The fund lost 0.7% net in April vs. +0.3% for the MSCI All-Country World Index and +0.7% for the S&P 500.
During April and early May, I sold our investment in DHT Holdings Inc (NYSE:DHT), locking in a 74% profit in just over one year. This is a shipping company headquartered in Norway that transports crude oil for customers around the world in its fleet of 10 oil tankers. I bought the stock at a price that was over 40% below liquidation value—and even cheaper compared to my estimate of the going concern value (based on my discounted cash flow valuation), which was also a lot cheaper than its competitors. In addition, the company’s balance sheet was significantly stronger than most other shipping companies. In my opinion, the low stock price was mostly due to its small size/liquidity and lack of attention from the investment community.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy Read More
Following a large, low-priced equity offering to finance further vessel acquisitions (which destroyed shareholder value), the stock price actually increased dramatically, perhaps due to increased awareness, liquidity, as well as a temporary upsurge in industry profitability. At the same time, I reduced my estimate of intrinsic value a little, mostly because of the equity offering and my growing concerns about Chinese oil demand. As our shares reached their one-year holding period, I sold them, which will result in the lower tax rate for long-term (> 1 year) capital gains for those of the fund’s investors who are taxable in the U.S.
In case you are interested, you can view my presentation of this stock idea at the Deep Value Summit from May last year, which was shortly after we bought the stock:
I think this presentation is also a decent primer on shipping, especially the crude oil tanker business.
In April, I also increased the size of four existing investments and reduced the size of two others, because changes in the stock prices gave rise to attractive opportunities to re-optimize the deployment of our capital.
