Vulcan Value: Small-Cap Value Plays

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Vulcan Value: Small-Cap Value Plays

Vulcan Value: Small-Cap Value Plays 

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Vulcan Value is the Alabama-based hedge fund that has a small-cap fund that’s put up a 10.8% annualized return since inception in 2007 — more than double the Russell 2000 return of 5.2%.

Qualivian Investment Partners July 2022 Performance Update

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Vulcan doesn’t care about short-term results nonetheless, noting that they make decisions that may negatively impact the short-term performance for the sake of long-term results and lower risk.

In any case, Vulcan has been finding things in the small-cap space worth buying. This includes the $2 billion market cap furniture maker Herman Miller (MLHR). Herman is a maker of iconic office furniture. The thesis here is that the company should do well thanks to elevated employment and growth in office occupancies.

But what’s more interesting is their biggest detractor of late, Virtus (VRTS) — a $700 million market cap investment manager. The stock has been hard of late, down 30% in 2016 and off 35% in the last year.

The firm has various investment strategies, some managed in-house and some sub-advised. Its key asset is the emerging markets strategy, which has Vontobel Asset Management as a sub-adviser. The reason for the uncertainty at Virtus is that Vontobel has said its lead manager for emerging markets has left. Thus, Vontobel is seeing net outflows, but the key is that this is a one-time event and not material to the long-term viability of Virtus. Some two-thirds of Virtus market cap remains covered by cash.

The other interesting pick and a new addition to the Vulcan small-cap portfolio in 1Q, is La Quinta Holdings (LQ), which is a mini, small-cap, version of Hilton Hotels (HLT).

This $1.5 billion market cap hotelier has gotten beat up since its 2014 IPO — offer 25% and down 50% just in the last year. Like Hilton, La Quinta was taken private by Blackstone and then brought back to the public markets via an IPO. The beauty of La Quinta is that if focuses on the limited service