Friday, January 8, 2021

Karsan Value Funds: 2020 Q4 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 fourth quarter ended December 31st, 2020, KVF gained $4.91 per share, increasing the value of each share to $30.89. This pre-tax 22% quarterly return bested the 15% and 11% returns of the S&P 500 and S&P/TSX, respectively, but was below the 28% return of the Russell 2000. KVF's result would have been even better but for currency losses which reduced returns by $0.31 per share in the quarter.

For years, I've been discussing KVF's portfolio weighting towards small-caps for valuation reasons, and this quarter we got paid for that positioning. Gains were fairly broad-based throughout the portfolio, but there were some stand-outs as well:

- Australian software company RXP Services received and accepted a buyout offer, resulting in a 140%+ gain since its purchase in April
- Beazer was sold from KVF's portfolio after a more than 100% gain since its purchase in March
- CIT received and accepted a buyout offer for another large gain, once again since its purchase in March
- Jefferies was sold following strong price appreciation since its purchase in July, as discussed here

The quarter did have its detractors as well, including Freightcar America, which was sold for a big loss, as discussed here.

This quarter's returns are not sustainable. It is much harder to find value now than it was just a few months ago. KVF's cash balance has been growing as it has been difficult to find appealing investments as fast as KVF has been bailing out of investments that are reaching what I estimate to be fair value. As such, I'm not as optimistic going forward as I have been recently.

That said, there are still some potential opportunities out there. Needless to say, the market remains unpredictable; another strong return (or loss) should not be surprising: it's just how the market behaves. By taking a long-term approach and employing a margin of safety, I expect KVF to continue to protect and grow capital.

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:


Amit said...

Great quarter.

I haven't checked your blog in several years. I'm not surprised in the least to see you doing well.

What're your thoughts on sharing your top 3 or top 5 holdings and an indication of the percentage of portfolio they account for?


Saj Karsan said...

Hi Amit,

A lot of the companies I own are illiquid, and so additional buying (by someone like you, for example) can move their prices. But sometimes I want to buy more! As such, sharing such a list is not my favourite idea.

Amit said...

Makes sense.

Do you have a general philosophical position on concentration?

I'm not sure if you've ever addressed that on here.

Saj Karsan said...

Hi Amit,

Difficult question! I see position size as being dependent on how confident I am in a company. That said, I have been confident in companies before and wrong, so I do have a max position size no matter how confident. I'm comfortable holding anywhere from 20-40 stocks, with the high end getting reached when I have a lot of basket positions (e.g. bets on risky industries where I take small positions in a few companies where I believe there to be favourable odds).

Hope that helps!