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A Great First Month for My Triple Net Active vs Passive Portfolio as Value Rises

It's way too early to tell whether this is the beginning of a regime change from growth back to value.
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One month in, my new Triple Net Active Versus Passive Portfolio experiment is off to a rousing start. The first inning is not even over yet, but the Passive Portfolio (up 8.2%) is underperforming the eight name Active Portfolio (up 12.8%), which I unveiled on October 21st and October 23rd. But both active and passive portfolios have had a very solid first month as a result of rising markets in general, as well as value's recent rebirth.

Value has had a rough run in recent years, including much of 2020, but over the past month or so we've seen a mini-rebound. Year-to-date, the Russell 2000 Index is up 8.2%, and the Russell 2000 Growth Index (up 19.6%) is trouncing the Russell 2000 Value Index (-4.1%). It's a similar story for the Russell Microcap Index (up 8%), with the Growth (+21.7%) well ahead of value (-3.1%). But, over the past month value has outperformed growth:

Russell 2000: up 9.3%

Russell 2000 Growth: up 6.6%

Russell 2000 Value: up 12.3%

Russell Microcap: up 8.4%

Russell Microcap Growth: up 4.4%

Russell Microcap Value: up 11.4%

It's way too early to tell whether this is the beginning of a regime change from growth back to value, but I'll take it nonetheless.

So far, all eight Active names are in positive territory, led by Haynes (HAYN) (up 22%), Sanmina (SANM) (up 20%), and Argan (AGX) (up 15%). All but four of the Passive names are in positive territory. Top performers include AAR Corp (AIR) (up 33%), and IntriCon (IIN) (up 23%).

The idea here, if you are new to the concept, is my belief that companies trading at relatively low levels of net current asset value, or NCAV, have the potential to provide solid returns. Criteria included the following:

  • Market capitalization in excess of $100 million
  • No financials or development-stage companies
  • Trading at between 2 and 3 times NCAV (NCAV is calculated by subtracting a company's total liabilities from current assets)

Twenty-seven names made the cut, and are included in the Active Portfolio. I then selected the eight names that are most interesting to me, which comprise the Active portfolio, and took positions in all eight. My belief is that in this pond, an active approach can outperform passive.

As a value investor, I am not used to instant gratification, so I take the early results of these portfolios with a grain of salt. The near 13% one-month return provided by the Active portfolio would be great for an entire year. I certainly don't expect that trajectory to continue, in fact, it will likely be a bumpy ride.

Active names include Argan (AGX) , Culp (CULP) , Daktronics (DAKT) , Haynes HAYN, Madison Square Garden Entertainment (MSGE) , REX American Resources (REX) , Sanmina SANM, and Weyco Group (WEYS) . You can find a list of the Passive names here.

Have a great weekend!

At the time of publication, Jonathan Heller was Long AGX, CULP, DAKT, HAYN, MSGE, REX, SANM, WEYS.