| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 10.3% | 10.1% |
THB Micro Cap Strategy outperformed its benchmark by 201 basis points in Q3 2024, returning 10.30% net of fees versus the Russell Microcap Index's 8.29% return. The strategy maintains 90-125 securities from approximately 1,700 stocks in the Russell Microcap Index, targeting inefficiencies in this under-researched space. Key performance drivers included strong stock selection in Consumer Discretionary and Health Care sectors, with top contributors including Latham Group, Hawkins, and Climb Global Solutions. The portfolio added Ribbon Communications, a communications solutions provider benefiting from network transformation trends and data center interconnect opportunities. The manager remains optimistic about future economic activity and lower interest rates, believing the threat of overly restrictive Fed policy has passed as the easing cycle begins. Rising productivity driven by automation and AI provides a powerful economic tailwind. However, risks include more volatile inflation readings from secular forces like energy transition and geopolitical tensions, potentially leading to frequent monetary policy shifts that could impact markets.
THB believes that the micro-cap universe is inefficient and that a focused portfolio of high-quality securities in the space can offer strong risk-adjusted returns through a disciplined, actively managed approach.
Despite some uncertainty, we remain optimistic about future economic activity and the prospect of lower interest rates. One of our biggest concerns was the possibility of a policy mistake if overly restrictive rates were imposed by the Fed. As we now enter an easing cycle, we believe that threat has largely passed.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Sep 30 2024 | 2024 Q3 | ALNT, BSIG, BWMN, CEG, CLMB, HONE, HWKN, HZO, IMMR, LUMN, LUNA, MSFT, MYRG, PLUS, POOL, RBBN, TRNS, UFPT, VZ, XPRO | Data centers, Energy Transition, Federal Reserve, interest rates, Micro Cap, productivity, small caps, Utilities | RBBN | THB Micro Cap Strategy outperformed by 201 bps in Q3, capitalizing on inefficiencies in the under-researched micro-cap universe. Strong stock selection drove performance while the manager added exposure to data center connectivity trends through Ribbon Communications. With Fed easing underway and productivity gains accelerating, the outlook remains constructive despite inflation volatility risks from energy transition and geopolitical factors. |
| Jun 30 2024 | 2024 Q2 | ALNT, AMZN, BSIG, BYON, CRNC, DAKT, HWKN, IMMR, LIMB, LMAT, LUNA, NVDA, NVEE, PLUS, POOL, RES, TRNS, UFPT, VCEL, VITL | AI, Elections, inflation, infrastructure, Microcap, small caps, technology, value | DAKT | THB Micro Cap Strategy targets inefficiencies in the micro-cap universe through a focused 90-125 stock portfolio. Despite Q2 underperformance, the manager remains bullish on small-caps, emphasizing AI infrastructure investment opportunities and potential regulatory tailwinds. Key holdings benefit from data center build-out and AI adoption, while attractive valuations and expected Fed rate cuts support the positive outlook. |
| Apr 15 2024 | 2024 Q1 | BYON, CENX, CLNE, DOUG, FIGS, HWKN, ICHR, LIDR, LMAT, LUNA, PLUS, RELL, RES, TRNS, UCTT, UFPT, UTI, VCEL, WNC | Concentration, Economy, inflation, Micro Cap, rates, regulation, Small business | WNC | THB Micro Cap outperformed by 145bp in Q1 through disciplined stock selection in an inefficient universe of 1,700 micro-cap names. Strong Health Care picks and defensive positioning drove results while market concentration hit historic highs. Economic resilience despite higher rates supports the thesis that quality small companies can adapt and capitalize on opportunities. |
| Dec 31 2023 | 2023 Q4 | ATMU, BYON, CENX, HONE, ICHR, LMAT, LMB, MHO, PLPC, PLUS, RES, SKIN, TRNS, TTI, UFPT, UTI, XPRO | Commercial real estate, consumer, Electric Vehicles, inflation, interest rates, Micro Cap | ATMU | THB Micro Cap Strategy targets inefficiencies in the 1,700-stock Russell Microcap universe through concentrated holdings of 90-125 high-quality securities. Despite Q4 underperformance due to biotech and bank underweights, the strategy delivered strong annual returns. The manager sees opportunities from slowing EV adoption and normalizing interest rates creating a healthier investment environment focused on fundamental value creation. |
