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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Milano's concentrated value fund underperformed in 2022 but the manager believes intrinsic value increased significantly. The portfolio is heavily weighted toward Chinese companies including a major new petrochemical position that completed capacity expansion."
Diego Milano's concentrated value fund delivered -17.1% in 2022, outperforming the S&P 500 by 2.4 percentage points during a challenging year for both stocks and bonds. Despite the negative returns, the manager estimates the fund's intrinsic value increased from 420 to 460 while the NAV declined from 127.8 to 106.0, highlighting the gap between price and value. The portfolio remains highly concentrated with four major positions representing approximately 70% of assets: Tianjin Development Holdings and China Sanjiang Fine Chemicals each at 20%, plus Sonagi and Compagnie de l'Odet at 15% each. The fund's largest new position, China Sanjiang Fine Chemicals, completed a major petrochemical plant expansion that should significantly improve cost competitiveness and capacity. Key portfolio companies executed value-creating transactions including asset sales at attractive multiples. Milano maintains his disciplined approach of buying extremely undervalued companies with wide margins of safety, positioning for long-term value realization despite near-term macro headwinds including China's economic deceleration and the petrochemical downcycle.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
The fund demonstrates high conviction through extreme concentration with four positions representing 70% of assets, specific position sizing disclosed, and detailed analysis of the largest new investment. The manager provides specific intrinsic value estimates and maintains positions despite volatility, showing strong conviction in the value thesis.
Growth Outlook
The manager acknowledges significant macro headwinds including war, inflation, higher rates, recession risks, and China's economic deceleration. However, he frames these as temporary challenges and maintains confidence in finding opportunities, resulting in a mildly cautious but not bearish outlook.
Risk Appetite
The fund remains fully invested in concentrated positions despite 2022 losses, with the manager adding a significant new position in Sanjiang Chemicals. The positioning shows selective risk appetite focused on deep value opportunities rather than defensive cash raising.
Capital Deployment
The manager added a significant new position in Sanjiang Chemicals that became approximately 20% of the fund, indicating selective deployment. However, no specific cash level changes are mentioned, suggesting modest net deployment activity rather than aggressive capital deployment.
Forward Guidance
The manager plans to continue the same strategy of finding extremely undervalued companies, preferably in resilient businesses. The guidance is constructive but measured, acknowledging uncertainty while maintaining the disciplined approach.
Language Signal
The language is balanced between acknowledging risks and highlighting opportunities. Negative terms like downcycle, recession, and deceleration are offset by positive language around opportunities, undervalued assets, and value creation.
Perceived Risk
The manager identifies multiple specific macro risks including war, inflation, recession, China deceleration, and petrochemical downcycles. He acknowledges the fund is bound to have bad periods and that undervalued companies can become more undervalued, showing meaningful risk awareness.
Opportunity Density
The manager found attractive opportunities to add a major new position and sees value in existing holdings, but emphasizes selectivity and the need for wide margins of safety. The tone suggests opportunities exist but require careful selection rather than abundant choices.
Time Horizon
The manager explicitly focuses on long-term value realization, emphasizes annualized returns over long periods, and states that 25 months is far too brief to judge strategy success. The approach of buying undervalued companies and waiting for value recognition suggests a multi-year investment horizon.
