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Dear Friends & Partners,
Our investment returns are summarized in the table below:
|
Strategy |
Month |
YTD |
12 Months |
24 Months |
Inception |
|
LRT Economic Moat |
+13.70% |
+13.70% |
-11.59% |
+0.24% |
+20.74% |
| Results as of 1/31/2023. Periods longer than one year are annualized. All results are net of all fees and expenses. Past returns are no guarantee of future results. Please contact us if you would like to receive a full performance tearsheet. Please see the end of this letter for additional disclosures. |
January was a very good month for our strategy. Despite our largest holding, Northrop Grumman Corporation (NOC), declining sharply during the month, gains elsewhere in the portfolio helped overall performance. Strong returns from Marriott International Inc (MAR), Asbury Automotive Group Inc (ABG), and Lithium Americas Corp (LAC) more than offset the negative contributors. Overall, I remain optimistic for the year ahead and our investment strategy.
On the macroeconomic front, there is great uncertainty. It is now clear that inflation is declining, while unemployment has remained very strong. There are conflicting views about how the U.S. macroeconomy will perform in the second half of this year. On the one hand, investors are pricing in substantial interest rate cuts from the U.S. Federal Reserve, contrary to the words and projections from Fed officials who have signaled no cuts this year. Making the case for an economic slowdown (or even a recession) are declining inflation, declining industrial production data and a decline in freight volumes. On the other hand,
U.S. employment has remained very strong, and consumer spending seems to be holding up, making the case for no rate cuts and no recession later this year. How these conflicting views are resolved over the coming months will likely drive plenty of stock market volatility.
Over the past several weeks, animal spirits have driven speculative stocks higher, with the likes of Carvana Co. (CVNA) tripling in the first few weeks. The apparent return of the meme-stock mania has led to somewhat of a short-squeeze in the lowest quality companies. This is clearly an unsustainable market bubble, but how long this irrational behavior persists is anyone’s guess. Our strategy remains to completely ignore these types of stocks and focus on high quality companies: those possessing a competitive advantage, the ability to grow and reinvest, and having management teams with a good track record of capital allocation. We will continue to invest in high quality businesses and leave speculation on meme stocks to others.
Going forward, I have decided to expand the disclosure of our top holdings to the top twenty names, as well as add more transparency to the monthly attribution analysis. You can see all of that on the following page.
As always, I look forward to hearing from you and answering any questions you might have. Thank you for your continued interest and support.
Lukasz Tomicki, Portfolio Manager LRT Capital
Attributions and Holdings as of 2/1/2023
| LRT Economic Moat | Return Attribution | ||
| Top Twenty Holdings (%) – As of 2/1/2023 | Return Attribution (%) – January 2023 | ||
| Northrop Grumman Corporation (NOC) | 5.07 | Long Equity | 12.6 |
| Marriott International, Inc. (MAR) | 4.27 | Hedges | -7.09 |
| Exxon Mobil Corporation (XOM) | 4.05 | Unlevered Gross Return | 5.51 |
| Domino’s Pizza, Inc. (DPZ) | 3.68 | Leveraged Gross Return | 12.79 |
| HF Sinclair Corporation (DINO) | 3.56 | Net Return | 12.7 |
| Texas Pacific Land Trust (TPL) | 3.2 | ||
| Asbury Automotive Group, Inc. (ABG) | 3.02 | Top Contributors – January 2023 | |
| Murphy USA Inc. (MUSA) | 2.99 | Marriott International Inc (MAR) | |
| AO Smith Corp. (AOS) | 2.98 | Asbury Automotive Group Inc (ABG) | |
| Repligen Corporation (RGEN) | 2.79 | Lithium Americas Corp (LAC) | |
| Chemed Corp. (CHE) | 2.67 | Lithia Motors Inc (LAD) | |
| Watsco Inc. (WSO) | 2.58 | A. O. Smith Corp (AOS) | |
| Brown-Forman Corporation (BF-B) | 2.45 | Saia Inc (SAIA) | |
| Aspen Technology, Inc. (AZPN) | 2.42 | Colliers International Group (CIGI) | |
| Comcast Corporation (CMCSA) | 2.42 | Axon Enterprise Inc (AXON) | |
| Axon Enterprise, Inc. (AXON) | 2.32 | ||
| Novo Nordisk A/S (NVO) | 2.32 | Top Detractors – January 2023 | |
| Exponent Inc. (EXPO) | 2.26 | Vanguard Small-Cap ETF (VB) | |
