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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Capicraft outperformed in 2023 with 15.26% returns despite positioning against soft landing consensus. Manager expects stagflation from fiscal dominance and persistent inflation above Fed targets."
Capicraft delivered 15.26% returns in 2023, outperforming industry averages despite being positioned against the soft landing narrative. Manager Drikus Combrinck argues the Fed's pivot toward rate cuts represents fiscal dominance driven by election year politics, with inflation still above targets and wage growth at 5%. The portfolio benefited from Burford Capital and Cameco positions, each generating nearly 90% returns, while fossil fuel investments underperformed due to surprising supply strength from Russia, Iran, and Brazil. Looking ahead, Combrinck expects stagflation as the price for the manufactured soft landing, positioning the portfolio in assets that can withstand margin pressure on corporates. The firm sees exceptional value in South African small and mid-cap stocks trading at historically cheap valuations, with some companies holding significant cash providing resilience. Oil demand is forecast to grow 1-2 million barrels daily in 2024 while supply sources remain vulnerable to geopolitical shifts.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
Manager demonstrates high conviction through concentrated positioning against consensus soft landing narrative and specific investments in Burford Capital, Cameco, and South African equities. Names specific holdings with performance figures and provides detailed thesis for each position, though portfolio appears diversified across multiple themes.
Growth Outlook
Manager is cautious about markets, warning that Goldilocks economy may burn investors later in 2024 when stagflation emerges. Expects soft landing narrative to fail due to persistent inflation and fiscal dominance, though sees selective opportunities in discounted assets.
Risk Appetite
Portfolio is positioned for stagflation rather than consensus soft landing, with selective risk-taking in deeply discounted South African equities and energy sector. Manager maintains exposure to assets that can perform in margin-pressure environment.
Capital Deployment
Manager indicates selective deployment into South African small and mid-cap stocks at attractive valuations, describing them as available for next to nothing. However, no specific cash level changes mentioned, suggesting measured rather than aggressive deployment.
Forward Guidance
Manager plans to continue investing in discounted South African stocks and energy opportunities, but with measured approach. Guidance is constructive on specific sectors while remaining cautious on broader market dynamics.
Language Signal
Language emphasizes risks including stagflation, margin pressure, geopolitical tensions, and election uncertainties. While opportunities are discussed, risk-focused language dominates with warnings about soft landing narrative failure.
Perceived Risk
Manager identifies multiple significant risks including stagflation pressures on corporate margins, geopolitical tensions from 40 countries holding elections, oil supply vulnerabilities, and potential for policy manipulation in US election year. Risks are discussed in detail with specific scenarios.
Opportunity Density
Manager sees abundant opportunities in South African equities, stating he could easily add six or seven more stocks to his list of attractive names. Also identifies opportunities in energy sector and specific geographies, though acknowledges selectivity is required.
Time Horizon
Manager focuses on medium-term themes like stagflation emergence later in 2024, election outcomes, and oil supply dynamics over 2024-25 timeframe. South African investment thesis appears longer-term but with specific catalysts tied to upcoming elections.