| Nov 24 2022 | 2022 Q3 | 0RTL LN, AEMDC SP | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2024 Q3 |
Energy TransitionGreen energy transition initiatives are taking place just as demand for electricity is increasing from EVs and data centers. Utilities are raising rates to fund grid upgrades for offshore wind and neighborhood electrification investments. Solutions to the challenges facing the electrical grid and power generation needs are being developed in real time, which provides investment opportunities within small and mid-size investment universes. |
Grid Upgrade Renewable Components Energy Storage Smart Grid Power Electronics |
Data CentersMicrosoft announced plans to restart Three Mile Island nuclear power plant to sell power for AI data centers. Ribbon Communications is benefiting from new customer wins as it helps service providers in network transformation and offers the latest optical engine technology in its new DCI (data center interconnect) product offerings with a pipeline of 20 customers deploying solutions to connect data centers over fiber. |
AI Cloud Infrastructure Optical Networking Power Equipment Nuclear | |
ProductivityAutomation, AI, and the trickle-down effect of existing technologies are driving U.S. output per worker to record high levels. The recent pickup in productivity is a welcome change versus the stagnation experienced during the last ten years. Secular economic improvements such as productivity can serve as powerful catalysts for both earnings and multiples of small and mid-size stocks. |
Automation AI Industrial Software Process Automation Factory Automation | |
| 2024 Q2 |
AIArtificial intelligence is receiving significant media attention with companies committing billions to building infrastructure for data storage and processing. The AI ecosystem includes undiscovered companies whose products and services are necessary for continued infrastructure build-out. THB holdings participating in AI infrastructure include Limbach Holdings, NV5 Global, ePlus, and Luna Innovations. |
Data Centers Infrastructure Cloud Semiconductors Technology |
Data CentersCompanies are committing billions to building infrastructure to store and process data needed for AI applications. Nvidia's CEO expects $250 billion annually on data center equipment, while Amazon plans $150 billion over 15 years. Building data centers requires engineering services, raw materials, power supply, cooling equipment, and backup generation. |
AI Infrastructure Cloud Power Construction | |
InflationHeadline inflation readings continue to recede but many instances of higher prices continue to plague consumers. Inflation remains a leading concern for consumers and a top issue for voters, likely impacting views on the presidential race. Examples include price hikes across stamps, insurance, utilities, streaming services, and various consumer goods. |
Consumer Prices Rates Economic Policy Elections | |
| 2024 Q1 |
InflationInflation remains problematic and is a top concern among Americans, affecting their financial outlook despite robust economic conditions. Some elements have rolled over but food, energy, shelter, and insurance remain elevated, impacting daily consumer lives. |
Inflation Consumer Fed Rates Economy |
Small CapsSmall business optimism remains at ten-year lows due to inflation, labor costs, taxes, and regulation burdens. Small businesses comprise 45% of US GDP and face disproportionate regulatory challenges compared to larger corporations with legal resources. |
Small Business Regulation Optimism GDP Labor | |
OnshoringDomestic reshoring trend provides tailwinds for companies like Wabash National as more manufacturing moves back to the United States, increasing demand for efficient and sustainable transportation supply chains. |
Reshoring Manufacturing Transportation Supply Chain Domestic | |
| 2023 Q4 |
Electric VehiclesEV adoption is slowing with companies like Ford losing $36,000 per EV sold and GM delaying production. Consumer concerns about charging infrastructure, range, and cost are limiting adoption. Investment opportunities exist in ICE-related companies as EV transition timelines extend. |
EV Charging Infrastructure Ford GM |
