Category Archives: Stars in the shadows

Small funds of exceptional merit

Aegis Value Fund (AVALX)

By David Snowball

THIS IS AN UPDATE OF THE FUND PROFILES published in 2009 and 2013.

Objective and strategy

The fund seeks long-term capital appreciation by investing in a diversified portfolio of very, very small North American companies.

Aegis believes excess returns can be generated by:

purchasing a well-researched portfolio of fundamentally sound small-cap stocks trading at low valuations during periods of stress or neglect, when liquidity is low and investor sentiment is poor,
holding these investments patiently through periods of short-term price volatility while fundamental conditions normalize, and
selling after fundamental trends reverse, as recovery becomes visible and investor sentiment improves, driving valuations higher.

Continue reading →

Dynamic Alpha Macro (DYMIX)

By David Snowball

Objective and strategy

The managers aspire to outperform the S&P 500 over meaningful time periods, while managing risk by blending non-correlated assets such as a discretionary global macro strategy with a portfolio of US equities. The portfolio has two components: a US equity component, which is executed by buying low-cost ETFs, and a macro-driven Futures Trading Strategy. Through rebalancing between these approaches, they hope to harness divergent performance drivers to create what they term “Dynamic Alpha.” The equity strategy divides its investments between growth, high-dividend, and broad market stocks. The Future Trading Strategy, executed by a trading adviser, provides exposure to over Continue reading →

FPA Queens Road Small Cap Value (QRSVX)

By David Snowball

Objective and strategy

The fund seeks capital appreciation by investing in the stocks or preferred shares of U.S. small-cap companies. The manager pursues a sort of “quality value” strategy: he seeks high-quality firms (strong balance sheets and strong management teams) whose stocks are undervalued (based, initially, on price/earnings and price-to-cash flow metrics). Because it is willing to hold companies as their market cap rises, the portfolio has about 9% invested in mid-cap stocks that it bought when they were small caps.

In general the portfolio holds Continue reading →

Leuthold Core Investment (LCORX/LCRIX), June 2023

By David Snowball

Objective and strategy

Leuthold Core pursues capital appreciation and income through the use of tactical asset allocation. The objective is to avoid significant loss of capital and deliver positive absolute returns while assuming lower risk exposure and lower relative volatility than the S&P 500. Assets are allocated among stocks and ADRs, corporate and government bonds, REITs, commodities, an equity hedge, and cash. Portfolio asset class weightings change as conditions do; exposure is driven by models that determine each asset class’s relative and absolute attractiveness. Equity and fixed-income exposure each range Continue reading →

Osterweis Strategic Income Fund (OSTIX), April 2023

By David Snowball

“Yearning for the good old days is not an investment strategy”

Objective and strategy

The strategy is to preserve capital and attain long-term total returns through a combination of current income and moderate capital appreciation. The managers invest in income-producing securities, primarily high-yield bonds, but will shift the allocation to managing a changing risk and opportunity set. Such changes might include shifting toward higher quality or shorter duration securities and increasing the fund’s cash stake. As of February 28, 2023, 77% of the portfolio is invested in high-yield bonds with an average duration Continue reading →

RiverPark Strategic Income Fund (RSIVX)

By David Snowball

Objective and strategy

The fund is seeking high current income and capital appreciation consistent with the preservation of capital. The managers invest in “money good” securities; that is, in securities where the underlying strength of the issuer is great enough that “the risk of loss of principal due to permanent impairment is minimal.” It can invest in both investment grade and non-investment grade securities depending on market conditions and opportunities. They can also invest in Continue reading →

Seafarer Overseas Value Fund (SFVLX), April 2023

By David Snowball

“We are living through investment regime change”

Objective and strategy

Seafarer Overseas Value pursues long-term capital appreciation. The fund typically invests in common stocks, though the managers have the ability to add both preferred stocks and fixed-income securities. The investable universe includes both emerging markets, as traditionally conceived, and companies domiciled in selected foreign developed nations Continue reading →

Towpath Focus: Adventures of a Growth Manager in Valueland

By David Snowball

On December 31, 2019, Oelschlager Investments launched the Towpath Focus Fund (TOWFX). The fund invests in 25-40 domestic stocks regardless of market capitalization. The fund is managed by Mark Oelschlager.

Towpath is a concentrated, all-cap equity fund. The portfolio currently holds 41 securities. About 15% of the portfolio is invested in non-US stocks and 12% in cash. Compared to its Morningstar peers, the fund has more cash, more international, and more small-cap exposure. The portfolio stocks are higher growth companies (measured by sales, cash-flow, and book value growth) that sell for lower prices (measured by price-to-book, price-to-earnings, and price-to-sales) with higher returns than either their peers or their index. Continue reading →

Harbor International Small Cap (HIISX / HNISX), September 2022

By David Snowball

Objective and strategy

Harbor International Small Cap Fund pursues long-term growth by investing in a diversified portfolio of international small-cap stocks. They have three particular preferences:

demonstrate traditional value metrics primarily on a price to book, price to earnings, net asset value (NAV), and/or dividend yield basis;
well-capitalized and transparent balance sheets and funding sources; and
business models that, through a complete business cycle, generate returns on equity or invested capital in excess of their cost of capital.

Continue reading →

Disciplined Growth Investors (DGIFX), September 2022

By David Snowball

Objective and strategy

Disciplined Growth Investors pursue both long-term growth and modest current income at reasonable risk. Approximately 65% of the portfolio is invested in stocks and approximately 35% in bonds and cash. The managers can gradually shift equity exposure down to about 55% or up to about 70% if market conditions warrant.

