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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"LVS Advisory capitalizes on market overreactions to macroeconomic uncertainty by acquiring high-quality businesses at asymmetric entry prices. The manager recently navigated banking system volatility by liquidating vulnerable financials and shifting capital into resilient, high-conviction leaders like Interactive Brokers and Netflix, alongside a new monopoly holding in Gogo, preparing the fund to capture long-term recovery upsides."
The investment strategy at LVS Advisory is rooted in identifying mispriced securities with asymmetric risk-to-reward profiles by visualizing normalized earnings through macroeconomic cycles. During the first quarter of 2023, the firm navigated systemic banking failures and lagging interest rate pressures by taking swift action to recalibrate its portfolio exposure. Specifically, the manager completely exited positions in Charles Schwab and Avid due to shifting liquidity dynamics and changing industry structures, respectively. The resulting capital was aggressively redeployed into high-conviction ideas, including additions to Netflix, BJ's Wholesale, and The Joint, as well as a new position in private jet connectivity provider Gogo. Additionally, the Defensive Portfolio capitalized on non-correlated event-driven merger arbitrage opportunities, such as the Abiomed contingent value right, which offer significant returns regardless of interest rate trajectories or recessionary threats. Looking forward, the manager remains constructive on forward equity returns as inflation cools and rate hikes pause.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
Conviction is rated 0.85 because the Growth Portfolio is highly concentrated, with the top 5 holdings representing 44.2% and the top 10 representing 73.1% of the fund. The manager provides granular, falsifiable theses for top positions like Gogo and Interactive Brokers and explicitly identifies Interactive Brokers as the largest holding with bolstered conviction.
Growth Outlook
The manager rates the market outlook as constructive (0.75), noting that while the banking crisis has created volatility, historical studies show that post-crisis periods typically yield attractive 3-to-5-year equity returns. Additionally, inflation is showing clear signs of cooling, and a shift toward interest rate cuts is deemed likely over the next 6 to 12 months.
Risk Appetite
Risk appetite is positioned at 0.75 as the firm is net long and actively concentrated its equity portfolio. While they pruned vulnerable financials like Charles Schwab, they aggressively reinvested the proceeds to make Netflix an overweight position and establish a new monopoly holding in Gogo.
Capital Deployment
Capital deployment is scored at 0.60, indicating net-neutral to slightly active deployment. The letter indicates that the cash proceeds from the complete liquidations of Charles Schwab and Avid were fully and primarily recycled directly into adding to existing holdings (Netflix, BJ's, The Joint) and initiating Gogo, keeping overall cash levels stable.
Forward Guidance
The score is 0.75 due to the manager's clear action bias toward redeploying capital from exits (Avid, Schwab) into existing high-conviction holdings and launching new long-term positions. There is an active effort to utilize market sell-offs as entry points rather than pulling back to cash.
Language Signal
Language is rated 0.75, leaning heavily toward opportunity and mispricings, particularly in event-driven setups and high-quality compounders. While they discuss the banking crisis and rate hikes, this is framed as creating attractive entry points and clear winners like Interactive Brokers rather than systemic doom.
Perceived Risk
Perceived risk is 0.65, acknowledging significant headwinds from the 12-to-18-month lag of rapid rate hikes and systemic banking stress. However, the manager believes these risks are containing and manageable, focusing on finding companies that are insulated or can benefit from them.
Opportunity Density
Opportunity density is 0.75, driven by the manager's view that short-term macro panic has mispriced several high-quality assets. They highlight plenty of attractive entry points, particularly in event-driven Arbitrage (Biohaven, Abiomed CVR) and secular growth stories experiencing temporary pullbacks.
Time Horizon
Time horizon is scored at 0.75, backed by the explicit instruction to 'visualize the situation 18 months from now' and look through near-term 2023/2024 earnings declines to focus on normalized earnings in 2025 and 2026. The thesis for new investment Gogo is also framed around a multi-year secular expansion and high-switching costs over a 5-to-7-year timeframe.
