What a difference six weeks can make in small-cap land. Seven months since inception, this year's Triple Net Active Versus Passive Portfolio Experiment is getting interesting as smaller names show some life.
Since the last update in April, the Russell 2000 (up 5.3%) and Russell Microcap (up 7.4%) have been on a mini-tear. The Passive Portfolio (up 15%) has outperformed Active Portfolio (up 1.6%) by a wide margin during that timeframe. Since inception, the Active Portfolio (up 8.4%) is now trailing the Passive Portfolio (up 8.8%).
The theory is that companies trading at relatively low levels (between 2x and 3x) of net current asset value (NCAV) 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 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.
Tranche 1
Tranche 1 is up 6.4% since inception, versus +8.2% for the Russell 2000, and +4.8% for the Russell Microcap Index.
Boise Cascade (BCC) (up 37%) is the top overall performer, and has been aided by the payment of a special $3 dividend last month. Smith and Wesson (SWBI) (up 25%) has slowly climbed its way out of late 2022 doldrums when it was trading in the mid-$8 range; the shares closed Thursday at $12.66.
Movado (MOV) (down 5%) has been fighting back since taking a beating in March-April on lowered guidance. Last month, the company exceeded earnings estimates for Q1 (43 cents vs 26 cent consensus. Fossil (FOSL) (down 32%) is the biggest loser since the last update due to lackluster first quarter earnings.
Tranche 2
Tranche 2 is up 10.3% since inception versus 9.1% for the Russell 2000, and 5.1% for the Russell Microcap Index.
Park Aerospace (PKE) (up 36%) moved into first place in this tranche; IPG Photonics (IPGP) (up 32%) is right behind after giving back 2% since the April update. The market all but ignored good first-quarter results (EPS of $1.26/share vs $1.12 consensus).
Benchmark Electronics (BHE) (down 10%) is clawing its way back, and is up 19% over the past month. Seneca Foods (SENEA) (down 16%) is still treading water.
Passive Portfolio
In the Passive Portfolio, Super Micro Computer (AMCI) (up 353%) has taken off for the stratosphere in sympathy with AI; the shares are up 228% since the April update.
Daktronics (DAKT) (up 137%), Navitas Semiconductor (NVTS) (up 125%), IonQ Inc. (IONQ) (up 107%) and Outset Medical (OM) (up 55%) round out the top five.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider some of these names to be small-cap be micro-caps stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
