PGYWW - Riverwater Micro Opportunities Strategy Q1 2024 Commentary
2024-05-12 12:40:00 ET
Summary
- Riverwater Partners is a Milwaukee-based investment advisory firm dedicated to responsible investing. Our mission is to make the world a better place by growing wealth through sustainable investing.
- The Micro Opportunities Strategy underperformed its microcap benchmark due to the performance of unprofitable and heavily shorted stocks.
- The strategy remains optimistic about its portfolio, as it believes many positions are undervalued, and the macro backdrop is favorable.
- Sectors of interest for the strategy include banking, healthcare, and industrials, with a focus on undervalued opportunities and advancements in artificial intelligence.
Macro Overview
The Micro Opportunities Strategy began 2024 trailing its microcap benchmark. During the quarter, the performance of the benchmark was predominantly led by unprofitable and heavily shorted stocks, presenting a significant challenge for the strategy to outperform due to the high-quality focus of our portfolio. Additionally, our stock selection fell short of our usual standards. Nevertheless, our outlook for the portfolio remains optimistic, as we believe a number of our positions are materially undervalued. In addition, the macro backdrop is buoyed by factors such as stable inflation rates, declining unemployment claims, and an uptick in housing starts, all of which collectively diminish the prospects of a recession in 2024.
Sectors of Interest: Banking, Healthcare and Industrials
A particular concern within the microcap banking sector has been the challenges faced by specific lenders, notably New York Community Bancorp, Inc. ( NYCB ), especially concerning its commercial real estate ('CRE') and multifamily loan portfolios. We assess this situation as a unique occurrence, predominantly linked to New York's CRE market and, more specifically, to rent-controlled multifamily units. Following a capital infusion aimed at stabilizing its operations, NYCB is on a path to recovery, yet significant efforts are required to fully rectify its standing. It is essential to approach this scenario with caution, avoiding parallels with pre-Great Financial Crisis sentiments regarding the containment of subprime issues. However, we view the CRE challenges as largely manageable, confined to major cities harboring lower-grade office spaces or multifamily units. We think this presents an opportunity to potentially add banks that have been unjustly discounted in the market turmoil....
Riverwater Micro Opportunities Strategy Q1 2024 Commentary