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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Wedgewood Partners 2023 Q1 Investor Letter | Buyside Digest

Back to Fund Profile (Wedgewood Partners)

Primary Source Intelligence • Q1 2023 Letter Analysis

Wedgewood Partners Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Wedgewood Partners. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

QTD+9.8%

Annualized+11.8%

Positioning StanceConstructive

GeographyUS

Digest Analysis

Quick Take

"Led by technology holdings while First Republic Bank collapsed due to deposit runs. The Federal Reserve's extreme rate hikes broke the banking system by creating massive unrealized losses on mortgage securities."

Executive Summary

Wedgewood Partners delivered a 9.8% net return in Q1 2023, outperforming the S&P 500's 7.5% gain. Top contributors included Meta Platforms, Apple, Taiwan Semiconductor, Alphabet, and Booking Holdings, while First Republic Bank was the primary detractor due to the banking crisis. The fund trimmed Texas Pacific Land and sold Progressive while adding to Pool Corp and UnitedHealth. The banking crisis, triggered by Silicon Valley Bank's failure, created a deposit run on First Republic despite its strong lending record. The manager attributes the crisis to the Federal Reserve's extreme monetary tightening, which created over $1 trillion in unrealized losses on bank securities portfolios and broke the mortgage-backed securities market. With 50% of the nation's $17.7 trillion in bank deposits uninsured, systemic risks remain elevated. The manager expects the Fed will be forced to cut rates and believes the crisis will create better investment opportunities. They remain focused on best-in-class companies with sustainable competitive advantages while avoiding the structurally challenged banking sector.

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Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

72%

CautiousHigh

High Conviction (72%)

The manager demonstrates high conviction through concentrated holdings in named positions like Meta, Apple, and Taiwan Semiconductor, with specific weightings and detailed investment theses. They make decisive moves like completely exiting Progressive and adding to UnitedHealth during volatility, showing strong conviction in their investment process.

Growth Outlook

30%

BearishBullish

Bearish (30%)

The manager expresses significant concern about the banking crisis and Fed policy errors, describing the situation as banks being slammed into the windshield and warning of systemic risks. However, they also see this creating future opportunities as the Fed is forced to reverse course.

Risk Appetite

20%

DefensiveAggressive

Defensive (20%)

The manager maintained most positions and selectively added to UnitedHealth and Pool Corp while trimming some holdings. They show measured risk-taking by adding to quality names during market stress but remain cautious about sectors like banking.

Capital Deployment

15%

De-riskingDeploying

De-risking (15%)

The manager made selective additions to UnitedHealth and Pool Corp while trimming Texas Pacific Land and selling Progressive completely. This represents modest net deployment activity with some rotation, but no major cash level changes are mentioned.

Forward Guidance

30%

CautiousExpansionary

Cautious (30%)

The manager expects the Fed will be forced to cut rates and anticipates better investment opportunities ahead. They express optimism about finding attractive investments as markets adjust, though tempered by ongoing banking sector concerns.

Language Signal

40%

BearishBullish

Balanced (40%)

The letter contains significant bearish language around banking crisis, systemic risks, and Fed policy errors, but balances this with bullish language about individual holdings and future opportunities. The extensive discussion of risks slightly outweighs the positive framing.

Perceived Risk

85%

Low RiskElevated

Elevated Risk (85%)

The manager devotes extensive discussion to systemic banking risks, Fed policy errors, and potential for widespread bank failures. They cite specific statistics like 500 banks having worse losses than SVB and describe the situation as banks being slammed into the windshield, indicating very high perceived systemic risk.

Opportunity Density

60%

ScarceAbundant

Selective (60%)

While the manager sees the current crisis as potentially creating better investment opportunities ahead, they also note they are unlikely to invest in an entire sector (banking) for the foreseeable future. They continue to find selective opportunities in quality companies but acknowledge the challenging environment.

Time Horizon

75%

Short-TermLong-Term

Decade+ (75%)

The manager emphasizes long-term competitive advantages and sustainable growth for holdings like Apple and Taiwan Semiconductor. They discuss multi-year trends and express willingness to hold through volatility, though they also reference near-term catalysts like Fed policy changes and quarterly earnings.