lerbank
To My Companions:
Tourlite Fund, LP returned 0.4% for the Fourth Quarter of 2024 and 14.2% for the complete yr. The Fund has annualized returns of 10.2% since inception, in comparison with 11.6% for the S&P 500 (SP500, SPX) and 4.2% for the Russell 2000 (RTY).1,2 We imagine this to be robust contemplating our continued near-zero web publicity since inception in April 2022.
This autumn 2024
2024
Annualized Return 3
Tourlite
0.4%
14.2%
10.2%
S&P 500
2.3%
25.0%
11.6%
Russell 2000
0.3%
11.5%
4.2%
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Gross Contribution & Common Portfolio Exposures
Gross P&L 2024
This autumn 2024
Gross P&L This autumn 2024
Avg. Greenback Publicity
Avg. Beta-Adj. Publicity 4
Longs
37.3%
3.8%
70%
80%
Shorts
(17.6%)
(4.1%)
(60%)
(70%)
Indexes / Hedges 5
1.1%
1.3%
(9%)
(8%)
Gross Contribution
20.8%
0.9%
Gross: 139%
Gross: 158%
Internet: 1%
Internet: 2%
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Market Outlook
Over the previous few quarters, we now have maintained a cautious stance on the fairness market, sustaining near-zero web publicity. We proceed to see draw back dangers to broader fairness markets resulting from stagnant actual earnings, notably within the client sector and amongst lower-quality companies, whereas valuations stay broadly elevated.
Whereas S&P 500 efficiency was pushed by a cut up of earnings development and a number of enlargement, nearly all of earnings development got here from mega cap know-how firms. For the Russell 2000, earnings development remained practically flat, and the entire index efficiency was attributed to a number of enlargement.
The current rally in low-quality, speculative shares is paying homage to late 2021. Many valuations have grow to be stretched, with companies buying and selling at extreme income multiples regardless of having little to no path to profitability. Speculative themes—similar to crypto, AI, quantum computing, and nuclear power—have gained momentum, and lots of low-quality firms with promotional administration groups are capitalizing on market hype. This dynamic creates what we imagine to be a gorgeous alternative for brief promoting, much like the surroundings within the second half of 2021 and all through 2022. Whereas timing market tops is inherently tough, we’re poised to capitalize on these alternatives as they emerge.
Following the current election and a Republican sweep, broad fairness markets skilled a rally. Coincidentally or not, Trump assuming workplace amidst an “AI bubble” attracts parallels to earlier Republican presidents who took workplace close to market peaks: Hoover throughout the Roaring 20s, Nixon throughout the Nifty Fifty period, and George W. Bush throughout the Dot-Com Bubble. Every of those administrations, like Trump’s, promoted tax cuts and deregulation, coincided with an inverted yield curve, and preceded a greater-than-50% decline within the S&P 500. Whereas we’re not predicting a 50% correction, historical past could not repeat itself, however it usually rhymes.
Portfolio Replace
Throughout the quarter, our web beta adjusted publicity usually fluctuated inside the vary of +/-10%, with a median of two%. Gross publicity ranged between 114% and 179%, with a median of 139%. We preserve our view {that a} web publicity vary of 20-30% stays optimum for our portfolio development.
Within the fourth quarter, our common gross publicity was decrease in comparison with prior durations resulting from two components:
Adjusted place sizing and exited lengthy positions: We decreased lengthy publicity in sure positions as valuations turned much less compelling. To keep up near-neutral web publicity, we correspondingly lowered brief publicity. Lively portfolio administration: We elevated portfolio turnover, particularly on shorts, by opportunistically buying and selling round positions. This method aimed toward capturing steeper sections of the alpha curve, the place we anticipate greater likelihood inventory value strikes.
We imagine enhancing our capacity to commerce opportunistically round each lengthy and brief positions inside our universe can generate incremental returns on high of core holdings whereas additionally contributing to decreased volatility.
Our portfolio’s sector focus was as follows: client (~35%), industrials (~35%), know-how (~13%), different (~17%). 6 Nearly all of our “different” sector publicity (together with sector hedges) represents our particular scenario healthcare investments. As mentioned in our prior letters, we stay brief client and lengthy industrials. Our common greenback publicity for every sector was: client (-25%), industrials (+24%), know-how (-5%), and others (+11%).
