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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
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"Castlebay returned 9% in Q2 2026, outperforming the UK market by 5% as capital rotated back to quality. The fund targets high-quality compounders with 37% ROE and 5.5% free cash flow yields trading at attractive valuations."
Castlebay delivered a 9% return in Q2 2026, outperforming the UK market by 5%, as capital began returning to quality stocks. The fund maintains a concentrated portfolio of high-quality businesses with a 37% return on equity versus 15% for the market, 24% operating margins, and 91% cash conversion. Despite the rally, the fund still offers a compelling 5.5% free cash flow yield and 3.6% dividend yield, with the valuation dislocation between 12% annualized earnings growth and share price returns beginning to reconcile. The manager introduced a new analytical framework based on Michael Mauboussin's cash flow lifecycle stages, focusing on Stage 3 compounders that the market underprices due to unexciting headline growth rates. A new 2% position was initiated in Spirax Group, a global leader in steam and thermal energy management with a razor-and-blade business model producing strong recurring revenues. The company's Watson-Marlow division provides exposure to structural growth in biopharmaceutical manufacturing. The manager believes a style shift toward quality in the UK has only just begun, suggesting further upside as valuations normalize.
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