For the second quarter ended June 30th, 2018, KVF gained $1.08 per share, increasing the value of each share to $27.43. This result was about in line with that of the S&P 500, the S&P/TSX and the Russell 2000 indices. Like these indices, KVF is now in positive territory for the year having recovered from a negative first quarter.
Once again, some volatile retail stocks proved to be a source of returns. KVF sold out of its shares of Cato after strong price movements, enjoyed some gains in Francesca's, and benefited from buyout rumours in GameStop. I don't expect the portfolio to continue to be reliant on this sector for returns, because this is an industry where moats are hard to come by; but when prices hit what appear to be extreme levels, the odds favour those who are able to buy when everyone else is selling.
KVF also sold out of its shares of Viemed thanks to some rapid price appreciation over the quarter. Currency changes also benefited the portfolio by $0.17 per share this quarter.
At the risk of sounding like a broken record, I submit that prices for large caps, particularly in North America, are elevated. As such, KVF's portfolio has continued to migrate both to overseas and smaller companies. As inflation rises and the Federal Reserve tightens monetary supply, prices may come down, but timing this process may be impossible. As such, the focus (as it has been since inception some nine years ago) remains on finding good companies trading at large discounts to their values.
KVF's income statement and balance sheet are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD:
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