Within the next few weeks, I will be winding down my 2020 Triple Net Active versus Passive Portfolio "experiment", and releasing the 2021 version. By way of reminder, the idea behind this is my belief that companies trading at relatively low levels of net current asset value, or NCAV, have the potential to provide solid returns, and furthermore, that active selection from the qualifying names can outperform the passive approach of buying them all. Criteria included the following:
- Market capitalization in excess of $100 million
- No financials or development-stage companies
- Trading at between 2 and 3 times NCAV (NCAV is calculated by subtracting a company's total liabilities from current assets)
The 27 names that made the cut were included in the Passive portfolio. I then selected eight names from that universe that were most interesting to me, which comprise the Active portfolio, and took positions in all eight.
At this point, the Active portfolio (up 34%) is ahead of the Passive portfolio (up 31%), but a lot can happen in a couple weeks time. Both are currently ahead of the S&P 500 (up 24%), but behind both the Russell 2000 (up 37%) and Russell Microcap Index (up 49%).
Last year, which was the first for this deeper-value "experiment" was a solid win on both an absolute and relative basis. This year, while the absolute returns have been decent, returns relative to small and microcap indexes have been disappointing.
Looking ahead, the possibilities for the 2021 version of these portfolios are intriguing. At this point, there are a total of 50 names that qualify for inclusion in the Passive portfolio. That's nearly double last year's total, which should make the process of selection for the Active portfolio all the more challenging.
The top five in terms of market cap are currently Sanmina (SANM) (a repeat offender included in both the 2020 Active and Passive portfolios), American Well (AMWL) , Super Micro Computer (SMCI) , Stratasys (SSYS) , and Universal Corp (UVV) . UVV has appeared so often on my deep value screens over the years, it's what I call a "perennial". Some companies, by nature, just trade at relatively low levels of NCAV, and it's those that I've learned to avoid.