Via Kerrisdale Capital Q3 letter to shareholders (obtained by ValueWalk).
This is the quarterly letter for Kerrisdale Partners for the quarter ended September 30, 2013.
(1) The returns are unaudited and show returns net of a 1.5% management fee and 20% performance fee. These numbers do not reflect the returns of actual investors in the fund who may be charged different fee arrangements based on the time of their initial investment and who will bear different performance compensation based on the timing of their investment.
(2) 2009 performance only includes 7/1/09 to 12/31/09, due to fund launch date of July 1, 2009.
(3) Barclay Hedge Fund Index data as of October 19, 2013.
The fund was up 3.0% in the quarter ended 9/30/13 net of fees, comprised of monthly returns of 3.2%, -4.1% and 4.2% for July, August and September, respectively. In comparison, the S&P 500 was up 5.2% over the quarter, comprised of monthly returns of 5.1%, -2.9% and 3.1%. The Barclay Hedge Fund Index was up 3.1% over the quarter, comprised of monthly returns of 1.6%, -0.6% and 2.0%.
Since inception, the fund is up 779.5% net of fees. In comparison, the S&P 500 is up 100.1% and the Barclay Hedge Fund Index is up 35.7% during that time.
Our top five positive contributors were Herbalife Ltd. (NYSE:HLF), Northgate plc (LON:NTG), AMERCO (NASDAQ:UHAL), E TRADE Financial Corporation (NASDAQ:ETFC) and Bridgepoint Education Inc (NYSE:BPI). Our top five negative contributors were Short A, Short B, Short C, Ishares Msci Turkey Inv Market Index Fd (NYSEARCA:TUR) and Sourcefire LLC (NASDAQ:FIRE).
Kerrisdale Partners: Chico’s FAS
We own shares in Chico’s FAS, Inc. (NYSE:CHS), a women’s retailer with four standalone store concepts. Shares reached a 1-year low in August after sales growth missed sellside expectations. But we believe Chico’s remains a growth business that mistakenly trades like a value trap. Prior to this seasonal slowdown, Chico’s had compounded same-store-sales growth at 7-9% annually for four straight years while expanding selling square footage by 25%. The White House | Black Market and Soma Intimates store footprints remain less than 50% saturated, allowing Chico’s to comfortably grow square footage by 8-9% annually as Chico’s expands its store count from 1,427 to over 2,000 in the next decade. CHS currently trades at an unlevered 5.5x EV/ EBITDA and 9-10% free cash flow yield (after maintenance capex). With management’s strict internal return on capital hurdles and a historical 25% return on invested capital, the company’s prudent growth will continue to create value over time.
Kerrisdale Partners: Sberbank
We own shares in Sberbank Rossii OAO (MCX:SBER), Russia’s largest bank. SBER dominates the Russian banking sector, controlling 29% of the country’s assets, 34% of corporate lending, 33% of retail lending, and 46% of retail deposits. Its retail branch network is over 10x the size of its nearest competitor. Due to its unique history and starting deposit base, Sberbank enjoys an enormous funding cost advantage relative to its competitors.