The managers invest primarily in smaller US stocks, currently defined as those with market capitalizations between $1 billion and $15 billion. They “don’t mindlessly diversify across every market, sector, and asset class.” They focus on Continue reading →

Harbor International Small Cap (HIISX / HNISX), September 2021

By David Snowball

Objective and strategy

Harbor International Small Cap Fund pursues long-term growth by investing in a diversified portfolio of international small-cap stocks. They have three particular preferences:

demonstrate traditional value metrics primarily on a price to book, price to earnings, and/or dividend yield basis;
well-capitalized and transparent balance sheets and funding sources; and
business models that are undervalued by the market.

Up to 15% of Continue reading →

Appleseed Fund (APPLX), July 2021

By David Snowball

Objective and strategy

The Appleseed Fund seeks long-term capital appreciation. They do that through a portfolio that combines a global, all-cap portfolio of undervalued equities with other diversifying, and sometimes defensive, assets. Its investable universe centers on companies that have “sustainable competitive positions, solid financials, and capable, shareholder-friendly management teams.” The “other assets” in the fund might include bonds (though it currently does not), convertible securities, ETFs, commodities, REITs, and other real estate entities, currencies, and cryptocurrencies. Finally, they use Continue reading →

Seven Canyons World Innovators Fund (WAGTX), October 2020

By David Snowball

Objective and strategy

The fund invests primarily in non-US growth companies that they believe are innovators in their sectors or industries. Nominally the managers can invest in “domestic and foreign … companies of any size.” As a practical matter, they invest in international small-cap companies. That’s reflected in the first four words atop their homepage:

While retaining the flexibility of Continue reading →

Osterweis Emerging Opportunity (OSTGX), September 2020

By David Snowball

Objective and strategy

OSTGX pursues long-term capital appreciation. Their target universe is high quality, small- to mid-cap companies with the ability to generate rapid, sustainable revenue growth. The markers of quality include: (1) a distinct proprietary advantage; (2) a leading position in the industry; (3) potential for margin expansion; and (4) the presence of a strong management team. “Rapid revenue growth” translates to organic growth that averages 30% annually. It invests primarily in domestic companies; as of June 30, 2020, 11% of the portfolio is invested internationally though the prospectus permits up to 30%. As of June 30, 2020, just over 50% of the Fund’s assets were invested in securities within the health care and information technology sectors, slightly lower exposure than the Continue reading →

FPA Queens Road Small Cap Value (formerly Queens Road Small Cap Value), (QRSVX), August 2020

By David Snowball

At the time of publication, this fund was named Queens Road Small Cap Value.

Objective and strategy

The fund seeks capital appreciation by investing in the stocks or preferred shares of U.S. small-cap companies. Small caps are companies whose stocks are, at the time of purchase, valued at under $5 billion. The manager pursues a sort of “quality value” strategy: he seeks high-quality firms (strong balance sheets and strong management teams) whose stocks are undervalued (based on estimates of intrinsic value using free cash flow and book value growth models.).

In general, the portfolio holds Continue reading →

FPA Queens Road Value (formerly Queens Road Value), (QRVLX), July 2020

By David Snowball

At the time of publication, this fund was named Queens Road Value.

Objective and strategy

The fund seeks capital appreciation by investing in the stocks or preferred shares of U.S. companies. They look for companies with strong balance sheets and experienced management, and stocks selling at discounted price/earnings and price-to-cash flow ratios. It used to be called Queens Road Large Cap Value but changed its name to widen the range of allowable investments. Nonetheless, it continues to put Continue reading →

KL Allocation Fund (GAVAX/GAVIX), June 2020

By David Snowball

Objective and strategy

The fund is trying to grow capital, with the particular goal of beating the MSCI All Country World Index over the long term while maintaining an emphasis on capital preservation. The fund allocates assets between stocks (10-90%), fixed-income securities (10-90%), and cash depending on market conditions. The equity portion of the portfolio is invested in stocks of firms that they designate as “knowledge leaders.” Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge, or a unique distribution mechanism. Knowledge Leaders are largely Continue reading →

Bruce Fund (BRUFX), May 2020

By David Snowball

Objective and strategy

The fund seeks long-term gains which it pursues through a primarily domestic stock and bond portfolio. The managers will invest as heavily in stocks as the market warrants, which might be 40% and it might be near 80%. The equity portfolio is not constrained by market capitalization but the managers prefer small cap stocks. The bond portfolio is primarily convertible and long-dated “zero coupon” corporate bonds. The managers might invest in distressed securities, both in the equity and fixed-income portfolios. They may be “a large cash position for a transitional period of time.” At the start of the Continue reading →

YCG Enhanced Fund (YCGEX), March 2020

By David Snowball

Objective and strategy

The YCG Enhanced Fund seeks to maximize long-term capital appreciation consistent with reasonable investment risk. The portfolio consists of an equity component and an options component. The equity component attempts to identify and invest in the world’s best companies, which they designated “global champions.” The central characteristic of such firms is that they’re among the very few with long-term pricing power; that is, the nature of their industry and business is that they can consistently dictate prices to their users in exchange for irreplaceable services. The equity component ranges from 15-50 names, mostly large cap, mostly domiciled in the US. The median market cap of $80 billion because “global champions” aren’t small. The managers may also write put options and covered call options on a substantial portion of the equity portfolio to generate additional income and heighten tax efficiency. They do not use options to generate leverage. Continue reading →

FAM Dividend Focus (FAMEX) Prior to 2019, this was FAM Equity-Income, February 2020

By David Snowball

Objective and strategy

The strategy attempts to provide current income as well as long-term capital appreciation by investing primarily in stocks that pay dividends. The managers think of themselves as value investors and attempt to answer the question, “if I could buy the whole company at these prices, would I?” That means calculating its “true business worth” and comparing that to the current stock market cap. They attempt to remain fully invested in stocks and convertibles. They tend to buy mid-caps, though their willingness to let winners run means that Continue reading →