Celebrating 5-Years of Success
To the clients who supported us from the beginning, thank you! Over the past five years, our portfolio has compounded at just over 16% annually (based on our composite), exceeding our 15% goal and significantly outpacing the Russell 2000, which compounded at 7.4% during the same period.
This achievement required discipline and patience from our clients. Our concentrated portfolio experienced several quarters of underperformance and clients who resisted the urge to exit during these periods were rewarded by the strong recoveries that followed. Concentrated portfolios like ours can be unpredictable if a few holdings take longer to deliver results or face unforeseen challenges. While these events are inevitable, the long-term payoff from our strategy has been evident.
Looking ahead, we are excited by the growth opportunities within our current holdings, which we believe remain significantly undervalued. Our commitment to compounding at 15% annually remains firm, and we are eager to deliver results for both our long-standing and newer investors.
2024: A Year of Positive Fundamentals Ignored
The past year was challenging for small caps and our portfolio relative to large caps. After lagging large caps in the first half, small caps rallied in Q3 and early Q4 before declining sharply at year-end. Our portfolio mirrored this pattern, climbing 21% by November but ending the year with a modest 4.22% gain, the first calendar-year we trailed the index. This volatility was primarily driven by our two largest positions:
BGC (Up 26% in 2024): BGC had a strong year overall, buoyed by consistent execution and robust earnings growth. In November the stock was up 60% for the year after another solid quarter and strong guidance. However, it sold off sharply from $11.49 to $9.06, after CEO and Chairman Howard Lutnick was nominated as Commerce Secretary by President-elect Trump. While Lutnick has been instrumental in BGC’s success, his departure is unlikely to disrupt the company’s trajectory. BGC is well positioned to continue growing revenues and earnings because they benefit from higher interest rates and interest rate volatility. A trend that should continue to support their business regardless of the broader economy or who is at the helm.
Energy Fuels (UUUU, Down 28%): UUUU was our largest detractor for 2024. Despite a pullback in uranium prices, we found the extent of the stock’s underperformance surprising given the company’s operational progress. Energy Fuels remains one of the few U.S. uranium miners capable of scaling production quickly, with the ability to produce up to 2 million pounds in 2025 and up to 6 million pounds annually in subsequent years. The U.S. uranium market is in a structural deficit, with declining inventories and reduced imports from Russia and Kazakhstan as they ship more to China. Demand for carbon-free energy, fueled by the AI boom, also supports long-term uranium fundamentals. Beyond uranium, UUUU successfully expanded into rare earth magnet materials, closing key acquisitions to supply elements critical for electronic, aerospace, and defense technologies. With 95% of this market controlled by China, UUUU’s development of a U.S.-based supply chain has strategic importance. Despite these investments in growth, UUUU maintains a pristine balance sheet allowing the company to be patient and invest where it is most beneficial.
The Role of Small Caps in Diversification
The recent strength in the S&P 500 highlights the innovation and success of America’s largest companies. As Warren Buffett often says, “Never bet against America.” The S&P 500 and NASDAQ 100 provide exposure to the U.S. economy’s breakout winners, like Nvidia and Tesla, without requiring investors to predict which company will dominate next.
However, these indexes have become increasingly concentrated, with fewer companies driving returns. While enthusiasm for big tech and AI is well-deserved, some valuations may be stretched and not all of the tech leaders will be long-term winners.
Small caps, including those in our portfolio, offer diversification that complements large-cap exposure. Many of our holdings are poised to benefit from different economic trends than those. driving large-cap growth. Moreover, in our opinion, our portfolio trades at significantly lower valuations on absolute metrics and relative to growth potential. Therefore, adding our small cap portfolio can enhance clients’ diversification and the risk-reward profile while guarding againstoverexuberance in certain sectors.
Thank you for your continued trust and confidence. We’re always here to answer any questions—please don’t hesitate to call or email.
