Five months since inception, this year's Triple Net Active Versus Passive Portfolio experiment is rolling on, even as smaller names have had a rough couple of months.
Since the last update in February, the Russell 2000 Index (down 9%) and Russell Microcap Index (down 16.5%) have been hammered. The Active Portfolio (down 11%) and Passive Portfolio (down 14%) did not escape the turmoil. However, since inception, the Active Portfolio (up 6.6%) is still doing its job, outperforming the Passive Portfolio (down 5%). Active is also currently ahead of both the Russell 2000 (up 3%) and Russell Microcap (down 2%).
The theory behind this experiment is that companies trading at relatively low levels (between 2x and 3x) of net current asset value (NCAV) can outperform the benchmarks, and that furthermore, a hand-selected group (the Active Portfolio) can outperform the entire universe of triple nets (the Passive Portfolio).
Selection criteria include 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)
That produced a list of more than 70 qualifiers (The Passive Portfolio). I selected eight names that were most compelling, took positions in each, and released them in two tranches, on 10/21 and 10/24.
Tranche 1 is up 6% since inception, versus 2.7% for the Russell 2000, and -2.4% for the Russell Microcap. Smith & Wesson (SWBI) (up 18%) is the top performer in this tranche. Fossil Group (FOSL) (down 4%), went from hero to goat (and not as in Greatest of All Time) after disappointing fourth-quarter results sent the shares lower. FOSL had been the best overall performer.
Boise Cascade (BCC) (up 12%) has had an interesting run recently. The shares traded in the $79 range in early February before falling to about $60 early this month. Since then, the stock has rebounded a bit, closing at $67.68 on Thursday. Movado (MOV) (down 12%) has suffered since reporting solid fourth-quarter earnings, but downtrodden guidance. The watchmaker paid a special $1 dividend earlier this month.
Tranche 2 is up 7.2% since inception versus 3.5% for the Russell 2000, and -2.1% for the Russell Microcap Index. IPG Photonics (IPGP) (up 33%) remains the top performer in this tranche, and overtook FOSL as the top overall performer. Park Aerospace (PKE) (up 33%) increased its quarterly dividend 25% to 12.5 cents in March, and also paid a special $1 dividend. Seneca Foods (SENEA) (down 16%) and Benchmark Electronics (BHE) (down 20%) have been disappointing so far.
In the Passive Portfolio Daktronics (DAKT) (up 93%) is the leader, while Super Micro Computer (AMCI) (up 92%), Navitas Semiconductor (NVTS) (up 63%) SeaSpine Holdings (SPNE) (up 53%), and SiTime SITM (up 52%) round out the top 5.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider several of these names be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)