| Lithia Motors Inc. (LAD) | 2.26 | iShares Russell 2000 (IWM) | |
| Dollar General Corporation (DG) | 2.5 | iShares Core S&P Mid-Cap (IJH) | |
| SPDR S&P MidCap 400 ETF (MDY) | |||
| Top Holdings Total (% of total long exposure) | 59.59 | iShares Core S&P Mid-Cap (IJH) | |
| Total Long Holdings | 60 | Vanguard Mid-Cap ETF (VO) | |
| Northrop Grumman Corp (NOC) | |||
| Hedges (%) – As of 2/1/2023 | |||
| Vanguard Mid-Cap ETF (VO) | -13.91 | ||
| Vanguard Small-Cap ETF (VB) | -12.83 | ||
| iShares Core S&P Mid-Cap (IJH) | -12.67 | ||
| SPDR S&P MidCap 400 ETF (MDY) | -12.67 | ||
| iShares Russell 2000 (IWM) | -12.17 | ||
| iShares Core S&P Small-Cap (IJR) | -12.13 | ||
| Overall Net Exposure (%) | 70.85 | ||
| Beta-adjusted Net Exposure (%) | 43.1 | ||
|
Source: Morningstar, Sentieo. Numbers may not add up due to rounding. Net returns are net of a hypothetical 1% annual management fee (charged quarterly) and 20% annual performance fee. Individual account results may vary due to the timing of investments and fee structure. Please consult your statements for exact results. Please see the end of this letter for additional disclosures. |
|
Disclaimer and Contact Information LRT Capital Management, LLC is an Exempt Reporting Adviser with the Texas State Securities Board, CRD #290260. Past returns are no guarantee of future results. Results are net of a hypothetical 1% annual management fee (charged quarterly) and 20% annual performance fee. Individual account returns may vary based on the timing of investments and individual fee structure. This memorandum and the information included herein is confidential and is intended solely for the information and exclusive use of the person to whom it has been provided. It is not to be reproduced or transmitted, in whole or in part, to any other person. Each recipient of this memorandum agrees to treat the memorandum and the information included herein as confidential and further agrees not to transmit, reproduce, or make available to anyone, in whole or in part, any of the information included herein. Each person who receives a copy of this memorandum is deemed to have agreed to return this memorandum to the General Partner upon request. Investment in the Fund involves significant risks, including but not limited to the risks that the indices within the Fund perform unfavorably, there are disruption of the orderly markets of the securities traded in the Fund, trading errors occur, and the computer software and hardware on which the General Partner relies experiences technical issues. All investing involves risk of loss, including the possible loss of all amounts invested. Past performance may not be indicative of any future results. No current or prospective client should assume that the future performance of any investment or investment strategy referenced directly or indirectly herein will perform in the same manner in the future. Different types of investments and investment strategies involve varying degrees of risk—all investing involves risk—and may experience positive or negative growth. Nothing herein should be construed as guaranteeing any investment performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. For a more detailed explanation of risks relating to an investment, please review the Fund’s Private Placement Memorandum, Limited Partnership Agreement, and Subscription Documents (Offering Documents). This report is for informational purposes only and does not constitute an offer to sell, solicitation to buy, or a recommendation for any security, or as an offer to provide advisory or other services in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. Any offer to sell is done exclusively through the Fund’s Private Placement Memorandum. All persons interested in subscribing to the Fund should first review the Fund’s Offering Documents, copies of which are available upon request. The information contained herein has been prepared by the General Partner and is current as of the date of transmission. Such information is subject to change. Any statements or facts contained herein derived from third-party sources are believed to be reliable but are not guaranteed as to their accuracy or completeness. Investment in the Fund is permitted only by “accredited investors” as defined in the Securities Act of 1933, as amended. These requirements are set forth in detail in the Offering Documents. |
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