RatesThe end of zero interest rates creates normalized investment environment where wealth is created through prudent corporations rather than financial engineering. Higher rates are creating stress in commercial real estate while the overall financial system remains healthy. |
Interest Rates Fed Zero Rates Financial Conditions | |
Commercial Real EstateCMBS BBB spreads have reached highest levels since 2008, indicating significant stress in commercial real estate markets due to higher interest rates, debt levels, occupancy rates, and financing challenges. |
CMBS Real Estate Spreads Stress |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Sep 30, 2024 | Fund Letters | THB Asset Management | RBBN | Ribbon Communications, Inc. | Information Technology | Communications Equipment | Bull | NASDAQ | 5G infrastructure, Communications Equipment, Data Center Interconnect, Fiber Optics, Network Transformation, optical networking, service providers, telecommunications | Login |
| Jun 30, 2024 | Fund Letters | THB Asset Management | DAKT | Daktronics | Information Technology | Electronic Equipment, Instruments & Components | Bull | NASDAQ | Electronic Scoreboards, LED Displays, manufacturing, margin expansion, market leader, recurring revenue, sports entertainment, Transportation | Login |
| Mar 31, 2024 | Fund Letters | THB Asset Management | WNC | Wabash National Corporation | Industrials | Machinery | Bull | NYSE | Emissions Reduction, Fuel efficiency, Lightweight materials, recurring revenue, Reshoring, Semi-truck trailers, Service Transformation, subscription model, Transportation equipment | Login |
| Dec 31, 2023 | Fund Letters | THB Asset Management | ATMU | Atmus Filtration Technologies Inc. | Capital Goods | Industrial Machinery | Bull | NASDAQ | aftermarket, commercial vehicles, defensive, Emissions Standards, filtration, industrial machinery, Oem, patents, spin-off, Value | Login |
| TICKER | COMMENTARY |
|---|---|
| POOL | Latham Group, Inc. (Consumer Discretionary, +1.87%) |
| HWKN | Hawkins, Inc. (Materials, +0.87%) |
| PLUS | ePlus, Inc. (Information Technology, +0.76%) |
| CLMB | Climb Global Solutions, Inc. (Information Technology, +0.81%) |
| UFPT | UFP Technologies, Inc. (Health Care, +0.64%) |
| RBBN | Ribbon Communications is a new addition to the strategy. It is a leading supplier of IP-based real-time communications solutions (both equipment and software) for service provider carriers and enterprise customers. The company was created by the merger of Sonus and GENBAND in 2017, and later it entered the optical networking industry through the acquisition of ECI Telecom in 2020. Ribbon is currently benefiting from new customer wins like Tier 1 service providers Verizon and Lumen as it helps them in network transformation. Ribbon is also offering the industry's latest 5-nanometer (nm) and 3-nm optical engine technology in its new DCI (data center interconnect) product offerings, where it has a pipeline of 20 customers (mainly second-tier data center operators and telcos) deploying its solutions to connect data centers over fiber. |
| XPRO | Expro Group Holdings, N.V. (Energy, -0.40%) |
| ALNT | Allient, Inc. (Industrials, -0.27%) |
| BWMN | Bowman Consulting Group, Ltd. (Industrials, -0.25%) |
| MYRG | MYR Group, Inc. (Industrials, -0.25%) |
| LUNA | Luna Innovations, Inc. (Information Technology, -0.18%) |
| MSFT | Microsoft (market capitalization of ~$3 trillion and ~$75 billion in cash on the balance sheet) is also having the plant owner, Constellation Energy, pursue a $1.6 billion federal, taxpayer-backed loan needed to fund the restart. Microsoft needs the electricity for AI data centers. |
| CEG | In September 2024, Constellation Energy announced plans to restart the Three Mile Island nuclear power plant to sell the power to Microsoft. Three Mile Island is the site of the worst nuclear accident in U.S. history, which caused one of its reactors to be permanently closed after the 1979 incident. |
| VZ | Ribbon is currently benefiting from new customer wins like Tier 1 service providers Verizon and Lumen as it helps them in network transformation. |
| LUMN | Ribbon is currently benefiting from new customer wins like Tier 1 service providers Verizon and Lumen as it helps them in network transformation. |
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