For the first quarter ended March 31st, 2025, KVF lost $2.80 per share, reducing the value of each share to $74.26. This represents a negative 4.5% pre-tax return, which exactly matches this quarter's S&P 500 return, while the Russell 2000 lost 10% and the S&P/TSX returned almost 1%.
More than 100% of KVF's losses this quarter were due to the 27% decline in KVF's top position, ADF Group (DRX). This position has been a major contributor to returns in the past, but because of it's size now, volatility in this stock will cause volatility in KVF's returns.
Helping mitigate this quarter's losses was the cash receipt from the legal settlement over Alloy Steel. KVF sued over the unfairness of the Alloy Steel takeover, and after many years, the cash was finally received. You can read more about the case here.
KVF sold out of its CULP position this quarter, as the turnaround just isn't happening as fast as I would like. KVF also sold out of its AGAE position, as management has undertaken a more risky direction than when KVF first purchased shares. Because the shares of these two issues were purchased with such large margins of safety, the shares were sold at a profit despite the financial losses these businesses are currently seeing.
This quarter, KVF also finally realized the cash payment from the TARO buyout. This was a profitable investment for KVF, but the buyout price was kept deliberately low in my opinion, to the disadvantage of minority shareholders.
Prices for many issues fell this quarter, but unlike previous market dips, it became harder to find value rather than easier. The tariff situation has made it more difficult to evaluate margins of safety. As a result, KVF's cash position grew this quarter despite the general decline in stock prices.
That said, KVF still initiated new positions in the quarter. One example is Beazer Homes (BZH), which fell to a fraction of its book value as there are fears of a slowdown in demand for new homes. In the short-term, this may be true, but in the long term the ability to buy Beazer's land and inventory at a fraction of its historical cost is likely to pay off. The company appears to agree, as it pivoted to a share buyback initiative following the price drop; this is exactly how I like to see management behave when its shares trade at a discount.
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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