Nearly nine months in, my 2020 Triple Net Active Versus Passive Portfolio continues to rattle on. While the Active Portfolio (up 40%) has fallen about 5% since the last update it is now well ahead of the Passive Portfolio (up 33%), which has fallen about 7% since early June.
The Active Portfolio is now just ahead of the Russell 2000 Index (up 39% since 10/15), but both the Active and Passive portfolios trail the Russell Microcap Index (up 50%). They are also both behind the Russell 2000 Value Index (up 52%) and Russell Microcap Value (up 62%).
All eight Active names remain positive territory, with Haynes (HAYN) (up 136%) still the top performer, and has padded its lead. On Thursday, the company reported better-than-expected third quarter results, earning 3 cents, 20 cents ahead of the consensus. HAYN now trades at a three-year high.
Madison Square Garden Entertainment (MSGE) (up 4%), has taken it on the chin recently, after closing on the acquisition of MSG Networks in early July. MSGE has fallen 40% since topping out in early March.
Performance of the remaining Active names:
Culp (CULP) (up 12%)
REX American Resources (REX) (up 10%)
Argan (AGX) (up 13%)
On the Passive side of the ledger, all but two of the 27 Passive names, GSI Technology (GSIT) (down 23%) and American Public Education (APEI) (down 6%) are in positive territory. The best Passive performer (which includes the Active names plus 19 others) is HAYN followed by AAR Corp (AIR) (up 84%) and Intricon (IIN) (up 74%). Unifi (UFI) (up 71%) and Encore Wire (WIRE) (up 61%) round out the top five.
The objective of this annual experiment is twofold: to see whether triple-nets (companies trading at between 2 and 3x net current asset value) can outperform the broader markets overall, and whether taking an active approach can outperform a passive approach. The Passive Portfolio is comprised of all triple-nets available at the time of construction, with the following attributes:
- 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)
Twenty-seven names made the cut, and are included in the Active Portfolio. I then selected the eight names that are most interesting to me, which comprise the Active portfolio, and took positions in all eight. My belief is that within this deep value pond an active approach can outperform passive.
While absolute performance of the Active portfolio has been fine, I am disappointed with performance relative to the value benchmarks so far, with just over three months to go.