For the second quarter ended June 30th, 2023, KVF gained $4.07 per share, increasing the value of each share to $52.54. This represents a 10% pre-tax return, similar to the 8% S&P 500 return, slightly outperforming the 5% Russell 2000 return, and beating the S&P/TSX which barely broke even on the quarter. Currency losses hurt returns by $0.49 per share in the quarter.
The returns of a couple of UK stocks (including VTU, as discussed here) helped buoy this quarter's returns. But the biggest contributor to this quarter's profit was ADF Group, which I've been pounding the table on for a few years.
KVF's returns over the last few years have been stellar, as many of the portfolio's stocks have hit new highs. KVF was able to acquire many shares at ridiculous valuations as the Covid panic hammered the market, and as those shares now hit new highs we have benefitted.
But those ridiculous valuations are now gone. As a result, it has not been possible to replace many of these former great buys with companies similarly undervalued. Therefore, it appears unlikely that future returns will match those of the recent past.
Mitigating this is that cash returns are finally worth something. For the first time in KVF's history, we are being paid to wait for better opportunities.
No matter what valuations or interest rates are, however, the strategy remains to turn over many rocks to find great value, and to be ready to capitalize should the market once again turn depressive.
KVF's income statement, balance sheet and pre-tax/post-fee returns since inception 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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