For my final column of 2022, I wanted to wax eloquently, putting a bow on this challenging year, but what more can I say that has not already been said? So, I'll instead focus on the early progress of this year's Triple Net Active versus Passive Portfolio experiment.
(If you missed my top stock pick for 2023, you can read about it here.)
The theory behind my portfolio experiment is that companies trading at relatively low levels (between 2x and 3x) of net current asset value 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 times 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 that were most compelling, took positions in each, and released them in two tranches, on 10/21 and 10/24.
So far so good, both from a relative and absolute basis, although its just been over two months. The Active Portfolio is up 6.6%, while the Passive Portfolio is down 3.6%
Tranche 1 is up 6% since inception, versus 2.7% for the Russell 2000, and 2.2% for the Russell Microcap Index. Boise Cascade (BCC) (up 18%) is the best overall performer. Fossil (FOSL) (up 14%) has had an awful 2022, but has rebounded since being dropped from the S&P 600 SmallCap 600 in September. Smith and Wesson (SWBI) (down 14%) is the worst overall Active performer. Rounding out this tranche is Movado (MOV) (up 5%).
Tranche 2 is up 7.3% since inception versus 1.7% for the Russell 2000, and 0.8% for the Russell Microcap Index. Park Aerospace (PKE) (up 17.5%) is the best performer, followed by IPG Photonics (IPGP) (up 10%), and Seneca Foods (SENEA) (up 5%), Benchmark Electronics (BHE) (down 4%) is the laggard.
The Passive Portfolio has some big early winners including Outset Medical (OM) (up 74%), and Super Micro Computer (SMCI) (up 46%). OM got a huge boost between 11/8 and 11/10, rising more than 50% after issuing ahead-of-consensus guidance. However, the losers on the Passive side far outweigh the winners at this point, and 41 of them are in negative territory.
To our readers, my fellow columnists, and our great editorial staff here's to a healthy and prosperous New Year!
