Friday, July 8, 2022

Karsan Value Funds: 2022 Q2 Results

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the second quarter ended June 30th, 2022, KVF lost $1.80 per share, reducing the value of each share to $40.85. This pre-tax 5% quarterly loss bested the 16%, 14% and 17% losses of the S&P 500, S&P/TSX and Russell 2000 indices, respectively. KVF's results were aided by currency gains which increased returns by $0.04 per share in the quarter.

KVF's relative outperformance was mostly due to the fact that it was the "growth-y" names that have taken the biggest hits in this market decline. So far, anyway.

Also helping returns this quarter was KVF's exposure to the shares of tanker companies. These energy transporters have tremendously volatile stocks due to the high fixed-cost nature of the business, which leads to big swings in gains and losses in any given period. A few quarters ago, these traded at massive discounts to the values of their assets (i.e. ships). But since Russia's invasion of Ukraine and the subsequent redistribution of energy flows that followed, these ships have been back in demand. Shares of INSW and STNG have shown big gains recently and are no longer in KVF's portfolio.

With the general market decline has come a terrific opportunity to buy some shares at great prices. As a result, KVF's cash position is in the very low single-digits, which is a big change from recent quarters.

Most of the time during the 13-year history of KVF, it has had a significant cash position. So it is always somewhat disconcerting when it does not, since there is no dry powder available in case of a (further) market decline. On the other hand, there are times when the value available is so good that it's worth putting as much cash as possible to work. The last time KVF went to this level of cash was March 2020 during the peak of the Covid pandemic fears, and that ended up working out very well.

Furthermore, the value of cash declines over time thanks to inflation. So while the optionality of having it around is great, it's also important to put it to work when the market is offering value, as I believe it is at the current time.

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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