I thought I would try and get back to normal (whatever that is) at least for one column and provide an update on one of my current value tracking portfolio experiments.
Five months since inception, my Triple Net active versus passive portfolio experiment rolls on in a very difficult market environment. This is the kind of stress test that no one wants to experience, but it's here whether we like it or not.
The idea here was to determine whether taking a scattergun approach to buying companies at relatively low multiples of net current assets (current assets minus total liabilities) could outperform a more active approach. Of course, inherent in the approach is the belief that either group should outperform the markets over the long-term.
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 net current asset value, or NCAV, which is calculated by subtracting a company's total liabilities from current assets)
The 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
So far, since its October inception, my active portfolio, comprised of Astec Industies (ASTE) (up 13%), Crimson Wine Group (CWGL) (down 17%), Dril-Quip (DRQ) (down 40%), Fitbit (FIT) (up 93%), Johnson Outdoors (JOUT) (up 5%), LiveRamp Holdings (RAMP) (down 18%), MarineMax (HZO) (down 35%) and National Presto Industries (NPK) (down 14%), is down about 1%, but still outperforming the passive portfolio (down 17%). During that same time frame, the Russell 2000 Value Index is down 31% while the Russell Microcap Value Index is down 30%. (The Russell 2000 Index, which includes both growth and value components, is off 24%, while the Russell Microcap Index has fallen 23%).
Both the active and passive portfolios have had dramatic drops since the last update in January; at that point the active portfolio was up 25%, which was better than the passive portfolio (up 16%). While absolute performance is still disappointing, relative performance, especially of the active portfolio, is at the very least intriguing.
Of course, the active portfolio's return is driven by the performance of Fitbit, which still is benefitting from its pending acquisition by Alphabet Inc. at $7.35 a share, although as each day passes I wonder whether that deal will ever be completed. FIT currently trades at 9% below the deal price. Excluding FIT's performance, the active portfolio would be down about 15%, still in line with the passive portfolio and ahead of the benchmarks.
The top performers in the "passive" portfolio (which included all members of the "active" portfolio plus 40 other qualifiers), besides FIT, include OraSure Technologies (OSUR) (up 30%), which is benefitting from its Covid-19 collection devices, CyberOptics (CYBE) (up 16%), Astec Industries and Onto Innovation (ONTO) (up 10%).
Just nine of the passive portfolio members are in positive territory at this writing.
