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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Hurdle Rate delivered 21.6% returns in 2024 through concentrated value investing in global small-caps. Manager Waine focuses on absolute returns over market-relative performance, maintaining high portfolio turnover to capitalize on mispriced securities."
Hurdle Rate Unit Trust delivered 21.6% net returns in 2024, exceeding its 20% annual target but underperforming the S&P500's 37.5% return. Manager Tristan Waine attributes S&P500 performance to excessive market optimism, with 19.4% market return driven by multiple expansion and currency effects rather than fundamentals. The fund maintains a value-oriented approach, investing globally in small-cap companies trading at attractive valuations. Portfolio turnover was nearly 100% due to active position sizing and error recognition. Key investments included software companies like Hungarian Kulcs-Soft and Japanese Avant Group, specialty finance firms like UK's Orchard Funding, and Australian businesses across various sectors. Several positions were exited due to management quality concerns, changed investment thesis, or attractive sale opportunities. The manager emphasizes absolute returns over relative performance, focusing on companies with strong fundamentals trading below intrinsic value. Despite market headwinds from concentrated ownership risks and interest rate pressures on specialty finance holdings, the fund continues targeting its 20% compound annual return objective through disciplined value investing.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
Manager demonstrates moderate-high conviction through concentrated positions and willingness to size up during dislocations (dramatically increasing Orchard position during declines). However, high turnover of nearly 100% and multiple position exits due to changed thesis or management concerns indicate some uncertainty. Named positions with detailed analysis support conviction, but frequent exits cap the score below high conviction range.
Growth Outlook
Manager expresses concern about excessive market optimism in the S&P500, noting that 19.4% of returns came from market forces (multiple expansion and currency) rather than fundamentals. However, this is balanced by continued focus on finding opportunities in specific markets like Japan after the yen unwinding event.
Risk Appetite
Portfolio shows selective risk-taking with nearly 100% turnover and active position sizing. Manager demonstrates willingness to add to positions during market dislocations (like Orchard Funding during price declines) but also quick to exit when thesis changes, indicating measured risk appetite.
Capital Deployment
Net Asset Value grew five-fold primarily due to new unitholder contributions rather than cash deployment from existing capital. High portfolio turnover represents rotation rather than net deployment. Manager describes selective opportunity identification but no clear evidence of significant cash level changes or aggressive deployment.
Forward Guidance
Manager maintains focus on absolute return target of 20% annually but provides no clear directional bias for future deployment. Emphasis on patience and value discipline suggests a monitoring stance rather than aggressive deployment or defensive positioning.
Language Signal
Language is balanced between opportunity recognition (Japan market dislocation, attractive valuations) and risk awareness (excessive market optimism, management quality concerns). Slightly more cautious tone regarding market conditions but constructive on individual opportunities.
Perceived Risk
Manager identifies specific risks including excessive market optimism, interest rate pressures on specialty finance holdings, and concentrated ownership risks. However, these are discussed as manageable factors rather than systemic threats, with risk mitigation through position sizing and exit strategies when concerns arise.
Opportunity Density
Manager identifies selective opportunities across different geographies and sectors, particularly noting pockets of opportunity in Japan during market dislocation. However, emphasis on patience and value discipline suggests opportunities require careful selection rather than being broadly abundant.
Time Horizon
Manager demonstrates medium-term orientation with willingness to hold through volatility but also quick to exit when thesis changes. High turnover suggests shorter holding periods than typical long-term value investors, but focus on fundamental analysis and compound returns indicates multi-year thinking rather than short-term trading.
