Pursuant to yesterday's column on the wind down of my 2020 Triple Net Active Versus Passive Portfolio, and release of the 2021 version, I wanted to provide more color about how these portfolios may stack up. First, the number of names that will comprise the Passive portfolio is a moving target, that will be nailed down once I wrap up the current vintage.
As I reported yesterday, there were 50 companies that met the criteria. As of this morning that has jumped to 54. That's a bit surprising to me, given that last year's Passive portfolio contained just 27. Given the run-up over the past year in the Russell 2000 Index (up 37% since last year's Passive portfolio was unveiled on October 16), Russell Microcap Index (up 49%), and especially the value component of each (up 53% and 65%, respectively), I would have thought there'd be fewer possibilities this year. Clearly, that's not the case. If markets move lower between now and the rollout, its possible that there will be an even bigger Passive portfolio. As stock prices fall, all else being equal a company's multiple to net current asset value or NCAV will also fall.
The current crop of triple nets displays some fairly interesting portfolio statistics. The average market cap is just $555 million, meaning that the average triple-net is squarely in microcap land. They currently trade at an average of just 2.52x NCAV, and average price to book of 1.51. Thirty seven out of 54 have some analyst coverage, which is surprisingly high given the size of these companies. Of those 37, 26 are expected to have positive earnings next year.
There's some fairly diverse sector representation at this point, but the list is dominated by software (4), semiconductors (4), oil and gas related (4), and metals and mining (4). I am, however, not surprisingly seeing a substantial number of repeat offenders from the current passive portfolio. These include Argan (AGX) , Culp (CULP) , Daktronics (DAKT) , GSI Technology (GSIT) , Miller Industries (MLR) , National Presto (NPK) , Park Aerospace (PKE) , REX American Resources (REX) , Sanmina (SANM) , and Ultralife (ULBI) . For a portfolio such as this one, it is better in my view to see new names, and there are plenty of those too.
I intend to roll out the 2021 Triple Net Passive Portfolio on Friday, October 16th, and the Active Portfolio selections the following week.