Institutional Research Archive

Hedge Fund Letters Archive

Browse the world's most comprehensive database of hedge fund investor letters, sorted by recent quarter. Access primary source research from leading institutional managers.

Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

Home Letters Funds Account

Laughing Water Capital 2024 Q2 Investor Letter | Buyside Digest

Back to Fund Profile (Laughing Water Capital)

Primary Source Intelligence • Q2 2024 Letter Analysis

Laughing Water Capital Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Laughing Water Capital. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

QTD+2.5%

YTD+11.1%

Annualized+22%

Digest Analysis

Quick Take

"The manager targets businesses trading at single digit free cash flow multiples with temporary problems, adding Cantaloupe and Xponential Fitness while maintaining conviction in CDMO holdings positioned for earnings inflection points."

Executive Summary

Laughing Water Capital returned 2.5% in Q2 2024, bringing year-to-date returns to 11.1%, outperforming the Russell 2000 during a period when small cap investing is wildly out of favor. The manager maintains a contrarian approach, focusing on businesses in hidden corners of the market that trade at single digit multiples of free cash flow due to temporary optical, operational, or structural problems. The portfolio includes two new positions: Cantaloupe, a vending machine payments and software provider executing on a three-year growth plan, and Xponential Fitness, a boutique fitness franchisor trading at distressed valuations following a short attack. Key holdings include Contract Drug Manufacturing Organizations Avid Bioservices and Lifecore Biomedical, both positioned to benefit from favorable industry dynamics. The manager acknowledges frustration with the strategy being out of favor for 2+ years but remains confident that good businesses led by incentivized people will not trade at current multiples forever. With the manager's personal wealth invested alongside partners, interests remain aligned for the eventual rerating when earnings power improvements become visible to quantitative-driven markets.

Unlock Full Institutional Analysis

Sign in or create a free account to unlock full commentary, extracted equity pitches, and direct outbound manager source links with your 3 quarterly credits.

Sign In to Unlock (3 Free Credits)View Pricing Tiers

Institutional Meta Strategy

Meta Strategy Gauges

Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.

Signal Matrix

Market Conviction

78%

CautiousHigh

High Conviction (78%)

High conviction evidenced by concentrated portfolio with detailed thesis for each named position, manager's personal wealth fully invested alongside partners, and specific financial projections for holdings like Cantaloupe's $75M EBITDA target and Avid's $125M EBITDA potential. Added two new positions despite acknowledging strategy is out of favor, demonstrating strong conviction in approach.

Growth Outlook

38%

BearishBullish

Neutral (38%)

Manager acknowledges small cap investing is wildly out of favor and expresses frustration with the strategy being out of favor for 2+ years. However, sees potential tailwinds from Fed rate cuts and notes small caps are historically undervalued relative to large caps. Mixed outlook with cautious optimism tempered by current headwinds.

Risk Appetite

25%

DefensiveAggressive

Defensive (25%)

Manager added two new positions during the quarter and maintains concentrated exposure to small caps despite acknowledging the strategy is out of favor. Personal wealth remains fully invested alongside partners, demonstrating commitment to current positioning while acknowledging current market headwinds.

Capital Deployment

35%

De-riskingDeploying

Net Neutral (35%)

Manager added two new positions (Cantaloupe and Xponential Fitness) during the quarter, indicating selective deployment activity. No specific cash level changes mentioned, but the addition of new positions suggests moderate deployment despite acknowledging the challenging environment for the strategy.

Forward Guidance

0%

CautiousExpansionary

Cautious (0%)

Manager explicitly states not knowing what to expect in the near term for economy, markets, or politics. No clear directional action bias expressed, with focus on monitoring for when small cap strategy will pick up tailwinds rather than active deployment or defensive positioning.

Language Signal

45%

BearishBullish

Balanced (45%)

Language is balanced between opportunity and risk acknowledgment. Uses terms like frustrated, out of favor, horribly out of favor, but balances with confident, well rewarded, beautiful, and attractive. Slight tilt toward cautious language given repeated mentions of strategy being out of favor.

Perceived Risk

65%

Low RiskElevated

Elevated Risk (65%)

Manager identifies several specific risks including market concentration in mega cap stocks, outflows from active strategies at record levels, momentum having its best performance in 50 years, and upcoming presidential election described as a traveling circus. Acknowledges strategy has been horribly out of favor for 2+ years.

Opportunity Density

70%

ScarceAbundant

Abundant (70%)

Manager sees abundant opportunities in small caps, noting they have not been this undervalued relative to large caps since the dot-com bubble. Added two new positions and discusses multiple existing holdings with detailed improvement narratives, suggesting a rich opportunity set in the targeted market segment.

Time Horizon

75%

Short-TermLong-Term

Decade+ (75%)

Manager emphasizes looking ahead toward a more normalized future and attributes success to ignoring short-term noise. References multi-year timelines for thesis realization, such as Cantaloupe's three-year plan through 2026 and Avid being a few years away from target metrics. Explicitly states bulk of portfolio needs a year or three to reach target valuations.