Nine months since the inception of my Triple Net active versus passive portfolio experiment, and the active approach continues to outperform by a wide margin. This rather labor-intensive effort was an attempt to see whether active management could outperform a passive approach within a subset of deeper value. The answer should be yes. This is a rather inefficient area of the market, where information is not readily available, and where analyst coverage is typically on the low side, but I wanted to see for myself. Of course, this is a very tiny sample size, and while encouraging at this point, is not conclusive.
The original screening 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 total of 48 qualifying names represent the "passive" portfolio. I then honed this list down to the eight that I found most interesting, which comprise the "active" portfolio. Keep in mind that all eight names in the "active" portfolio are also members of the "passive" portfolio.
The active portfolio approach (up 29%), continues to outperform the passive approach (up 12%), but both portfolios are doing better than the Russell 2000 Index (-2%), and Russell Microcap Index (+3%). Perhaps more importantly in terms of relative performance, both triple net portfolios, which are value-based, are outperforming the Russell 2000 Value Index (-15%), and Russell Microcap Value Index (-13%).
Since the last update one month ago, both portfolios are up about 9%, keeping the performance gap at about 1700 bps, the same as last month. Value had a decent month (R2000 Value +4.6%, RMicro Value +3.4%), still underperforming growth (R2000 Growth +5.5%, RMicro Growth +6%), but at least narrowing a gap that has been so wide the past three years that you can drive a truck through it.
Six of the eight active names remain in positive territory. MarineMax (HZO) (+75%) continues its solid run, rising 36% since the last update, putting it in second place in terms of performance in the active portfolio. On Thursday the company announced third quarter earnings of $1.58, well ahead of the 72 cent consensus estimate.
Fitbit (FIT) (+99%) remains the top active performer, yet the deal with Alphabet (GOOGL) has still not been consummated nearly nine months since it was announced. Seven Democrat senators entered the fray Thursday, firing off a letter to the DOJ proclaiming their skepticism.
Here's how the other active names are doing so far:
Astec Industries (ASTE) (up 47%)
Crimson Wine Group (CWGL) (down 28%)
Dril-Quip (DRQ) (down 32%)
Johnson Outdoors (JOUT) (up 50%)
LiveRamp Holdings (RAMP) (up 12%)
National Presto Industries (NPK) (up 2%)
The top performers in the "passive" portfolio, besides FIT (currently in 3rd place), MarineMax (now in 5th place), and Johnson Outdoors (JOUT) (in 8th place) include Cyberoptics (CYBE) (+172%), OraSure Technologies (OSUR) (+104%), K12 (LRN) (+84%) nLight (LASR) (+65%), and Axcelis Technologies (ACLS) (+57%).