2020 Fourth Quarter Letter
Since the March lows portfolios rebounded much stronger than most indexes. Plus, the performance shift favoring smaller businesses and value over large companies and growth suggested last quarter is showing signs of beginning with big outperformance this quarter. For comparison, during the fourth quarter the Russell 2000 Value Index jumped 33.4%, the Russell 2000 Index rose 31.4%, while the S&P 500 was up 12.2%. For the year the Russell 2000 Value Index inched up 4.6%, the Russell 2000 Index climbed 20.0%, while the larger capitalization S&P 500 rose 18.4%. Your account specific results are on the enclosed “Performance Report”. (For index descriptions, please see the Client Login section of our website.)
In the June 30 letter we noted that management teams were talking about exiting the COVID Recession stronger than they entered. Only six months later there are several tangible examples of actions taken. Apogee is dramatically lowering their long-term cost structure. Barrett Business Services became licensed in all 50 states and made a significant leap with their technology. Bonanza Creek Energy will nearly double production with the announced acquisition of HighPoint Resources. Enova purchased OnDeck and their well-known online business lending brand. Marlin is executing a five-year plan to digitize their business in less than a year. Regional Management accelerated their digital rollout. Trecora sold a segment for $70 million. VAALCO Energy is nearly doubling production by acquiring a partner’s interest at a major discount. Many of these actions were initiated or accelerated by the urgency COVID created.
During the quarter we purchased Texas Capital Bancshares. This highly respected Dallas based bank is refocusing after losing their way for a couple years. Previously they were a force within their target markets and now appear well on their way to regain their stronghold. The stock price moved up strongly since it was purchased. We added to Geospace to take advantage of the depressed price and anticipated orders in 2021. It appears to be a timely move. Green Brick Partners was trimmed to generate cash for alternatives with greater forecasted upside.
Customers Bancorp announced the spin-off of their Bank Mobile division to shareholders. There is a lock up period of at least five months when the shares cannot be sold. This is the first time in our 30-year career a spin-off lock up happened in the portfolio. We believe the value creation is worth the particulars.
This quarter stock buybacks both within the portfolio and outside it picked up after being shut off when the economy was locked down in March. This is a strong indication to us that many companies have confidence in their current cash generation capabilities and the future strength of their businesses.
Thank you for believing in our philosophy, process and approach during 2020. It is gratifying to see it finally working again! 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.
Happy New Year