WBD - Bonhoeffer Capital Management Q1 2023 Letter

2024-06-02 05:50:00 ET

Summary

• The Bonhoeffer Fund, LP, is a value-oriented investment partnership. The fund's objective is to grow capital at a faster rate than market indices over full market cycles and provide minimal.
• The Bonhoeffer Fund returned 5.9% net of fees in the first quarter of 2024. In the same time period, the MSCI World ex-US, a broad-based index, returned 5.7%, and the DFA International Small Cap Value Fund, our closest benchmark, returned 5.3%.
• There were modest changes within the portfolio in the first quarter, which are in line with our low historical turnover rates.

Dear Partner,

Throughout the first part of 2024 and specifically within the first quarter, we continued replacing slower growth firms with durable, faster-growing firms in temporarily depressed sectors and identified similar opportunities in new industries. These firms align with our longer-term growth themes of consolidation, transaction processing, affordable housing finance and housing construction We have identified and are analyzing opportunities in the following industries: specialized construction, natural resource royalties, distributors, logistics companies, housing, and specialty finance. New investments have a combined expected growth rate (RoE * (1-payout ratio)) plus dividends plus earnings yield of at least 30 to 40%.

As we continue to add faster-growing durable companies to the portfolio, I believe we have the highest quality businesses in the fund's history, with a discount that continues to persist as the market fails to realize the improvement in our firms' positions. I believe high quality is reflected in free cash flow growth with highly recurring revenues (such as in subscription businesses), high free cash flow conversion, and returns on equity that are higher than less-risky alternatives, such as well-underwritten debt which currently has yields in the low-teens.

The Bonhoeffer Fund returned 5.9% net of fees in the first quarter of 2024. In the same time period, the MSCI World ex-US, a broad-based index, returned 5.7%, and the DFA International Small Cap Value Fund, our closest benchmark, returned 5.3%. As of March 31, 2024, our securities have a weighted average earnings/free cash flow yield of 12.3% and an average EV/EBITDA of 4.4....

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