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Quarter	Letter Date	Fund Name	QTD	YTD	Tickers	Themes	Quick Take

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Kernow Asset Management 2024 Q1 Investor Letter | Buyside Digest

Back to Fund Profile (Kernow Asset Management)

Primary Source Intelligence • Q1 2024 Letter Analysis

Kernow Asset Management Quarterly Analysis

Buyside Digest is not affiliated with, and does not endorse, Kernow Asset Management. This analysis is provided for institutional research purposes only and is not investment advice.

Fund Returns

Annualized+10.7%

Digest Analysis

Quick Take

"Driven by share buyback activity at holdings like ITV and Hiscox. The manager expects mid-caps to outperform large caps while maintaining short positions in distressed water utilities ahead of anticipated regulatory changes."

Executive Summary

Kernow Asset Management delivered a 2.7% gain in March 2024, bringing Q1 returns to 1.4% as global markets recorded their best first-quarter performance in five years. The contrarian UK equity long/short strategy focuses on asymmetric opportunities with differentiated investment theses. Key portfolio highlights included ITV's £235m share buyback (10% of market cap) and Hiscox posting record profits with 21.8% ROE plus a new $150m buyback program, cementing conviction in their largest position. The manager sees increasing UK companies engaging in substantial buybacks, demonstrating intelligent capital allocation amid compelling valuations. Mid-caps now have a platform to outperform large caps, rewarding current positioning. The portfolio maintains a short position in UK water utilities, viewing most as effectively bankrupt with inadequate returns, colossal capex demands, and excessive debt. Regulatory and political changes expected over the next 18 months should crystallize value in this short thesis. Since inception in November 2019, the strategy has delivered 33% cumulative returns versus 26% for UK equity markets.

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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 (top 5 positions represent 40.6% of NAV), specific position sizing (Hiscox at 9.7% as 'largest and highest conviction position'), and willingness to maintain short positions despite volatility. Manager provides clear thesis for each major holding.

Growth Outlook

60%

BearishBullish

Neutral (60%)

The manager expresses optimism about global markets recording their best first-quarter performance in five years and expects mid-caps to start outperforming large caps, providing a constructive but measured positive outlook.

Risk Appetite

40%

DefensiveAggressive

Defensive (40%)

Portfolio maintains concentrated positions with both long and short exposure (136% gross, 68% net), showing selective risk appetite but balanced positioning rather than aggressive deployment.

Capital Deployment

5%

De-riskingDeploying

De-risking (5%)

No explicit cash level changes mentioned. Portfolio activity appears to be rotation-based with some position adjustments but no clear evidence of net capital deployment or withdrawal from the commentary.

Forward Guidance

30%

CautiousExpansionary

Cautious (30%)

Manager is selectively positioned for mid-cap outperformance and water sector regulatory changes but shows measured deployment bias rather than aggressive capital deployment plans.

Language Signal

45%

BearishBullish

Balanced (45%)

Language includes positive terms like 'resilient global economy,' 'compelling valuations,' and 'attractive' opportunities, balanced against risk discussions around water sector challenges and market selectivity.

Perceived Risk

65%

Low RiskElevated

Elevated Risk (65%)

Manager identifies specific systemic risks in UK water sector including inadequate infrastructure, regulatory uncertainty, and political focus. Discusses colossal capex demands and debt issues affecting entire sector, showing meaningful risk awareness.

Opportunity Density

70%

ScarceAbundant

Abundant (70%)

Manager sees 'compelling company valuations' and identifies multiple opportunities including share buyback themes and mid-cap positioning, suggesting a reasonably rich opportunity set in their focused UK market.

Time Horizon

65%

Short-TermLong-Term

Multi-Year (65%)

Manager discusses 18-month timeframe for water sector regulatory changes and maintains positions through volatility, indicating medium-term investment horizon of 1-3 years rather than short-term trading or permanent capital approach.