia. Castle was founded in 2010 by Caeli Andrews and Andrew Welle. Castle has about $111 million in AUM and offers two funds, Focus and Tandem. Castle Focus is sub-advised by St. James Investment Company, headquartered in Dallas, Texas. St. James was founded in 1999 and positions itself as “absolute value” investors. As of September 2019, St. James managed $1.2 billion.


Robert Mark. Mr. Mark has been the portfolio manager since its inception. Mr. Mark formerly worked in the Private Client Group at Goldman Sachs, earned his MBA in finance at the University of Texas and graduated from the United States Military Academy at West Point with a BS in Engineering. The firm’s Form ADV notes that, “Robert Mark is the sole Portfolio Manager at St. James.” In addition to this fund, Mr. Mark is responsible for several thousand SMAs.

Strategy capacity and closure

By MFO’s rough calculation, about $12.5 billion.

Management’s stake in the fund

Mr. Mark has a minor investment in the fund, between $10,000 – 50,000 as of June 30, 2018. None of the fund’s trustees have chosen to invest in the fund.

Active Share

95.93, per Morningstar.

Active share measures the degree to which a fund’s portfolio differs from the holdings of its benchmark portfolio, in this case, the S&P500 Index. The fund’s active share shows a very high level of independence, especially for a fund investing primarily in large cap stocks, from its benchmark.

Opening date

July 1, 2010.

Minimum investment


Expense ratio

1.35% on assets of $24.6 million, as of July 2023. 


Mr. Mark practices a discipline that is old, intuitive, successful and now incredibly rare. Here’s the short version: find a few really good companies, buy their stocks when they are trading for substantially less than fair value and, if there are no stocks to buy, don’t buy stocks.  Be patient, in time irrationality will reassert itself and irrationally good values will again be available. Until then, keep your powder dry and your cash ready. Such folks are designated “absolute value” investors.

The simple principle is “valuation matters” or, more particularly, “the price you paid, sometimes called the entry price, matters.” If you overpay, you will underperform in the long term. Sadly, few shareholders have the patience to wait out the stock market’s stretches of mania. In consequence, few absolute value investors remain.

Mr. Mark is one of them. He practices a classic discipline and practices it well. Here’s his Investment Process Summary:

  • Maintain a “wish list” of high‐quality companies, characterized by sound balance sheets and enduring business models. We emphasize a high probability of consistent cash flows over a long‐term horizon.
  • For each we quantify fair value, applying a 10% discount rate to our conservative cash flow projections.
  • Determining a “margin of safety” is a proprietary qualitative assessment of the risks associated with a company’s business model.
  • Portfolio Construction incorporates weighting each stock consistent with the margin of safety, sizing a position in accordance to the discount to fair value / potential for gain.
  • Trim and eventually sell a stock when price approaches / exceeds fair value or fundamentals change.

That’s translated to a compact, global portfolio of 24 mid- to large-cap stocks. The manager’s willingness to trim positions inflates the reported turnover rate by a bit; Morningstar reports 74% but half the portfolio was first purchased two to nine years ago.

It is most distinctly holds cash when attractive opportunities are scarce. Mr. Mark writes in 2019:

The Fund held a significant cash position throughout the fiscal year, which is an important part of our process. Given our absolute-return mindset, we contend that entry price is a significant determinant of return. As a result, we often wait for compelling prices to thoughtfully deploy capital. This is especially true over the last year, when prices of high-quality companies were significantly elevated above our conservative estimate of fair value.

“Significant” translates to 30%. Despite that drag, the fund has posted double-digit returns in three of the past four years and modestly outperformed their peers in the other one.

