S&C Messina Capital Management semi-annual letter for the year of 2017.
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To My Partners,
As of June 30, 2017, the partnership was up 3.98% YTD versus 9.34% YTD for the S&P 500.
We generally expect to underperform versus the S&P 500 during strong market rallies due to the nature of the businesses that we invest in and the lower beta of the portfolio. However, as stated before, we hope to be able to do better during economic downturns, as the insurance companies that we hold have access to returns that are generally not correlated to the macro-economy (i.e. returns from underwriting results, cash & bonds). For example, auto insurance claims generally go down during a recession as there are fewer cars on the road.
Our Outlook for 2017 & Beyond
We generally try to stay away from short-term outlooks. However, we can provide some guidance for the mid-term:
For the mid-term, we feel that our portfolio is well positioned against potential increases in interest rates, and therefore, against any declines in the S&P caused by rising rates. The insurance companies that we hold in our portfolio have large cash & bond portfolios. Although it will take a couple of years before a company’s bond portfolio is fully turned over, interest earnings should drastically improve if interest rates were to restore to normalized levels. In turn, this should lead to accelerated growth in the companies’ book values.
S&C Messina Capital - Outperforming the S&P
Our goal is to outperform the S&P 500 by at least +200 basis points on annualized basis over long periods of time. This may not sound like much, but over extended periods the power of compounding translates this spread exponentially into a much bigger pool of capital. If we assume the long-term annualized rate of total return for the S&P 500 to be 7%, which is what the S&P 500 has done over the past decade, this chart shows the value of $100,000 invested after 15 years. The same is shown for the value of $100,000 after 15 years if the S&P 500 returns 10% per year.
Where we aim to be is at least +200 basis points net of fees above the S&P over the long term. For instance, if the S&P 500 achieves 10% per year, we aspire to achieve at least 12% per year after fees.
Administrative Update
We wish to thank those that have already participated by investing in the fund. Although the fund is closed to new investors till the end of this year, we will have new spots available as of January 1st, 2018. The minimum investment is likely to remain at $250,000.
We wish everyone a good rest of the summer.
Best regards,
Noh-Joon Choo
Managing Partner
S&C Messina Capital Management, LLC
See the PDF below.
