To our HIT Capital partners,
I hope this update finds you happy, healthy and not too smoky.
In the first half of 2023 we saw our investments in HIT Capital move up and down and ultimately end at a similar value to where they began.
Throughout the first half of the year we continued to upgrade our portfolio with learnings from our deeper research combined with our investment software. The findings are continuing to illuminate opportunities in the smaller, unknown and underfollowed stocks. I’ll share more on our strategy and implementation, but first more on our performance and current allocations.
HIT Capital decreased 1% in the first half of 2023 and underperformed each of our global benchmarks (International returned 7.98%, S&P 500 15.91%, and the hedge fund index 4.66%). This brings HIT Capital’s compounded annual growth rate to 7.7% and total return since inception to 117%.
We are invested in 22 different securities spread across 13 industries and 6 countries. 91% are in small or micro-cap stocks, 83% associated with our primary value, quality and momentum strategy (referenced as growth & cheap growth on the pie chart above), 3% contango, 2% beta slippage, and 11% in special situations.
HIT Capital surpassed a decade of trading in January and has now more than doubled the average lifespan of a hedge fund.
HIT Capital may be a decade old but we are still learning and our strategies continue to evolve. If you aren’t yet familiar with HIT Capital we invest in publicly traded securities with a goal of finding undiscovered or out of favor, inexpensive, quality, and growing businesses.
Our secondary strategies include special situations alongside beta slippage and contango. Beta slippage and contango provide free leverage for our primary strategy and capture additional returns by means of structural inefficiencies in exchange traded products. Lastly our special situation investments are unique opportunities that are outside of our primary strategy.
Primary Strategy Implementation
Our primary strategy currently begins with data from 43,079 stocks and ends with us investing in 5 – 20. We use 20 data connections, 4 programming languages, 4 open sourced software packages, and most recently added 6 different investing clubs/platforms. Today’s result is a diversified portfolio of 17 scrutinized stocks and 6 contango or beta slippage exchange traded products.
Our latest addition to the process has been creating and publishing investment ideas. In the past year I’ve written 11 deal memo’s and published 9. My primary benefits thus far have been learning to structure and organize the analysis, and receiving feedback from industry experts, analysts, executives and portfolio managers. For example, after writing this memo, I had the privilege to speak with Sarana Medtech’s CEO and Chairman. While researching another investment I learned from oncologists providing their opinion on Rolvedon, which led to a special situation investment in Spectrum.
Our latest investment in a pharmaceutical company Spectrum stemmed from some of our deeper research in the pharmaceutical field. Spectrum recently received FDA approval on their primary product Rolvedon. On the surface the market believes it is too little too late but our deeper research uncovered exceptional potential.
As I test my findings with experts in the field I typically learn of downsides I may have missed, but with Spectrum they shared additional advantages (you can read about them here).
Spectrum’s analysis included the input of oncologists, clinical trial data, competitor product sales, medicare reimbursement data and was reviewed by multiple analysts, a portfolio manager and a chief scientific officer. The conclusion of the study was that Spectrum’s approved product Rolvedon has the potential of becoming the standard of care in a multi-billion dollar market, resulting in an expected return of 4x.
We plan to continue strengthening our portfolio’s potential through growing our social and intellectual capital. We’ll do that by sharing research, challenging and adding to our colleagues’ research, and learning from ours and others mistakes.
When we aren’t investing, researching, or growing social capital we will be working on expanding our universe and lowering our expenses by adding a second broker.
Thank you for being a part of our last decade of learning, fun, and growth. Until next time, have a safe, prosperous, and joy filled 2023!
This report is intended to assist limited partners in understanding how HIT Capital LLLP (Fund) performed during the period ended June 30, 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.
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.