2024 End of Year Report

To our HIT Capital partners,

I hope this update finds you in good health and high spirits.

This past year has been both challenging and rewarding for HIT Capital. While our 2024 return of 2% underperformed our benchmarks, we achieved several key milestones. These included expanding our research network, enhancing our in-house investment software, and uncovering promising opportunities in the global micro-cap space. These advancements reinforce my confidence in our strategy as we look ahead to 2025.

Performance and Allocations

HIT Capital Performance

  • 2024 return: +2%
  • Comparisons:
    • Barclays Hedge Fund Index: +8%
    • iShares Micro-Cap ETF: +12%
  • Compounded Annual Growth Rate (CAGR): 6.6%
  • Total Return Since Inception 114.2%

Our largest mid-year holding, Cab Payments, decreased 48% in the latter half of the year, impacting our overall performance. In October, Cab issued a warning about a decrease in Q4 aid organizations' volumes. Simultaneously, Stone X, a close competitor, withdrew its takeover bid. However, Stone X’s initial interest affirmed our belief in Cab’s superior market access and technological edge. With a trailing twelve-month P/E of 5, and our long term growth thesis still intact, Cab remains our fourth largest holding (10%).

Portfolio Allocations

  • 94% of our investments are in reasonably priced securities:
    • 67% Profitable and expected to grow
    • 17% Approaching profitability and expected to grow
    • 10% Unprofitable with outsized growth potential
  • 6% in Contango and Beta Slippage strategies.

Our portfolio spans 10 countries and 15 industries with 18 out of the 19 stock holdings valued under $500M, categorizing them as micro-caps.

Research and Expansion

In 2024, our in-house investment software analyzed 61,918 publicly traded securities, of which 24,530 were ranked on value and momentum metrics.

Over the past 2 years since the launch of our investment software, I’ve had the opportunity to analyze thousands of stocks in more depth. This has enhanced my understanding of the research process, micro-cap space, and qualitative factors critical to forming each of our holdings theses and price targets. Looking ahead, we aim to scale these insights by integrating qualitative factors, such as management incentives and industry trends, earlier in our analysis.

Portfolio Highlight - EZZ Life Sciences

EZZ Life Sciences has emerged as our second-largest holding at 13%, representing our focus on value and growth. Based in Australia, EZZ operates in the consumer health and longevity sector, demonstrating exceptional growth and profitability. Last year they grew revenues by 70%, earnings by 52%, and held their gross margins above 74%.

EZZ is led by Mark (Qizhou) Qin, a two-time founder, five-time author, and 51% owner. Mark has grown EZZ from 0 to AU$75M in revenues in six years and has demonstrated innovative marketing and product development strategies, leveraging data-driven campaigns across multiple channels like social media influencers, retail (Costco), and high-traffic locations (airport duty free stores). With a strong cash position (AU$18M) and no debt, EZZ is well-positioned for its 2025 USA product launches and ongoing Asian expansion. Trading at an estimated 2025 EV/EBIT of 8, I believe EZZ offers a compelling investment opportunity and complements our current portfolio of micro-caps.

Portfolio Deal Memos

For a deeper dive into a few of our other holdings you can find links here. My latest deal memo on Seeking Alpha is about a fastener distributor, EACO. EACO is another founder-led and expanding business trading at a reasonable price.

Onward

As we embark on our journey into 2025, I continue to be enthusiastic about our growing competitive advantage and the global micro-cap space. While challenges persist, I am confident that our continuous drive to improve will continue to advance our odds of future outperformance.

I am deeply grateful for the privilege of stewarding your hard-earned capital while pursuing my passion. If you have questions about HIT Capital, micro-caps, or are interested in joining our research team (especially if you speak a second language) please reach out.

Until next time, have a safe, prosperous, and joy filled 2025!

Warm Regards,

Stephen Read

 

More Information and Disclosures

Find our privacy policy and latest ADV at the links below.

Disclosures

This report is intended to assist limited partners in understanding how HIT Capital LLLP (Fund) performed during the period ended December 31, 2024 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. This report is not investment advice.

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.

The Fund’s performance is presented net of fees and is based on calculations for accounts held by accredited clients with a performance fee structure. The Fund’s fee structure includes a 1% annual management fee and a 20% performance fee, subject to the high-water mark provision. Note that the performance fee rate is lower for investors who become our clients prior to January 1, 2022, so the results may be better for these clients, which is not reflected in this report. Past performance does not guarantee future results, and the value of investments and any income generated may decrease as well as increase. Market conditions change continuously, and investments may perform differently in various economic environments.

The Fund’s financials are audited annually. The performance results presented cover the period shown in the report, and the returns shown are obtained from the administrator with the final month estimated by HIT Investments if the administrator has not yet finalized the latest month's books. These results were achieved during specific market and economic conditions that may not be repeated in the future.

Performance calculations include reinvestment of dividends and other earnings.

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