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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Kernow's contrarian UK equity strategy declined 2.1% in March on trade war fears affecting Burberry, but strong fundamentals drove gains elsewhere. Manager exited Hunting despite 100% returns due to poor capital allocation, focusing on businesses with cash flow visibility and disciplined management."
Kernow Asset Management declined 2.1% in March as trade war concerns intensified, with Burberry's drawdown erasing gains from other positions due to its exposure to cross-border luxury demand and tariff risk. The manager maintains a contrarian approach focused on UK equities with asymmetric return characteristics. Strong fundamentals drove performance elsewhere, with Galliford Try posting interim results at the top end of consensus estimates and 13% revenue growth to £923m. Berkeley Group reaffirmed earnings guidance projecting £975m pre-tax profit across 2025-2026, sitting on £500m net cash with £7bn in forward orders and execution visibility through 2035. The manager exited Hunting despite generating over 100% returns, as management chose value-dilutive acquisitions over returning 30% of market cap through buybacks. In the uncertain environment, the strategy is leaning into businesses with cash flow visibility and disciplined capital allocation. Since inception in November 2019, the strategy has returned 52% versus 38% for UK equities, with collective portfolio upside worth over 240%.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
Kernow expresses high conviction in its top 5 long holdings, which comprise nearly 50% of NAV, and demonstrates strong sell discipline by completely exiting Hunting PLC when the thesis broke. However, the overall portfolio is relatively diversified, holding 20 long and 15 short positions, which prevents a higher conviction score.
Growth Outlook
The manager expresses clear caution regarding macroeconomic headwinds, specifically highlighting intensifying trade war concerns, tariff risks, and rising recession fears that have already caused a drawdown in their Burberry position.
Risk Appetite
With 143% gross exposure and 80% net exposure, the fund is moderately active but balances this long book with a targeted short book focusing on accounting arbitrage, reflecting a measured and balanced appetite for risk.
Capital Deployment
The fund is net-reducing and harvesting capital, as shown by their complete liquidation of Hunting PLC and selective leaning into highly visible, established cash flows rather than deploying new capital.
Forward Guidance
The manager is in a selective phase, focusing on existing high-conviction positions and pruning names that lack operational discipline. They show no clear action bias to aggressively deploy capital into new long names.
Language Signal
The commentary features a notable amount of cautious and bearish language, referencing 'trade war concerns', 'value traps', 'faltered strategies', 'drawdowns', and aggressive accounting comparable to Enron.
Perceived Risk
The manager perceives high levels of market and corporate risk, pointing directly to global trade/tariff disputes, macro recession signs, and fragile financial reporting practices inside FTSE 100 firms.
Opportunity Density
While the fund claims a massive 240% potential upside within its existing portfolio, they highlight a scarce opportunity set in the broader market, citing prevalent value traps and corporate governance red flags.
Time Horizon
The fund operates with a long-term investment horizon, highlighted by their minimum 5-year investor target and their analysis of companies with long-range plans, such as Berkeley Group's program lasting through 2035.
