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The fund’s minimum initial investment is $10,000, reduced to $1,000 for IRAs and accounts set up with AIPs. The fund’s website is Rocky Peak Funds . Tom’s most-recent discussion of the fund appears in his September 2012 Semi-Annual Report. If you meet him, you might ask about the story behind the “rocky peak” name.Although this is a new Fund, I have a 14-years solid track record managing small cap value strategies at a prior firm and fund. One of the themes of this new Fund is improving on the investment processes I helped develop. I believe we can improve performance by correcting mistakes that my former colleagues and I made such as not making general or tactical stock market calls, or not holding overvalued stocks just because they are perceived to be great quality companies.
The Fund’s valuation process of picking undervalued stocks is not dogmatic with a single approach, but encompasses multivariate valuation tools including discounted cash flows, LBO models, M&A valuations and traditional relative valuation metrics. Taken together those don’t give up a single “right number” but range of plausible valuations, for which our shorthand is “the Circle of Value.”
As a small operation with one PM, two intern analysts and one administrative assistant, I can maintain patience and diligence in the investment process and not be influenced by corporate politics, investment committee bureaucracy and water cooler distractions.
The Fund’s goal is to be competitive in up markets but significantly outperform in down markets, not by holding high levels of cash (i.e. making a market call), but by carefully buying stocks selling at a discount to intrinsic value and employing a reasonable margin of safety.
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Comments
I like the "Elevator Talk" addition David.
A peek at Rocky Peak's recent holdings shows Radio Shack RSH, which Scott and I have been posting about lately - it has rebounded an extraordinary 50% YTD:
So, of course, I had to look a little further into RPCSX.
The small cap fund category has several notables - many favorites on MFO, like ARIVX, RYSEX, PVFIX, MSCFX, ARTVX, HUSIX. So, a tough group to get noticed in, especially given the modest returns RPCSX has delivered out of the gate since inception last April...but it has had its moments.
Morningstar shows 578 US small caps, or about 6.5% of all funds, oldest share class only, as of Dec 2012. Their caps average from $50M to $3B. (There are 43 so-called micro caps included with average caps under $500M.) Here's further break-out of small cap demographic:
RPCSX holds 42 equities, as of Sept 2012, fairly evenly distributed across its portfolio at 1.5-3% each, with average market capitalization of $1.1B.
Another of its holdings, Duff & Phelps Financial DUF, announced a going private transaction on the last trading day of the year - the stock jumped 20% :
Before that, Mr. Kerr reported that another holding, CoreLogic (CLGX), a So Cal provider of real estate data, rose 44.9% in the third quarter. He sold the position after achieving a 62.3% gain from purchase, explaining the rapid price appreciation "exceeded our conservative calculation of intrinsic value..."
More recently, he's added Herbalife, which Dan Loeb's Third Point hedge fund also bought 9 million shares, or 8% of the company. (Loeb's long position runs counter to the massive short put on by Bill Ackman's Pershing Square.)
On its website, Mr. Kerr provides monthly updates and commentary, along with descriptions of how he invests and his guiding principles for RPCSX. Here are some takeaways:
Since inception last year, RPCSX has out-performed some seriously good and high lifetime performing funds, like gold-star Perkins Small Cap Value JSIVX, FMI Focus FMIOX, Conestoga Small Cap CCASX, Royce Micro-Cap Invmt RYOTX, Turner Emerging Growth Investor TMCGX, and gold-star Artisan Small Cap Value Investor ARTVX:
But it well under-performed others, depicted below, like Walthausen Small Cap Value WSCVX, Mairs & Power Small Cap MSCFX (on fire Max), Huber Capital Small Cap Value Inv HUSIX, TETON Westwood Mighty Mites AAA WEMMX, Pinnacle Value PVFIX. (It has just about broken even with its small value benchmark.)
As Mr. Kerr states, eight-nine months is hardly enough life to make a performance assessment of RPCSX. But in that time, the fund upheld its promise to minimize down side and draw down risk. The fund he previously co-managed, now called Core Street Capital (CSC) Small Cap Value Investor CSCSX, produced high life-time risk adjust returns returns based on Sharpe (in top 20% of more than 100 small caps between 12 and 15 years old), but with fairly high down-side volatility. By the numbers, since Oct 1998: 10.5% APR, but 13.4% DSDEV and (gulp) 18.8% Ulcer Index, which resulted in 47% draw down in 2008. For me at least, I hope Mr. Kerr does indeed correct "mistakes that my former colleagues and I made such as not making general or tactical stock market calls, or not holding overvalued stocks just because they are perceived to be great quality companies."
