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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"L1 Capital outperformed in Q1 2025 despite Trump tariff chaos by maintaining discipline on quality businesses trading below fair value. Added to healthcare winner HCA and defensive utility Veolia while tech holdings Amazon, Microsoft, Alphabet offer compelling value despite AI headwinds."
L1 Capital International delivered 0.1% net returns in Q1 2025, outperforming the benchmark by 2.6% amid significant market volatility driven by Trump's Liberation Day tariff policies. The manager views the Reciprocal Tariffs framework as deeply flawed, based on trade deficits rather than actual unfair practices, creating substantial economic uncertainty. While partial policy normalization occurred on April 9th with most tariffs paused except for China, unprecedented U.S.-China tensions persist. The fund maintained its quality-focused approach, adding to undervalued positions like HCA Healthcare which contributed over 1% to returns, and initiating defensive positions in Veolia Environnement. Technology holdings including Amazon, Microsoft, and Alphabet faced AI-related headwinds but trade well below fair value. The portfolio remains 99% invested in investment-grade companies with strong cash flows and experienced management teams. Cash increased to 4% for tactical flexibility. Despite ongoing uncertainty, the manager believes portfolio investments are materially undervalued in most economic scenarios and positioned for attractive risk-adjusted returns.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
High conviction in quality-focused investment approach and fair value assessments. Strong conviction that portfolio holdings are materially undervalued and positioned for attractive risk-adjusted returns. Clear positioning decisions despite uncertainty.
Growth Outlook
Manager expresses significant concerns about Trump's trade policies creating economic uncertainty and potential global disruption, but sees some stabilization post-April 9th with partial policy normalization. Mixed outlook with cautious optimism for eventual recovery.
Risk Appetite
Portfolio remains largely invested (96% vs 99% previously) with selective additions to undervalued positions like HCA and new defensive positions like Veolia. Modest increase in cash to 4% for tactical flexibility shows measured approach rather than aggressive risk-taking.
Capital Deployment
Cash increased from 1% to 4% representing modest de-risking, but manager made selective additions to undervalued positions and initiated new investments. Net slight reduction in deployment but maintained largely invested stance.
Forward Guidance
Manager expects to remain broadly fully invested over time and sees portfolio as materially undervalued in most scenarios. Cautiously optimistic about opportunities as uncertainty reduces, but maintains defensive positioning given ongoing risks.
Language Signal
Language emphasizes risks, uncertainty, and economic disruption from trade policies, but balanced by discussions of attractive valuations, quality businesses, and positioning for recovery. Net slightly negative tone despite value opportunities.
Perceived Risk
High perceived risk from trade policy uncertainty, U.S.-China tensions, AI investment concerns, and potential economic disruption. Manager explicitly discusses unprecedented uncertainty and multiple systemic risks affecting global economy.
Opportunity Density
Manager sees attractive opportunities in undervalued quality businesses, particularly in technology holdings trading well below fair value and defensive positions like Veolia. Market volatility creating selective opportunities despite challenging environment.
Time Horizon
Explicit 3-5 year investment horizon with focus on long-term sustainable growth drivers and patient capital approach. Emphasis on businesses with experienced management teams positioned to navigate current uncertainties over time.
