The Centaur Value Fund produced a tiny yet positive result of 0.0% for June. Investors may have been disappointed with this performance but year-to-date the fund is up 7.2% gross and 6.9% net, so there’s no reason to complain. Since inception (August 1, 2002) Centaur Value is up 461.8% gross and 343.4% net compared to the S&P 500’s total return of 205.7% over the same period. according to a letter reviewed by ValueWalk.
Centaur, which is managed by Zeke Ashton, reported a net market exposure of 61% at the end of June, despite higher long exposure. The fund’s “disaster insurance” policy is to blame for the lower exposure ratio. Excluding this “insurance” true exposure was roughly 70% at month-end. This article refers to Zeke’s hedge fund managed by Centaur Capital Partners, L.P. not the mutual fund. Although Zeke’s value mutual fund is also having an impressive year.
The fund describes its disaster insurance as “a few cheap option positions” purchased before the UK’s vote on its membership of the European Union at the end of June.
Generally speaking, Zeke and the team at Centaur are cautious about the outlook for the market. In an interview published within the June 30 issue of Value Investor Insight, Zeke explains that the “combination of broadly high valuations with what we consider higher than average economic and political risks makes us more cautious.” He continues, “if I find something today that meets our criteria, I’m buying. But at a time when a wave of disruptive technologies are interfering with many traditional businesses and when political and social trends in the U.S. seem to put capitalism itself a bit under attack, we’re being quite conservative on the growth rates we’re assuming for the companies we’re looking at. When you do that, it’s generally harder to justify putting on a new position with cash on hand.” This explains why Centaur and the mutual fund run by the Centaur parent group, is currently holding more than 35% cash.
Still, despite having a high cash allocation Zeke and the team were buying select stocks throughout the month of June. Enstar, Rubicon Project, and Cognizant Solutions were brought on weakness while positions in CRA International, Priceline and Alleghany were trimmed.
Centaur Value: Keeping your cool in an overheating market
Zeke uses the Centaur Q2 letter to reiterate the importance of discipline in euphoric markets. Specifically, the fund states:
“We continue to be pleased with the Fund’s performance so far in 2016 and we see signs at the margins of the market beginning to factor in business fundamentals, valuations, and risk factors into securities prices.”
“Our process is designed to ensure that we play to our strengths rather than being seduced into low conviction activity by a market that often seems capricious and illogical in its behavior. Specifically, we need to resist the temptation for activity driven by the desire to try to “make good performance happen” and to avoid investing when we lack a particular edge, whether analytical or behavioral, that will lend itself to a high probability of a good outcome at the individual decision level.”
“What we can’t control is what opportunities the market may happen to throw our way, or when. We just have to make sure that we know a good opportunity when we see it, and to take decisive action when we do.”