2024-01-19 09:20:00 ET
Summary
- Liberty Park Capital Management provides investors with extraordinary returns by exploiting niche sectors that are underfollowed, misunderstood and mispriced. Liberty Park Capital manages two fundamental smaller-cap equity strategies: low-net and long-biased.
- Liberty Park Fund, LP’s value increased 4.29%, net of fees, in the fourth quarter of 2023 vs. a 14.03% increase in the Russell 2000.
- Liberty Park Select Opportunities, LP’s value increased by 14.25% net of fees, in the fourth quarter. Gross exposure averaged 97.09%.
- The counterforces of a slowereconomy but lower interest rate outlook leave us somewhat neutral on the marketin the near term.
- Since implementing new risk management toolsin the middle of 2023, we have seen volatility trend lower - we expect this trend to continue, but do notexpect it to dampen returns.
Dear Partner:
Liberty Park Fund, LP’s value increased 4.29%, net of fees, in the fourth quarter of 2023 vs. a 14.03% increase in the Russell 2000 ( RTY ). The 12.70% increase in our long positions contributed 12.82% on a weight-adjusted basis, while the 16.41% increase in our shorts detracted 9.89% on a weight-adjusted basis. Gross exposure averaged 157.63%. Net exposure averaged 37.73%. Gross Pure Alpha 1 — our proprietary measure of returns generated from stock selection— was -3.06% for the quarter.
Liberty Park Select Opportunities, LP’s value increased by 14.25% net of fees, in the fourth quarter. Gross exposure averaged 97.09%.
Liberty Park Fund1 | Liberty Park Select Opportunities2 | Benchmark Returns | ||
Average Net Long Exposure | Net Return | Net Return | Russell 2000 | |
4Q23 | 37.73% | 4.29% | 14.25% | 14.03% |
2023 | 30.20% | 24.08% | 21.38% | 16.93% |
Annualized Trailing 5 Years | 25.93% | 10.07% | 3.56% | 10.07% |
Annualized Since Inception | 18.59% | 6.07% | 9.14% | |
1Inception February 2011 2Inception February 2016 **Please see final page for disclaimers** |
4Q23 Performance Analysis
Markets surged in the fourth quarter after inflation decelerated, and the Federal Reserve hinted at rate cuts in 2024. Interest-rate sensitive stocks, such as housing/construction names and high-valuation-multiple names, were the best performers for the quarter as a result.
Long Performance
Best Performing Longs | ||||
Name | Ticker | Return | LPF Contribution | Select Contribution |
Limbach Holdings Inc | 43.30% | 2.14% | N/A | |
Bel Fuse Inc | 40.07% | 1.65% | 1.75% | |
Tecnoglass Inc | 38.96% | 1.40% | 2.42% |
- LMB rallied to all-time highs after reporting better-than-expected results. The company’s effort to shift its business mix away from lower-margin General Contractor Relationships (GCR) to higher-margin Owner Direct Relationships (ODR) is occurring at a rapid pace. We believe the company’s shares will continue to outperform as more margin improvement is realized, and the company executes on its M&A strategy.
- BELFB has executed a successful turnaround in a few short years, and its stock reached all-time highs after reporting better-than-expected margins in its third quarter. Despite a nearly 100% increase in its stock price in the past year, the company has a lower valuation than it did a year ago. We believe the valuation gap between BELFB and its peer group will narrow as the market appreciates that recent performance is durable.
- TGLS rallied with other real-estate/interest-rate sensitive businesses after the Fed’s rate guidance pivot.
Worst Performing Longs | ||||
Name | Ticker | Return | LPF Contribution | Select Contribution |
Target Hospitality Corp | -38.73% | -1.72% | N/A | |
Core Molding Technologies Inc | CMT ) | -34.96% | -1.42% | N/A |
inTEST Corp | -10.35% | -0.52% | -0.51% | |
- TH fell after a large contract renewal was signed on worse-than-expected terms.
- CMT fell after lower-than-expected guidance resulting from a slowdown in the commercial trucking end market.
- INTT fell after the company announced a slowdown in order patterns from its industrial and semiconductor customers. We think the pullback in shares is overdone and that diversification efforts started in 2020 are underappreciated.
Short Performance
Best Performing Shorts | |||
Name | Ticker | Return | LPF Contribution |
Vishay Intertechnology Inc | -2.63% | 0.25% | |
Group 1 Automotive Inc | -0.33% | 0.18% | |
KBR Inc | -5.76% | 0.13% |
- VSH and KBR both underperformed after reporting in-line quarters and investors rotated out of cyclical value businesses and into rate-sensitive and growth businesses.
- GPI traded down early in the quarter but rallied with interest-sensitive names in the latter half. We covered our position before the rally.
Worst Performing Shorts | |||
Name | Ticker | Return | LPF Contribution |
Koppers Holdings Inc | 29.66% | -0.75% | |
Warrior Met Coal Inc | 19.50% | -0.63% | |
American Woodmark Corp | 22.80% | -0.48% |
- KOP’s third-quarter results were in line with analysts’ expectations. Shares likely outperformed because the company carries a large amount of variable rate debt and benefits from lower interest rates.
- HCC earnings fell year over year, but a meaningful reduction in debt and reduced fears around recession sent shares higher.
- AMWD is a manufacturer of cabinets for residential homes. The company rallied with other interest-rate-sensitive names during the quarter. We closed our position during the quarter.
Portfolio Outlook
No recession materialized in 2023 despite overwhelming calls for one early in the year. That said, higher interest rates are finally taking their toll. We are seeing an uptick in continuing unemployment claims and a pullback in business- and consumer sentiment. Thankfully, inflation continues to moderate toward the Fed’s 2% target, so persistent weakness in economic data likely will be met with accommodative moves by the Fed.
The counterforces of a slower economy but lower interest rate outlook leave us somewhat neutral on the market in the near term. As 2024 progresses though, people will care less about current economic/earnings slowness and more about improvement in 2H:24 and 1H:25; in our view, this will drive markets higher for the year.
For further details see:
Liberty Park Capital Q4 2023 Letter To Partners