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  1. Home
  2. / Investing
  3. / Stocks

My Deep Value Active and Passive Portfolios Are Sucking Wind, But It's Early

The idea behind this experiment is my belief that companies trading at relatively low levels of NCAV have the potential to provide solid returns.
By JONATHAN HELLER
Jan 14, 2022 | 09:45 AM EST
Stocks quotes in this article: NWPX, NPK, LOTZ, NLS, LSF, AOUT, IMMR, AGX, ASTE, AMCI, AIR, TALK

Nearly three months since inception, my 2021 Triple Net Active Versus Passive Portfolio experiment is performing about how I'd expect it to this early. In other words, both Active and Passive portfolios are sucking wind since their October inception.

The "Passive" portfolio (down 13%) is outperforming the Active portfolio down (20%), while the Russell 2000 Index (down 3%) and Russell Microcap Index (down 8%) are currently well ahead of both.

As a reminder, the idea behind this experiment is the belief that companies trading at relatively low levels of net current asset value, or NCAV, have the potential to provide solid returns. 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)

Fifty-One names made the cut, which comprise the "Passive" portfolio. Given my belief that within this deep-value subset, an active approach can outperform a passive approach, I honed that list down to eight stocks, which comprise the "Active" portfolio. I took positions in all of the "Active" names.

It is not pretty so far. Six of the eight "Active" names, which I unveiled in two tranches on October 20, and October 22 are in negative territory. Only Northwest Pipe (NWPX) (up 30%) and National Presto (NPK) (up 2%) are in positive territory. Carlotz (LOTZ) (down 44%), which now trades at 1.29x net current asset value is the worst performer, and trading at an all-time low.

Nautilus (NLS) (down 42%), Laird Superfood (LSF) (down 41%), American Outdoor Brands (AOUT) (down 29%), Immersion (IMMR) (down 25%), and Argan (AGX) (down 11%) round out the group.

Among those "Active" names that are expected to be profitable, AOUT trades at about 8x next year's consensus estimates, while IMMR and AGX trade at 7x and 13x, respectively.

Within the "Passive" ranks, 13 of 51 names are up since inception, and top performers include Astec Industries (ASTE) (up 37%), Super Micro Computer (AMCI) (up 28%), and AAR Corp. (AIR) (up 26%). The worst performer is Talkspace (TALK) (down 57%).

Welcome to deep value land!

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At the the time of publication, Heller was long NWPX, NPK, LOTZ, NLS, LSF, AOUT, IMMR and AGX.

TAGS: Indexes | Investing | Markets | Small Cap | Stocks | Trading | Value Investing

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