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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Long Cast delivered strong 3Q23 performance with 8% returns, outpacing small cap benchmarks. The concentrated small cap fund focuses on high corporate IQ companies like medical device manufacturer PDEX and specialty equipment maker SOTK, both expanding capacity and backlogs."
Long Cast Advisers delivered 8% net returns in 3Q23, bringing YTD returns to 20% and since-inception CAGR to 14%. The fund significantly outperformed small cap benchmarks including the Russell 2000 and iShares MicroCap ETF. Top performers included MTRX, MAMA, QHRC and RSSS, while detractors were CCRD, RELL, DAIO and PDEX. The manager added to MTRX and harvested tax losses from smaller positions, resulting in a more concentrated portfolio with elevated cash levels. Key holdings PDEX and SOTK are expanding manufacturing capacity and backlogs, positioning for growth in 2024. PDEX doubled its manufacturing space and backlog to $41M through a large customer order, while SOTK's specialty coating equipment business shows promise for lab-to-production scaling. Given geopolitical tensions and rising rates pressuring small caps, the manager is maintaining higher cash levels while seeking new opportunities. The investment philosophy centers on identifying high corporate IQ companies with customer-centric, iterative management teams focused on long-term value creation rather than ego satisfaction.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
The manager demonstrates moderate-high conviction through detailed analysis of specific holdings like PDEX and SOTK, discusses position sizing decisions (adding to MTRX, exiting smaller positions), and articulates a clear investment philosophy around corporate IQ. However, the diversified nature of the portfolio and elevated cash levels prevent a higher score.
Growth Outlook
The manager expresses cautious optimism about small cap opportunities when rates peak, but acknowledges current headwinds from geopolitical tensions and rising rates. The outlook is constructive but tempered by near-term challenges.
Risk Appetite
The portfolio has moved to higher cash levels due to geopolitical tensions, with the manager explicitly stating he's leaning towards holding more cash than usual. This represents a defensive tilt from normal positioning.
Capital Deployment
The manager substantially exited smaller holdings and is holding more cash than usual due to geopolitical tensions. While he added to MTRX, the net effect is higher cash levels and a more defensive posture, indicating modest de-risking.
Forward Guidance
The manager indicates he's continuing to scour for new ideas and believes it's an opportune time to source investments, but emphasizes patience and being in no rush. This suggests selective deployment bias rather than aggressive action.
Language Signal
Language is balanced between opportunity-focused terms like 'opportune time,' 'attractive,' and 'compelling' versus risk-aware language around geopolitical tensions, vulnerabilities, and downdraft. Slightly more constructive than cautious overall.
Perceived Risk
The manager identifies specific macro risks including geopolitical tensions, rising rates impacting small caps, and credit vulnerabilities of smaller companies. He discusses how these factors create a downdraft in small cap markets and explicitly adjusts positioning in response.
Opportunity Density
The manager states it's an opportune time to source new ideas and continues to scour for opportunities, suggesting he sees selective opportunities in the current environment. The detailed analysis of existing holdings also indicates ongoing opportunity identification.
Time Horizon
The manager emphasizes long-term investing, states he tries to never be in a rush, discusses multi-year capacity expansions and growth prospects for holdings, and focuses on companies with long-term value creation potential. The investment philosophy is clearly oriented toward patient, multi-year holding periods.