Zack
Small Cap Year End 2024 Commentary
Zack Perry
Celebrating 5-Years of Success
To the clients who supported us from the beginning, thank you! Over the past five years, our portfolio has compounded at just over 16% annually (based on our composite), exceeding our 15% goal and significantly outpacing the Russell 2000, which compounded at 7.4% during the same period.
This achievement required discipline and patience from our clients. Our concentrated portfolio experienced several quarters of underperformance and clients who resisted the urge to exit during these periods were rewarded by the strong recoveries that followed. Concentrated portfolios like ours can be unpredictable if a few holdings take longer to deliver results or face unforeseen challenges. While these events are inevitable, the long-term payoff from our strategy has been evident.
Looking ahead, we are excited by the growth opportunities within our current holdings, which we believe remain significantly undervalued. Our commitment to compounding at 15% annually remains firm, and we are eager to deliver results for both our long-standing and newer investors.
2024: A Year of Positive Fundamentals Ignored
The past year was challenging for small caps and our portfolio relative to large caps. After lagging large caps in the first half, small caps rallied in Q3 and early Q4 before declining sharply at year-end. Our portfolio mirrored this pattern, climbing 21% by November but ending the year with a modest 4.22% gain, the first calendar-year we trailed the index. This volatility was primarily driven by our two largest positions:
BGC (Up 26% in 2024): BGC had a strong year overall, buoyed by consistent execution and robust earnings growth. In November the stock was up 60% for the year after another solid quarter and strong guidance. However, it sold off sharply from $11.49 to $9.06, after CEO and Chairman Howard Lutnick was nominated as Commerce Secretary by President-elect Trump. While Lutnick has been instrumental in BGC’s success, his departure is unlikely to disrupt the company’s trajectory. BGC is well positioned to continue growing revenues and earnings because they benefit from higher interest rates and interest rate volatility. A trend that should continue to support their business regardless of the broader economy or who is at the helm.
Energy Fuels (UUUU, Down 28%): UUUU was our largest detractor for 2024. Despite a pullback in uranium prices, we found the extent of the stock’s underperformance surprising given the company’s operational progress. Energy Fuels remains one of the few U.S. uranium miners capable of scaling production quickly, with the ability to produce up to 2 million pounds in 2025 and up to 6 million pounds annually in subsequent years. The U.S. uranium market is in a structural deficit, with declining inventories and reduced imports from Russia and Kazakhstan as they ship more to China. Demand for carbon-free energy, fueled by the AI boom, also supports long-term uranium fundamentals. Beyond uranium, UUUU successfully expanded into rare earth magnet materials, closing key acquisitions to supply elements critical for electronic, aerospace, and defense technologies. With 95% of this market controlled by China, UUUU’s development of a U.S.-based supply chain has strategic importance. Despite these investments in growth, UUUU maintains a pristine balance sheet allowing the company to be patient and invest where it is most beneficial.
The Role of Small Caps in Diversification
The recent strength in the S&P 500 highlights the innovation and success of America’s largest companies. As Warren Buffett often says, “Never bet against America.” The S&P 500 and NASDAQ 100 provide exposure to the U.S. economy’s breakout winners, like Nvidia and Tesla, without requiring investors to predict which company will dominate next.
However, these indexes have become increasingly concentrated, with fewer companies driving returns. While enthusiasm for big tech and AI is well-deserved, some valuations may be stretched and not all of the tech leaders will be long-term winners.
Small caps, including those in our portfolio, offer diversification that complements large-cap exposure. Many of our holdings are poised to benefit from different economic trends than those. driving large-cap growth. Moreover, in our opinion, our portfolio trades at significantly lower valuations on absolute metrics and relative to growth potential. Therefore, adding our small cap portfolio can enhance clients’ diversification and the risk-reward profile while guarding againstoverexuberance in certain sectors.
Thank you for your continued trust and confidence. We’re always here to answer any questions—please don’t hesitate to call or email.
Zack
Disclosure and Source
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