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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
Buyside Digest is not affiliated with, and does not endorse, Choice Equities Capital Management. This analysis is provided for institutional research purposes only and is not investment advice.
"Choice Equities targets small/mid-cap value opportunities while large-cap tech trades at historic highs. Portfolio includes quality industrials at single-digit multiples and consumer brands like Crocs at 7x earnings."
Choice Equities Fund posted a -14.6% net loss in Q3 2023, bringing year-to-date performance to -6.2% versus the Russell 2000's +2.5% YTD gain. The fund's core thesis centers on exploiting the valuation divergence between large-cap tech stocks trading at historically high multiples and small/mid-cap stocks at historically attractive levels. Portfolio holdings include industrials like Orion Engineered Carbons and Wesco trading at single-digit earnings multiples, Children's Place generating nearly half its market cap in cash with a mid-20s free cash flow yield, and Crocs trading at approximately 7x earnings despite owning two billion-dollar shoe brands. Key detractors included Magnite, which fell significantly after lowering EBITDA guidance due to weakness in CTV advertising spend. However, the manager expects advertising spending to recover with the upcoming political cycle. The Russell 2000's forward earnings multiple of 11.5x has only been reached three times since 1999, with all prior instances producing double-digit annualized returns. The manager remains excited about the opportunity set for long-term value creation.
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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 portfolio of 7 named positions with detailed individual thesis explanations, specific valuation metrics cited (7x earnings for Crocs, mid-20s FCF yield for PLCE), and willingness to add during weakness. Historical analysis supporting small-cap thesis with specific data points reinforces conviction level.
Growth Outlook
Manager acknowledges competing narratives with economy remaining resilient and inflation cooling on one hand, but higher rates creating intentional headwinds and corporate/consumer spending selectivity on the other. Expresses excitement about opportunity set but recognizes current market challenges.
Risk Appetite
Portfolio remains fully invested in small/mid-cap value names with manager adding to positions like Shake Shack during summer contractions. Positioning reflects conviction in historically attractive valuations despite near-term headwinds.
Capital Deployment
Manager explicitly states repurchasing Shake Shack shares during summer valuation contractions, indicating selective deployment activity. No cash level changes mentioned, but active position additions suggest modest net deployment bias.
Forward Guidance
Manager explicitly states excitement about today's opportunity set and prospects for years to come, expecting advertising spending recovery and citing historical precedent for double-digit returns from current valuation levels.
Language Signal
Language balances opportunity-focused terms like 'attractive valuations,' 'excited about opportunity set,' and 'historically attractive' with risk acknowledgments including 'headwinds,' 'out of favor,' and 'scary and vulnerable market' quote from Klarman.
Perceived Risk
Manager acknowledges multiple specific risks including higher rates as intentional growth headwinds, corporate/consumer spending selectivity, small-cap earnings declines of 20% for second consecutive period, and quotes Klarman describing market as 'scary and vulnerable' with heightened geopolitical strains.
Opportunity Density
Manager explicitly states excitement about today's opportunity set, highlighting that small/mid-cap valuations are historically attractive with the S&P 600 forward multiple at levels only seen three times since 1999. Describes 'types of values available in the market today' with specific examples across portfolio.
Time Horizon
Manager emphasizes multi-year growth prospects for holdings, discusses terminal value of franchises over sustained periods, and states approach will be 'well worth our while over the long haul.' Historical analysis spans multiple years with expectation that both bullish and bearish views 'will likely prove to have been correct in time.'
