2020 First Quarter Letter
We hope you and your family are healthy while appreciating the additional time together. The start of 2020 will be forever etched in our memory for both the life changes experienced as well as the indiscriminate drop across global financial markets. Your account specific results are on the enclosed “Performance Report”. For comparison, during the first quarter the Russell 2000 Value Index was down 35.7%, the Russell 2000 Index fell 30.6%, while the larger capitalization S&P 500 declined 19.6%. (For index descriptions, please see the Client Login section of our website.)
Although no one can be certain when the health crisis will end, we are confident the U.S. economy was solid and even appeared to be accelerating heading into the COVID-19 outbreak. The government has since committed more monetary and fiscal stimulus in a shorter time frame than any period in our lifetime, with talk of more to come. It is our belief these factors meaningfully enhance the ability of the economy to rebound once we return to a semblance of normal life.
We are encouraged that your holdings do not include any restaurants, retailers, hotels, or airlines. However, the energy holdings weighed on the portfolio. Our disciplined approach to limiting portfolio debt levels leads to minimal concern about the survival of any of the companies owned. The portfolio at 5.2x forward 12-month consensus earnings estimates and 0.6x book value are both below the low experienced during the financial crisis. When considering these dynamics, we are highly optimistic about the future upside of the portfolio once fear subsides and there is more clarity of our economic future.
During the quarter, a new position was initiated in Bonanza Creek Energy. The management team is top notch and the company is an efficient producer with big data management systems similar to what the best of their much larger peers possess. We added to existing positions in Fluent, Green Brick Partners and TriState Capital. We strongly believe each will add impactful value to your portfolio over the next several years. We exited Helix Energy Solutions and Barrett Business Services because the upside appeared limited after their stock price increases lead to valuation concerns.
Thank you for your immense patience and confidence in our research. In this surreal environment we believe our actions today are aligning the portfolio to rebound in a future improving economy. 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.