Major stock indices have recorded solid gains for the first six months of the year, but at least one fund has greatly outperformed. Andvari Associates gained 38.7% for the first two quarters of 2018, compared to the S&P 500’s 18.5% gain and the Russell 2000’s 17% gain. The fund’s top five positions are Mesa Laboratories, Inc. (NASDAQ:MLAB), Upland Software Inc (NASDAQ:UPLD), Liberty Broadband Corp (NASDAQ:LBRDA), GCI Liberty Inc (NASDAQ:GLIBA) and Appian Corp (NASDAQ:APPN).
According to the fund’s letter to investors, which was reviewed by ValueWalk, portfolio manager Douglas Ott noted that Mesa Labs announced it was liquidating its cold chain packaging business. He said it was a bad move by the previous CEO to acquire the business anyway, and he had expected Mesa to sell it rather than liquidating it. The company’s stock plunged 25% on the day the announcement was made but rallied back to almost where it was before the announcement.
Q2 hedge fund letters, conference, scoops etc
Ott believes Mesa's new CEO, Gary Owens, is a better choice than the previous chief executive. He also notes that the company has slashed its debt and working capital and upgraded its board of directors by adding directors with experience in running a billion-dollar business. He also pointed out that Mesa will stop "wasting resources on a low-quality packaging business."
Upland Software raised $150 million in a new offering to pay off debt and fund acquisitions. Since the May offering, the company announced a $45 million acquisition that's expected to bring its annual revenues to $220 million. Andari first bought Upland stock in December 2017 when its annual revenues were $98 million and profitability was half of what it is now.
Ott explained that he appreciates the "qualitative factors" of a company and how they help drive performance and results in the long term. He also seeks executives with significant achievements and strong resumes, but he also wants to know more about the companies he invests in.
"Are they honest, kind, and humble or are they dishonest, unpleasant, and arrogant?" he wrote. "How much energy do they spend on doing right be [sic] their customers, employees, communities, and shareholders? Do they have a background that distinguishes them from the stereotypes (e.g., Ivy League alumnae who are endurance athletes) one often finds in the management ranks of most public companies?"
He said Andvari has invested in many companies with above-average managers or executives. He defines the "average manager" as "often just a caretaker who will do well for themselves regardless of the actual outcome of the business for which they are responsible." However, he said many of the managers heading up the companies his fund has invested in have unique backgrounds and have something to prove. They all focus on long-term value and growth, and he said they are all "humble and generous."
Ott then went on to highlight the CEOs of several of their holdings, including Appian, BlackLine, Mesa Labs, Workday and Tyler Technologies.
This article first appeared on ValueWalk Premium
