Three months since inception, my 2020 Triple Net Active Versus Passive Portfolio experiment rolls on, with the Passive Portfolio taking the driver's seat. The Active Portfolio, unveiled on October 21st and October 23rd (up 23.5%) is currently slightly behind the Passive Portfolio (up 25.3%).
Still, this comes against the backdrop of amped up performance from the Russell 2000 (up 32.4% since 10/15), and Russell Microcap (up 36.9%) Indexes. Most interestingly, value has roared back to life with the Russell 2000 Value Index (up 33.7%) and Russell Microcap Value (up 36%) really pulling their weight, and either beating (R2000) or coming close (RMicro) to the growth components.
Before my fellow value aficionados jump for joy, however, over the past year, it is a very different story. The Russell 2000 Growth Index (up 41.7%) and Russell Microcap Growth Index (up 55.5%) are trouncing the Russell 2000 Value Index (up 12.6%) and Russell Microcap Value Index (up 17.2%) by 2910 bps and 3830 bps, respectively.
Three months in, all eight Active names are in positive territory, led by Madison Square Garden Entertainment (MSGE) (up 42%) and Haynes (HAYN) (up 38%). The rest of the portfolio has been fairly boring, with no major moves up or down since last month.
Performance of the remaining Active names:
Daktronics (DAKT) (up 31%)
Culp (CULP) (up 15%)
Sanmina (SANM) (up 28%)
REX American Resources (REX) (up 17%)
Weyco Group (WEYS) (up 8%)
Argan (AGX) (up 9%)
The standout in the Passive Portfolio (which includes the Active names plus 19 others) remains AAR Corp (AIR) (up 85%), which continues to benefit from hopes of a return to normal air travel. Axcelis Technologies (ACLS) (up 66%) has risen 26% since raising fourth quarter guidance on January 12th. PCTEL Inc (PCTI) (up 61%) has jumped 38% over the past three days on much higher-than-normal average volume.
Just one of the Passive names, American Public Education (APEI) (down 2%) is in negative territory so far.
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 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.
