Logos LP letter for the first quarter ended April 30, 2017.
On a year-to-date basis, Logos LP has provided a total return to unitholders of 13.67%, whereas the S&P 500 gained 6.74% and the S&P/TSX has gained 2.20% respectively. The fund’s total trailing twelve month return is 27.17% and annualized returns since inception are 25.10% with a cumulative return of 77.41%. As of Tuesday’s close, the fund’s units are currently valued at $22.92. At present, the fund is concentrated in 24 companies. Of note are the recent purchases of what we believe to be an undervalued Canadian hardware company and a high quality American aerospace/defense contractor.
Our formula is simple, yet finding and executing it is difficult. We continue to look for companies that have strong returns on invested capital for long periods of time while continuing to have growing levels of free cash flow with low capital expenditures as a percentage of sales. Companies with this profile (that are also growing revenue at high rates) are our preferred investment, especially if they are small and operating in growing markets. Nevertheless, they remain hard to find at the proper valuation. Our portfolio has changed since we started 3 years ago, but our core holdings remain the same and some new peripheral positions are now entering into the ‘core’ category due to immense capital appreciation. Over 73% of the portfolio is in our top ten names, and we hold large amounts with our eyes on 3-4 names which have not yet presented us with attractive entry points.
Activities in the Quarter
We have not made significant changes to the composition of the portfolio (buying or selling) in the first quarter, and we have patiently allowed our investments to compound during Trump’s first 100 days. Despite a significant run up in certain stocks and the original excitement of a business friendly president (aren’t they all business friendly?), we believe that there is still room to run in some of our early investments as intrinsic value has not yet been reached. As partners continue to contribute new capital to the fund, we are finding it difficult to allocate as today’s market does not present many bargains. That being said, we have bulked up on 2 investments we originally entered into last year, and recently bought another Canadian industrial which now is one of our top 4 holdings. The market has been surprisingly quiet this year with very low volatility as the VIX is near record lows. We will continue to take the temperature of the markets and make specific purchases when Mr. Market plays in our favor.
Although we cannot guarantee the returns this quarter will continue, we are certainly in a stock picker’s market and find it very difficult to find an abundance of value. Despite this, we will continue to do our best and create long-term value for our investors.
Let us know if you have any questions and we look forward to hearing from you.
Chief Investment Officer
Head of Strategy
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