Four months since inception, my 2020 Triple Net Active Versus Passive Portfolio experiment continues to provide fairly impressive early absolute results. The Active Portfolio, unveiled last Oct. 21 and Oct. 23, is up 31% but is still trailing the Passive Portfolio (up 35.2%). However, both enjoyed solid performance over the past month, rising about 6%.
Those returns, while satisfying, come against the backdrop of better performance from the Russell 2000 (up 40.3% since last Oct. 15) and Russell Microcap (up 55.2%) indices. Value also continues to rise from the ashes, with the Russell 2000 Value Index (up 43.2%) and Russell Microcap Value (up 51.7%) impressing.
All eight Active portfolio names are in positive territory, led by Haynes International (HAYN) (up 68%); Madison Square Garden Entertainment (MSGE) (up 37%) maintains second place. There were no other major moves made by the other Actives.
Performance of the remaining Active names:
Daktronics Inc. (DAKT) (up 35%)
Culp Inc. (CULP) (up 13%)
Sanmina Corp. (SANM) (up 31%)
REX American Resources (REX) (up 23%)
Weyco Group (WEYS) (up 11%)
Argan Inc. (AGX) (up 12%)
The best performer in the Passive Portfolio (which includes the Active names plus 19 others) remains AAR Corp. (AIR) (up 103%) after rising another 10% over the past month. RPC Inc. (RES) (up 82%) jumped into second place among the passives after climbing 36% over the past month, due in part to better-than-expected fourth-quarter results. Unifi Inc. (UFI) (up 72%) saw a 25% uptick on better-than expected second-quarter results and pushed into third place. American Public Education (APEI) (down 4%) remains the only passive name in negative territory since inception.
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)
Twenty-seven names made the cut and are included in the Active 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.
