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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Small cap value fund outperforming major indices by focusing on undervalued businesses with solvable operational problems while mega-cap tech dominates markets. Portfolio companies executing buybacks and improving fundamentals despite macro headwinds."
Laughing Water Capital returned 13.8% in Q2 2023 and 22.4% year-to-date, outperforming both the S&P 500 and Russell 2000. The fund focuses on small cap businesses with solvable problems while avoiding mega-cap tech stocks that have dominated market returns. Key holdings include API Group (fire safety services), Avid Bioservices (contract drug manufacturing), Hilton Grand Vacations (timeshares), Lifecore Biomedical (specialty CDMO), Thryv (SMB software), and Vistry Group (UK homebuilder). The manager sees an attractive opportunity set as small caps have been left behind by AI-focused markets, creating record valuation spreads. Multiple portfolio companies are executing share buyback programs. While recession risks persist, the focus remains on businesses with improving normalized earnings power trading at attractive valuations. The manager believes market breadth will eventually widen, providing tailwinds for the concentrated small cap strategy. Nearly all personal and family capital remains invested alongside partners.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
High conviction evidenced by concentrated portfolio of 6 disclosed positions, specific position sizing commentary (LFCR outcome 'going to matter quite a bit'), detailed individual company analysis, and manager having nearly all personal/family capital invested alongside partners. Clear thesis per holding with multi-year time horizons.
Growth Outlook
Manager is constructively bullish on markets, noting that despite recession predictions, returns have been strong at 22.4% YTD. Views current opportunity set as more attractive than usual, particularly in small caps, though acknowledges recession risks remain.
Risk Appetite
Portfolio remains almost entirely invested with manager's family capital alongside partners. Actively adding new positions and describes opportunity set as rich. No mention of raising cash or defensive positioning despite macro concerns.
Capital Deployment
Manager mentions adding new investments and describes opportunity set as rich, but provides no specific cash level changes or quantified deployment metrics. Portfolio appears to remain almost entirely invested with selective new additions.
Forward Guidance
Manager is actively deploying capital into new investments and expects to be rewarded over time as normalized earnings power increases and market perception improves. Positioned for when small caps regain favor with market breadth expansion.
Language Signal
Language is predominantly positive with terms like 'attractive opportunity set,' 'exceptionally attractive future rewards,' 'rich opportunity set,' and 'extraordinary skew.' Risk language is present but balanced with opportunity framing.
Perceived Risk
Manager acknowledges recession risk as inevitable and discusses yield curve inversion's track record, market concentration risks, and biotech spending headwinds. However, risks are discussed in context of creating opportunities rather than as major threats requiring defensive action.
Opportunity Density
Manager explicitly states the opportunity set is 'more attractive than usual' and 'rich at the moment' with new names entering the portfolio. Sees abundant opportunities in small caps left behind by mega-cap tech focus, creating record valuation spreads.
Time Horizon
Manager consistently references 3-5 year time horizons for business problems to be solved and thesis realization. Emphasizes long-term normalized earnings power over short-term market movements, though some positions like LFCR have near-term catalysts within 1-3 months.
