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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Bonsai Partners seeks robust businesses that spread risks across value chains, avoiding fragile single-point-of-failure companies. New investment in IT services company Nagarro exemplifies this approach - technology enablers that benefit from digitization without technology risk."
Bonsai Partners declined 2.8% net in Q3 2023 versus the S&P 500's 3.3% decline, marking the fund's five-year anniversary. Manager Andrew Rosenblum emphasizes seeking robust businesses that diversify risks across value chains rather than fragile companies with single points of failure. The fund made a new investment in Nagarro SE, an Indian IT services company trading at attractive valuations despite strong fundamentals. The IT services industry offers compelling characteristics as technology enablers that benefit from digitization without technology risk, with most companies achieving 10%+ revenue growth for decades while adapting through multiple paradigm shifts. Key risks include macro headwinds slowing IT services growth and uncertainty around AI's impact on the industry. However, the manager believes AI will likely create more projects rather than destroy the industry, as has occurred with previous technological disruptions. The fund remains focused on long-term compounding through robust businesses with pragmatic leadership built to survive difficult terrain.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
High conviction demonstrated through detailed analysis of investment philosophy and specific position in Nagarro. Manager provides extensive reasoning for robustness framework and thorough due diligence on new investment. However, modest portfolio adjustments and diversified approach prevent maximum conviction score.
Growth Outlook
Manager expresses cautious optimism about long-term opportunities while acknowledging near-term macro uncertainty. Describes next five years as 'even more energizing' than the past five, but notes 'lackluster results' recently and macro headwinds affecting IT services growth.
Risk Appetite
Portfolio positioning appears selective and cautious. Made only 'modest portfolio adjustments' in Q3 with one new investment. Focus on robust businesses suggests defensive positioning, though willing to deploy capital when finding attractive opportunities like Nagarro.
Capital Deployment
Limited deployment activity with only modest portfolio adjustments and one new investment in Nagarro. No cash level changes mentioned, suggesting minimal net deployment. Activity appears selective rather than aggressive.
Forward Guidance
Manager indicates selective deployment bias, making one new investment while maintaining focus on robust businesses. No indication of aggressive capital deployment or major portfolio changes planned, suggesting measured approach to future positioning.
Language Signal
Language is balanced between opportunity and caution. Uses positive terms like 'energizing opportunities' and 'attractive' for specific investments, but also discusses 'uncertainty,' 'headwinds,' and 'lackluster results.' Overall tone is constructive but measured.
Perceived Risk
Manager acknowledges specific risks including macro headwinds affecting IT services growth and AI uncertainty. Discusses 'moment of uncertainty' and 'brutal nature of capitalism' but doesn't express systemic alarm. Risk awareness is moderate and specific rather than broad-based.
Opportunity Density
Manager sees selective opportunities, particularly in IT services industry where 'share prices were reasonable' despite strong fundamentals. Describes finding Nagarro at attractive valuation but notes need for selectivity. Suggests moderate opportunity set requiring careful screening.
Time Horizon
Strong emphasis on long-term investing with focus on 'compounding businesses for long periods' and businesses 'purpose-built to make it through difficult terrain.' Discusses five-year milestones and next five years, indicating multi-year investment horizon with patience for thesis realization.
