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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Smead International Value Fund outperformed by 7.89% in Q3 2023, driven by energy holdings benefiting from oil's rise. The fund avoids interest rate risk through positioning in oil companies and European banks that benefit from higher rates."
Smead International Value Fund returned 3.78% in Q3 2023, outperforming the MSCI EAFE Index by 7.89%. The fund's core thesis centers on avoiding interest rate risk while capitalizing on other unique risks in undervalued assets. Key contributors included energy holdings MEG Energy, Frontline, and Cenovus Energy, which benefited from oil's rise alongside dollar strength and Fed tightening. The fund believes rising interest rates create systemic risk across all asset classes, not just bonds, as the 30-year Treasury hits 5%. To combat this, they position in assets providing protection such as oil companies and European banks like Unicredit, Bawag Group, and Bankinter, which benefit from higher rates after years of low ROE. The fund also owns extremely cheap coal assets including Whitehaven Coal and Thungela Resources, which trade below book value with over 20% ROE despite political and regulatory risks. Currency headwinds from dollar strength pressure non-US economies. The managers remain optimistic about beating inflation over the next decade through their focus on unique risks rather than passive broad market exposure.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
The fund demonstrates high conviction through concentrated positioning in specific themes (energy, European banks, coal) with named holdings and clear thesis explanations. Top 10 holdings represent significant portfolio concentration with MEG Energy at 10.03% and clear rationale for each position. The manager provides specific examples like Unicredit trading below book value with 10% ROE and coal assets with 20% ROE, showing detailed fundamental analysis behind positions.
Growth Outlook
The manager expresses concern about rising interest rates hitting 5% and creating systemic risk across asset classes, while noting growing apprehension about future economic growth. However, they also see opportunities in their specific positioning and remain optimistic about the future.
Risk Appetite
The fund maintains concentrated positions in energy and European banks while taking on unique risks in coal assets. They are selectively positioned for their thesis but acknowledge multiple risk factors affecting their holdings.
Capital Deployment
No specific information provided about cash level changes or net deployment activity during the quarter. The letter focuses on existing positions and their performance rather than new capital allocation decisions.
Forward Guidance
The manager states they will continue seeking to avoid interest rate risk while taking other appropriate risks, but provides no specific deployment intentions or directional bias for future positioning.
Language Signal
Language includes significant risk discussion around interest rates, economic decline, currency pressure, and multiple risks affecting holdings, though balanced with some opportunity language around cheap valuations and future optimism.
Perceived Risk
The manager extensively discusses multiple significant risks including interest rate risk affecting all asset classes, currency risk from dollar strength, economic risk for retailers and automakers, and specific risks for coal assets including political, regulatory, and ESG risks. The detailed risk analysis and warning about systemic interest rate risk indicates high perceived risk in the environment.
Opportunity Density
The manager identifies selective opportunities in specific areas like European banks benefiting from higher rates and extremely cheap coal assets. While not describing a broad opportunity set, they see compelling value in their focused areas of expertise and unique risk positioning.
Time Horizon
The fund sets a goal to beat inflation over the next 10 years and uses language like 'If they can do that for 10 years, the investors in the Fund won't care about interest rate risk' regarding Unicredit. This indicates a multi-year investment horizon with patience for thesis realization, though some positions may have shorter-term catalysts.
