2019 First Quarter Letter
We entered 2019 with market uncertainty being the overriding theme. The economic concerns that were the focus at year end appear to have lessened, but still create bouts of volatility. Your account specific results are on the enclosed “Performance Report”. For comparison, during the first quarter the Russell 2000 Value Index rebounded 11.9%, the Russell 2000 Index increased 14.6%, while the larger capitalization S&P 500 improved 13.7%. (For index descriptions, please see the Client Login section of our website.)
At this time we find the current market environment to be one of opportunity. It is our belief that the economy will see a slowing this year as the tax cuts annualize. In this likely slower growth environment with select companies at compelling valuations we see conditions aligning that should allow our focus on identifying company catalysts and strong management teams to generate beneficial portfolio results.
During the quarter we initiated a new position in AdvanSix, a leading polymer manufacturer spun off from Honeywell. The company has a significant cost advantage relative its peers and is executing a number of impactful initiatives. In addition, we added to Trecora Resources. The new CEO is focused on optimizing execution and taking advantage of positive long-term demand growth.
The sale of Electro Scientific was completed at a dramatic premium to our purchase price as a result of the MKS Instruments acquisition at $30.00 cash per share. First Internet Bancorp was also sold as we grew concerned that their margins would be challenged in the current interest rate environment. It is our belief that redeploying this cash will add greater value to your account over time.
Atlas Financial experienced a dramatic decline. The surprise reserve increase was deeply frustrating since we had done extensive research that we believed would avoid such a shock. Lessons have been learned that should decrease future risk. Still, we believe that management is executing on a business plan that should lead to the company’s long-term success, while concurrently evaluating alternatives that may include the sale of the company.
Form ADV Part 2 was e-mailed to you earlier this year. If you didn’t receive the e-mail and would like a copy, please contact us. Alternatively, it is also available on the TietonCapital.com website. As always, if the circumstances surrounding your account change such that you believe we should review the suitability of your assets managed by Tieton Capital, please contact us immediately. We are pleased with the portfolio’s positioning and look forward to the rest of 2019.