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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Small-cap aerospace and defense specialist gained 3.1% in Q1, adding Honeywell before aerospace spin-off and building position in undervalued defense tech company FEIM. Butler National delivered strong results with 50% aerospace revenue growth."
Aaron Sallen's Merion Road Small Cap Fund gained 3.1% in Q1 2026, outperforming the Russell 2000's 0.9% return. The manager initiated a position in Honeywell ahead of its aerospace division spin-off, viewing the separated entity as attractively valued relative to peers like GE Aerospace. Butler National remained a top contributor with 50% aerospace revenue growth and expanding margins, while the manager built a new position in Frequency Electronic Inc, a defense technology company trading at significant discount to competitors. The portfolio focuses on aerospace and defense beneficiaries of increased military spending and global conflicts. Key catalysts include the upcoming Honeywell Aerospace spin-off, potential Quantinuum IPO, and Butler National's expected uplisting to a national exchange. The manager sees continued opportunities in companies with mission-critical products, captive customer relationships, and recurring aftermarket revenue streams. FEIM offers 65% upside potential based on revenue multiples of comparable companies, supported by growing backlog and activist involvement.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
Evaluated at 0.85 due to highly concentrated, deep-dive analysis of three major positions (HON, BUKS, FEIM). The manager provides detailed fundamental breakdowns, clear catalyst paths, and specific valuation targets (e.g., an 8x multiple putting FEIM at $81/share).
Growth Outlook
The manager focuses entirely on bottom-up stock-specific narratives, providing no explicit commentary or outlook on the broader macroeconomic environment or equity market valuations. Thus, a neutral score of 0.50 is assigned.
Risk Appetite
The manager actively built new long positions (FEIM, HON) and maintains high-conviction holdings in small-cap stocks like BUKS, showing a constructive, risk-on posture.
Capital Deployment
The manager built a brand new position in FEIM and initiated a starter position in HON during the quarter, indicating active moderate deployment of capital.
Forward Guidance
The manager is actively scaling positions, having recently built a new stake in FEIM and a starter position in HON. This demonstrates an active stance toward capital deployment.
Language Signal
The letter uses highly constructive language, referencing "substantial upside" for HON, "attractive" long-term outlook for BUKS, and significant undervaluation of FEIM. Bearish terms are restricted to brief mentions of performance detractors.
Perceived Risk
Perceived risk is low-to-moderate (0.40). The manager mentions geopolitical tensions and conflicts, but views them primarily as positive tailwinds for his defense-oriented holdings rather than systemic macro risks to the portfolio.
Opportunity Density
The manager identified multiple attractive opportunities, establishing two new positions (HON and FEIM) with highly defined catalysts. This indicates a solid pipeline of actionable ideas.
Time Horizon
The manager's investment thesis spans several years, as evidenced by references to multi-decade aftermarket life cycles for aerospace components and peer valuation comparisons based on 2027 revenue.
