Halfway there, six months since inception, my 2020 Triple Net Active Versus Passive Portfolio continues to deliver decent absolute results, but both portfolios slipped over the past month.
The Active Portfolio, unveiled on October 21 and October 23 (up 34%) is trailing the Passive Portfolio (up 37%). Over the past month, the Active portfolio fell about 4%, while the Passive portfolio gave back about 3%.
Both portfolios, however, now trail both the Russell 2000 Index (up 42% since 10/15), and Russell Microcap Index (up 53%). Value also continues to soar with the Russell 2000 Value Index (up 55%) and Russell Microcap Value (up 63%) continuing to gain ground.
By way of a reminder, the idea behind this experiment of mine 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)
Twenty-seven names made the cut, and are included in the Passive Portfolio. I then selected the eight names that are most interesting to me, which comprise the Active Portfolio, and took positions in all eight. My belief is that within this deep value pond, an active approach can outperform passive.
All eight Active names remain in positive territory, with Haynes (HAYN) (up 63%) continuing as the top performer. On Thursday, Haynes reported a much lower-than-expected second-quarter loss ($0.29 versus $0.58 consensus), while revenue of $82.1 million was $5.8 million ahead of the consensus. HAYN ended the quarter with nearly $70 million, or $5.60 per share, in cash and $8.3 million in debt. The company is expected to return to profitability next year, and trades at 36x 2022 consensus estimates, and 16x 2023 estimates.
Overall, it was a fairly boring month for the Active Portfolio, and not a great deal has changed. Sanmina (SANM) (up 57%) remains in second place, while Daktronics (DAKT) (up 56%) rounds out the top three. Madison Square Garden Entertainment (MSGE) (up 32%) had a decent month, rising 9%, but is well off its March $121 intraday high.
Performance of the Remaining Active Names:
Culp (CULP) (up 5%)
REX American Resources (REX) (up 15%)
Weyco Group (WEYS) (up 26%)
Argan (AGX) (up 18%)
All but one of the Passive names, GSI Technology (GSIT) (down 13%) remains in positive territory. The best Passive performer (which includes the Active names plus 19 others) is still AAR Corp (AIR) (up 103%) for the fourth consecutive month. Unifi (UFI) (up 91%), RPC Inc (RES) (up 84%), round out the top three Passive performers. Axcelis Technologies' (ACLS) (up 78%) 15% rise over the past month put it in fourth place.
Six months in, the Passives are ahead.
