Five months since inception, my 2020 Triple Net Active Versus Passive Portfolio rolls on with decent absolute results. The Active Portfolio, unveiled last Oct. 21 and Oct. 23, is up 39% and is just behind the Passive Portfolio (up 40%). Over the past month, however, the Active portfolio (up 26%) gained a great deal of ground on the Passive portfolio (up 11%).
Both portfolios are now outperforming the Russell 2000 Index (up 38% since last Oct. 15), but are well behind the Russell Microcap Index (up 50%). Value also continues to shine, with the Russell 2000 Value Index (up 51%) and Russell Microcap Value (up 60%) both on fire. That's the disappointment here so far -- relative performance, especially versus value.
All eight Active names are in positive territory, still led by Haynes International (HAYN) (up 68%). Sanmina Corp. (SANM) (up 58%) is now in second place; it was up 20% over the past month on no news. Daktronics (DAKT) (up 56%) also made a nice move, breaking through $7 before giving some of that back to close last Friday at $6.19. Finally, Weyco Group (WEYS) (up 44%) rose 25% since the February update, likely on the back of its fourth-quarter results. Weyco currently yields 4.2%
Performance of the remaining Active names:
Culp Inc. (CULP) (up 15%)
REX American Resources (REX) (up 20%)
Madison Square Garden Entertainment (MSGE) (up 21%)
Argan Inc. (AGX) (up 21%)
All passive names are in positive territory. The best performer in the portfolio (which includes the Active names plus 19 others) remains AAR Corp. (AIR) (up 115%) for the third consecutive month. RPC Inc. (RES) (up 97%) remains in second place and rose another 18% over the past month. Unifi Inc. (UFI) (also up 97%) jumped another 35%, and is now tied with RES. American Public Education (APEI) (now up 21%) clawed its way out of negative territory following a better-than-expected fourth-quarter earnings report.
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. While the gap there has closed, the Passives are still slightly ahead.