Efficiency Commentary
In 2024, we noticed vital outperformance from our lengthy portfolio relative to each the S&P 500 and Russell 2000. Whereas our brief ebook outperformed the inverse S&P 500, we barely underperformed the inverse Russell 2000. We are able to attribute this underperformance to any one in every of a handful of high brief detractors. Our high 3 detractors from our brief ebook resulted in roughly -11% towards efficiency. All three of those have been bigger brief positions in greater beta shares that noticed vital share value appreciation over our holding interval.
We continued to seize a constructive unfold between our lengthy and brief positions and imagine the present surroundings stays favorable for our lengthy/brief stock-picking technique.
Relative Efficiency of Lengthy & Brief Portfolio 7
Gross P&L Adj. For Hedges 8
Relative to S&P 500
Relative to Russell 2000
2024 YTD
Longs
37.3%
10.1%
25.4%
Shorts
(14.5%)
12.7%
(2.6%)
Annualized Inception to Date
Longs
15.0%
2.5%
10.6%
Shorts
(4.6%)
7.9%
0.2%
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Fourth Quarter Gainers & Detractors
Gainers
Detractors
FTAI Aviation (FTAI)
FTAI Infrastructure
RealReal (REAL)
Latch (OTC:LTCH)
Undisclosed Lengthy
Client Brief
Expertise Lengthy
Sable Offshore (SOC)
Expertise Lengthy
Expertise Brief
Full Yr Gainers & Detractors
Gainers
Detractors
FTAI Aviation
Brief
FTAI Infrastructure
Latch
Sable Offshore
Expertise Lengthy
Arbutus (ABUS)
Expertise Brief
Roivant (ROIV)
Client Lengthy
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Prime Gainers
FTAI Aviation (FTAI)
FTAI emerged as one of many top-performing shares in 2024, with its share value rising over 200%. This efficiency was pushed by sturdy aerospace after-market tailwinds and the rising market share of its PMA elements enterprise, as the corporate constantly exceeded market expectations quarter after quarter.
The fourth quarter introduced vital developments for FTAI, regardless of a share value retracement within the final 5 weeks of the yr. In November, the corporate introduced FAA approval for its second PMA engine half. In late December, FTAI introduced a Strategic Capital Initiative (‘SCI’) with personal credit score buyers to amass mid-life plane, tapping into a possible $30 billion market as plane lessors offload older planes as they make new purchases. Underneath this association, FTAI secures the rights for the engine upkeep contracts, that are projected to generate ~$200 million in incremental annual aerospace EBITDA by 2026 when absolutely ramped.
After we analyze the SCI and issue within the a number of income streams (administration price, incentive price and upkeep income), we imagine the return on invested capital will likely be 80%+. We calculate a mixed ~$2.50 per share of earnings from SCI. If the primary SCI deal is profitable, FTAI may increase one in every of these 7-year funds a yr.
In January 2025, FTAI was the topic of a brief report claiming FTAI is a leasing enterprise portraying itself as an aftermarket enterprise and an accounting scheme. We disagree with the declare that FTAI is only a leasing enterprise and imagine that FTAI is a value-add aftermarket upkeep enterprise that follows trade requirements for leasing accounting. On January 21 st, RBC hosted a lunch with FTAI the place administration publicly addressed most of the claims of the brief report.
With these current constructive developments, decline in share value in January, and a number of constructive catalysts on the horizon, we imagine FTAI is well-positioned for continued success heading into 2025.
RealReal (REAL)
RealReal was a part of our “damaged shares” basket, the place we believed the market unfairly left the inventory for useless. Having held this inventory for over a yr, we actively managed our place because the share value climbed from $2 to $9.
The market’s preliminary response to the announcement that the present CEO would step down, succeeded by Rati Sahi Levesque, a member of the founding group from 2011, was one in every of “shoot first, ask questions later.” We noticed this as an overreaction, notably as the corporate considerably raised its fourth-quarter steerage above consensus expectations and positioned itself to enhance its debt refinancing prospects.
Undisclosed Lengthy
We’re lengthy on an power firm that we imagine has substantial upside potential as administration focuses on debt discount and unlocking shareholder worth.
Expertise Lengthy
We took a protracted place in a monetary know-how firm we imagine was basically undervalued and misunderstood by the market. A mix of excessive brief curiosity from perceived regulatory dangers and enhancing enterprise fundamentals drove the inventory value to greater than double within the fourth quarter. After a considerable achieve and a narrowing hole between market notion and intrinsic worth, we exited the place. Notably, the inventory continued its upward momentum by means of year-end.
