To our HIT Capital partners,
I hope this update finds you in good health and high spirits as we step into the year of 2024.
The latter half of 2023 was a dynamic time for HIT Capital, marked by strengthening our portfolio, establishing a second brokerage, and a continuation of more in-depth research. Our journey into the realm of micro-cap stocks has been rewarding, revealing an array of reasonably priced and growing businesses.
Allocations and Performance
Allocations
Our current portfolio consists of 28 securities spanning 17 industries across 8 countries, with a notable 81% in micro-cap stocks.
Performance
HIT Capital concluded the year on a positive note, registering a 15% increase in December. While December marked our second-best month on record, the year-ended with us at a 2% decrease year over year. This brings HIT Capital’s compounded annual growth rate to 7%, with a total return of 110% since inception.
I love to analyze but try not to overanalyze, and in a moment of weakness I took the time to break down HIT Capital’s relative performance in comparison to our various benchmarks over time. The findings are detailed in the “Relative Performance” section below.
Recap
For those new to HIT Capital, we’ve evolved from focusing on structurally inefficient exchange traded products in 2013, to internationally sourced value and momentum stocks in 2017, to cheap and growing micro-caps in 2021.
Below is a quick graphic I snipped from last year’s report that lays out our history in more detail. The integration of High Quality Momentum with our Value strategy in 2021 marked a pivotal moment in our systematic approach to identifying reasonably priced and growing stocks, specifically micro-caps.
Relative Performance
Over time, our relative benchmarks have evolved with our strategies. A retrospective comparison, incorporating the S&P 500 through mid-2017, Vanguard's International Index through mid-2021, and the iShares Micro-Cap ETF to present. As a secondary marker, I included Barclay’s Hedge Fund index, of which HIT Capital has been a part of since inception.
HIT Capital is down from its 2021 highs and having recency bias, I was a bit surprised to see we outperformed our competition by 13% and 62%.
My goal remains to surpass the best, exemplified by the S&P 500’s performance over the past decade. You can see how we’ve done compared to the S&P 500 in my first graphic above. To enhance our odds of beating the best, like last month, we are working to improve our knowledge, network and capabilities.
Capabilities - Tradeable Universe Expansion
Our current broker, Schwab/TD Ameritrade, had not kept pace with our investment software build out, limiting our investable universe of 43,079 stocks by more than 75%.
Our expansion into Interactive Brokers in October alleviated this bottleneck and expanded our tradeable universe of stocks. This move not only enhanced our international investment opportunities but also served as an alternative option to our upcoming transition to Schwab.
Knowledge & Network - Social and Intellectual Capital
In the latter part of 2023, our investment software fed us raw leads on reasonably priced and growing companies and our additive research introduced us with management teams, analysts, subject matter experts and fellow portfolio managers, strengthening our knowledge and social network.
Portfolio - Top 3 Positions
Our top three investments – Finwise, Sanara Medtech, and the Vaso Corporation — continue to execute and grow. Vaso’s stock price has seen appreciation, while Sanara and Finwise are beginning to reflect their respective successes.
Sanara Medtech (SMTI): Our largest position, boasting a 35% CAGR (compounded annual growth rate) in revenue, recently launched its second first-in-class surgical wound care product. With an 87% gross margin across their suite of surgical products, Sanara is poised to become cash flow positive in 2024 while building out their even higher potential wound care platform.
Finwise (FINW): A profitable fintech bank, Finwise is developing its payments hub concurrent with its expansion in loan origination and servicing partnerships. They are using their unique position and platform to grow their own book of loans at a 15% CAGR with an industry leading net interest margin.
Vaso Corporation (VASO): Our third-largest position, Vaso sells and services General Electric HealthCare diagnostic imaging products. With a 15% cash flow CAGR and $98.5 million of booked future revenue, Vaso is positioned for success, including an upcoming uplisting to Nasdaq.
For a deeper dive into these positions and others, refer to the reports I’ve published here. If the link happens to be behind a paywall, send me a note, and I’ll send you my latest draft.
Onward
As we embark on our journey into 2024, I am enthusiastic about the future and the privilege of guiding your hard-earned capital. With tax season approaching, our auditor (Berkower) will be in touch for capital confirmations. Your prompt responses will expedite our audit and assist in the timely completion of our taxes.
If you have any questions about HIT Capital don’t hesitate to reach out. Until next time, have a safe, prosperous, and joy filled 2024!
Warm Regards,
Stephen Read
This report is intended to assist limited partners in understanding how HIT Capital LLLP (Fund) performed during the period ended December 29, 2023 and reflects the views of the general partner at the time of this writing. These views may change and do not guarantee the future performance of the Fund or the markets. Portfolio composition is subject to change. The current and future holdings of the Fund are subject to investment risk.
Important Information
Hedge fund investing involves risks, including possible loss of principal. An investor should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. The Offering Documents contain this and are available by contacting Stephen Read @ 309.253.7887 or Stephen.Read@HITInvestments.com. The Offering Documents should be read and understood before investing.
The comparison of the Fund's performance to a single market index is imperfect because the Fund's portfolio may contain options and other derivative securities, may include margin trading and other leverage, and is not as diversified as the Standard and Poor's 500 Index or other indices. Due to the differences between the Fund's investment strategy and the methodology used to compute most indices, HIT Investments cautions potential investors that no indices are directly comparable to the results of HIT Capital.