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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Leaven Partners 2023 Q2 Investor Letter | Buyside Digest

Back to Fund Profile (Leaven Partners)

Primary Source Intelligence • Q2 2023 Letter Analysis

Leaven Partners Quarterly Analysis

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

Fund Returns

QTD+4.3%

Annualized+18.5%

Positioning StanceConstructive

GeographyUS

Digest Analysis

Quick Take

"Manager maintains defensive hedge strategy against overvalued markets while positioning for Tokyo Stock Exchange capital efficiency initiatives. Successfully executed coattail investing in biotech liquidations."

Executive Summary

Leaven Partners returned 4.3% in Q2 2023, driven primarily by Japanese holdings contributing 3.2% and foreign currency strategy adding 2.8%, offset by hedge strategy reducing returns by 3.0%. The fund maintains a value-oriented approach with 100% of Japanese holdings trading below 70% of book value, positioning to benefit from Tokyo Stock Exchange capital efficiency initiatives. The manager successfully executed coattail investing in distressed biotech, generating 28% returns on Metacrine and 69% on Satsuma Pharmaceuticals. Despite positive quarterly performance, the manager expresses concern about market conditions, citing inverted yield curve predicting recession by March 2024 and extreme market bifurcation with seven mega-caps driving most S&P 500 gains. Global value spreads remain above 94th percentile in bubble territory. The hedge strategy implemented to address inflated asset prices has weighed on performance but manager believes more time needed before reassessment. Portfolio positioned defensively while maintaining conviction in Japanese value opportunities and selective biotech investments.

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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%)

High conviction demonstrated through concentrated positioning in specific themes with detailed analysis. Manager provides specific position sizing (1.6% Forte Biosciences, 2% Satsuma), explicit investment criteria (100% Japanese holdings below 70% book value), and clear catalyst-driven strategies in biotech. Detailed case studies of successful investments show strong conviction in approach despite hedged market outlook.

Growth Outlook

20%

BearishBullish

Bearish (20%)

Manager explicitly bearish on market outlook, citing bond market screaming for recession, inverted yield curve with eight-for-eight historical success rate predicting recession by March 2024, and valuations in bubble territory above 94th percentile. Describes extreme market bifurcation and warns to proceed with caution.

Risk Appetite

35%

DefensiveAggressive

Defensive (35%)

Portfolio positioned defensively with hedge strategy implemented to deal with highly inflated asset prices. Manager acknowledges hedge strategy has been a weight on performance but maintains defensive positioning. However, still actively investing in Japanese value opportunities and biotech situations, indicating selective risk-taking.

Capital Deployment

15%

De-riskingDeploying

De-risking (15%)

Limited net deployment activity with manager describing hedge strategy as weight on performance. Successfully executed specific biotech investments but overall positioning remains defensive. No mention of significant cash level changes or broad-based adding to positions. Activity focused on rotation and selective opportunities rather than aggressive deployment.

Forward Guidance

38%

CautiousExpansionary

Neutral (38%)

Manager explicitly states proceeding with caution given extreme signaling in both bond and stock markets. Believes hedge strategy needs more time before potential reassessment. Forward guidance emphasizes patience and defensive positioning while waiting for market conditions to improve.

Language Signal

28%

BearishBullish

Bearish (28%)

Language dominated by risk warnings including recession signals, bubble territory, overvalued markets, and caution advisories. Bearish terms like screaming recession, highly inflated prices, and extreme bifurcation outweigh positive language about specific opportunities in Japan and biotech.

Perceived Risk

80%

Low RiskElevated

Elevated Risk (80%)

Manager perceives high systemic risk with detailed discussion of recession indicators, inverted yield curve with historical precedent, bubble territory valuations, and banking system strain. Explicitly warns of multiple risk factors including duration risk, lending tightening, and extreme market concentration. Risk discussion central to investment thesis.

Opportunity Density

65%

ScarceAbundant

Abundant (65%)

Manager sees selective opportunities in specific areas despite overall market concerns. Identifies rich opportunity set in Japanese value stocks trading below book value and distressed biotech situations. However, characterizes environment as requiring selectivity and caution rather than broad-based opportunity abundance.

Time Horizon

70%

Short-TermLong-Term

Decade+ (70%)

Multi-year investment horizon demonstrated through Japanese value thesis dependent on capital efficiency initiatives playing out over time and willingness to hold through volatility. Manager states belief that investors will find their way to Japanese opportunities in time, indicating patient capital approach with 2-3 year thesis timeframe.