His preference for a global portfolio of sound businesses with mispriced stocks lands him in Lipper’s Global Multi Cap Value category along with the likes of Artisan Global Value (ARTGX), Causeway Global Value (CGVIX), Polaris Global Value (PGVFX) and Tweedy, Browne Global Value (TBCUX). It’s good company. Among the 24 funds and ETFs in the category with a record of nine years or more, here are Castle’s rankings:

  Absolute value Rank
Annual return 7.3% 13th best of 24
Maximum drawdown -7.2% 1st (best)
Downside deviation 5.9 4th
Bear market deviation 5.0 4th
Sharpe ratio .95 1st
Sortino ratio 1.15 1st
Martin ratio 3.31 1st
Capture ratio, MSCI ACI xUS 1.47 6th  
Capture ratio, S&P 500 0.82 6th  
Ulcer Index 2.0 1st

Annual return is a pure return measure, made without consideration of volatility. By that measure, Castle is a tiny bit above average.

That’s followed by three risk measures. Maximum drawdown is a pure risk measure, looking only at the worst slump a fund suffered during the period. By that measure, Castle is the category’s leader. Downside deviation measures just “bad” volatility and bear market deviation measures volatility in bear market months. By both measures, Castle is a top tier fund.

The fund’s greatest distinction comes in the five measures of risk-adjusted performance. It is, by every measure, the best or second-ranked option for investors over the past seven years. While Sharpe ratios are familiar as the most common metric for risk-adjusted returns, MFO and the MFO Premium screeners are more risk-aware than most and so we complement that with additional metrics:

Sortino: an adaptation of the Sharpe ratio which focuses on a fund’s returns relative to its downside volatility; Sharpe looks at both upside and downside volatility which, critics say, ends up punishing funds with “good” volatility and masking some with “bad” (or downside) volatility.

Martin: an adaptation of the Sharpe ratio which focuses excess return relative to a fund’s typical drawdown, again since people rarely worry about volatility (“is my fund high or higher?”) in rising periods.

Capture ratio: is simply the ratio of Upside to Downside Capture. A fund that captures, say, 80% of a market’s upside and 50% of its downside is far more attractive than a fund that captures 80% of the upside plus 100% of the downside. Since we don’t have a global benchmark in the database, we offer Castle’s performance against the MSCI international index (6th) and the domestic S&P 500 (6th).  In this case, 6th equates with “top 25%.”

Ulcer Index: which captures both how far a fund falls and how long it stays down, with the notion that falls that go down and stay down give their investors (and their managers) the worst ulcers.

The simple generalization is this: since inception, Castle Focus has offered its investors reasonably good returns with exceptionally good risk-management.

At the same time, we should note that the fund is probably not a good fit for investors concerned about the carbon footprint of their investments or similar matters of “sustainable investing.” Morningstar tends to assign it “low” to “below average” ratings on such things.

Bottom Line

Castle Focus has repeatedly appeared in MFO’s articles on absolute value investing and managers with “dry powder,” both of which were written to identify the managers most likely to serve you best when markets are at their worst. That discipline is least attractive in the frothy, late stages of a bull market and the fund’s relative performance against their (domestic) Morningstar peer group is weak while their performance against their (global) Lipper group remains solid. Equity investors who realize that valuation matters and are willing to wait patiently for opportunities to arise should put Castle Focus on their immediate due-diligence list.

Fund website

Castle Focus Fund


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About David Snowball

David Snowball, PhD (Massachusetts). Cofounder, lead writer. David is a Professor of Communication Studies at Augustana College, Rock Island, Illinois, a nationally-recognized college of the liberal arts and sciences, founded in 1860. For a quarter century, David competed in academic debate and coached college debate teams to over 1500 individual victories and 50 tournament championships. When he retired from that research-intensive endeavor, his interest turned to researching fund investing and fund communication strategies. He served as the closing moderator of Brill’s Mutual Funds Interactive (a Forbes “Best of the Web” site), was the Senior Fund Analyst at FundAlarm and author of over 120 fund profiles. David lives in Davenport, Iowa, and spends an amazing amount of time ferrying his son, Will, to baseball tryouts, baseball lessons, baseball practices, baseball games … and social gatherings with young ladies who seem unnervingly interested in him.