If RPCSX does manage to keep its down side in check going forward, here are some of the lower volatility, no-load small cap funds (with attendant performance and risk) that I believe Rocky Peak will ultimately be compared against, oldest to youngest:
In any case, for now at least, I am adding Rocky Peak RPCSX to the notable list.
As I noted a while back, the average holding period in the '60's or so was around 7 years. The average holding period now is literally around 5 days (http://www.businessinsider.com/stock-investor-holding-period-2012-8).
Beyond that, stocks are yanked around by constant news and noise from an increasing amount of sources, including a couple of Twitter hoaxes that had a significant effect recently on a couple of stocks (http://www.reuters.com/article/2013/01/30/us-sarepta-idUSBRE90T1CF20130130) - one dropped 25% after someone posted faking being famed short seller Muddy Waters. I mean, we live in a time period where someone can tweet pretending to be someone else and just wreck a stock.
The nice thing about this new MFO feature is that I would think it's pretty easy for funds to do and it provides both value to readers and the funds - especially a way for smaller funds to get exposure.
"We are candid about our mistakes as well as our successes and speak in plain language instead of confusing financial jargon."
The candid nature is refreshing. I really like this feature quite a bit, and the fund sounds interesting - looking at the top 25 names, it's certainly a unique and interesting mix of names (although I'd be curious about the reasoning behind being long Gamestop.)
Additionally, Charles again with the terrific work/graphs/research.
Edited to add:
As for HLF: Monday, February 4, 8:02 AM Herbalife (HLF) -13.8% premarket, as the NYPost reports the company is now under official investigation. Releasing 192 complaints filed against Herbalife over the past 7 years, the FTC redacted some sections, saying it didn't have to divulge information obtained through a law enforcement investigation. Comment! [On the Move]
(although that could reverse tomorrow or in an hour. Who knows.)
Lastly, an interesting discussion of an Australian hedge fund manager's experience with Herbalife and thoughts on Ackman (http://brontecapital.blogspot.com/2013/01/notes-on-visiting-herbalife-nutrition.html). His blog (at the link) is also an interesting read in general.
Thanks man.
Just a quick note on HLF, this was a very rare short-term trade for the Fund. In the mid-$20's I felt HLF was discounting a scenario in which the company was the next Enron. Although they certainly have issues and challenges, the company has already passed SEC and FTC scrutiny and has been around for over 30 years. I initiated a position in the mid $20's and sold it in January in the low $40's.
And a quick update on performance, YTD performance has been very good, partially due to the buyout of WMS, one of the firm's largest holdings.
Thank you for your interest.
Tom
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The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Investors should consider the investment objectives, risks, and charges and expenses of the fund carefully before investing. The prospectus contains this and other information about the fund. You may obtain a prospectus here (pdf) or by calling toll-free at 1-888-505-0865. The prospectus should be read carefully before investing.
An investment in the fund is subject to investment risks, including the possible loss of the principal amount invested. There can be no assurance that the Fund will be successful in meeting its objectives. Investment in the fund is also subject to market risk, investment style risk, investment advisor risk, market sector risk, equity securities risk, portfolio turnover risk, and small company risk.
The Fund's distributor is Rafferty Capital Markets, LLC, which is not affiliated with the Fund or the advisor.
http://brontecapital.blogspot.com/2011/12/sears-holdings-liquidation-sale.html
Apparently the author has been on CNBC on a number of occasions - I don't know much about the fund, but I find the blog an interesting, enjoyable and occasionally fascinating take on various stocks around the world, including some incredibly detailed pieces on some Chinese names, like Focus Media (http://brontecapital.blogspot.com/2012/09/focus-media-revenue-plausibility-test.html)
Overall, the blog generally gives one backstage access to the thought process of a hedge fund manager.
Additionally...
I'd also like to thank Mr. Kerr for stopping by and offering his thoughts on HLF. I really appreciate when managers such as himself stop by - a big welcome to him and glad to see him post in the thread.
And thanks both for checking in and for sharing the insights. It makes a difference.
As ever,
David