Expertise Lengthy
We initiated a small place in a low-quality enterprise that we believed had been largely deserted by the market. Having beforehand shorted this firm a number of occasions, we noticed a chance when its deeply depressed share value introduced a positive risk-reward, as new administration aimed to show the enterprise round. We entered the place whereas the inventory traded close to all-time lows, satisfied that the basics have been starting to enhance. After the share value practically doubled, we exited, as we now not discovered the risk- reward compelling.
Prime Detractors
FTAI Infrastructure (FIP)
We proceed to view FIP as a extremely enticing alternative with a number of potential catalysts. Whereas there haven’t been any current arduous catalysts, we see a powerful probability of constructive developments forward. All 4 of FIP’s belongings seem poised for a significant inflection level in 2025.
In early February, Lengthy Ridge efficiently priced its notes as a part of its debt refinancing. In the meantime, FIP is actively pursuing the acquisition of GCM Grosvenor’s 49.9% stake in Lengthy Ridge. We anticipate this transaction to be extremely accretive, as FIP plans to concern inventory in change for what we imagine to be an undervalued place in Lengthy Ridge. Moreover, we see vital upside potential in Lengthy Ridge by means of a possible knowledge heart deal later this yr.
Latch (OTC:LTCH)
Latch was a major detractor final yr, with its share value persevering with to say no and buying and selling at a reduction to money. In November, the corporate introduced that Jamie Siminoff can be stepping down on the finish of 2024. This was considered negatively by the market, as there had been optimism round Jamie’s management since he joined over a yr in the past.
I had the chance to satisfy with Jamie and a number of other group members on the ISC East Conference in New York in November. Based mostly on these discussions, it seems the enterprise is performing nicely operationally, with the important thing problem now being execution.
In December, Latch launched its long-awaited 2022 financials, which we see as a constructive step ahead. This paves the way in which for a number of potential catalysts in 2025, together with the completion of present filings (2023 and 2024 financials) and the potential of an uplisting.
Client Brief
We maintained a brief place on this client inventory, which we imagine is buying and selling at an unjustified premium relative to its friends. Regardless of the corporate’s finish customers dealing with persistent downward stress, these headwinds had not but impacted on its efficiency as of the third quarter. In our view, this resilience stems from undue preferential remedy by its home retail companions.
In December, the corporate issued a secondary providing priced at a notable low cost to the present buying and selling ranges, reinforcing our thesis. Trying forward, we anticipate insider promoting and continued challenges in its finish markets. These pressures at the moment are compounded by heightened worldwide commerce tensions and broader geopolitical dangers.
Sable Offshore (SOC)
Sable, an exploration and manufacturing (E&P) firm, acquired an offshore asset from Exxon off the California coast that had been shut down following a pipeline spill. In July, the California State Fireplace Marshal accepted the pipeline’s restart, and in September, Sable settled with Santa Barbara County for the required permits to put in new security valves. With these approvals in place, manufacturing was initially slated to renew late within the fourth quarter of 2024.
Nevertheless, in October, the California Coastal Fee issued a cease-and-desist order, halting restore work on the uncovered part of the pipeline that crosses Santa Barbara’s shoreline. In response, Sable selected to collaborate with the fee to satisfy its calls for, delaying manufacturing into at the very least the primary quarter of 2025. On February thirteenth, 2025, Santa Barbara Nation despatched the Costal Fee a letter stating Sable had the required permits to finish the required work.
We imagine Sable has each authorized proper to renew manufacturing on the Santa Ynez Unit and that these near-term obstacles are short-term. Moreover, a Trump administration may assist speed up the restart course of. At its present share value, we imagine Sable stays considerably undervalued relative to the standard of its oil belongings, which rank among the many finest within the U.S.
Since initiating our place, we now have held a mixture of widespread fairness and name choices. Whereas the decision choices generated robust beneficial properties following the Santa Barbara settlement, they’ve since been a drag on efficiency. We proceed to see substantial upside in Sable shares.
Expertise Brief
We have been brief a enterprise who noticed a major share value appreciation because of the constructive information of an trade competitor. We initiated a brief place as we believed this firm was unlikely to expertise an identical profit. Whereas we believed the long-term view to be appropriate, the shares have been caught within the midst of an total rally in extremely shorted shares.
Further Commentary Roivant (ROIV)
We proceed to imagine Roivant affords a gorgeous threat reward and a number of methods to win. Excluding Roivant’s money stability and Immunovant (IMVT) stake, the rest of Roivant (ROIV stub) is valued at lower than $2 per share. We imagine Roivant’s stake in Arbutus and its publicity to the LNP litigation may alone be price as much as $4. Along with ROIV, we stay shareholders in Arbutus.
Operational Replace / Closing Ideas
In September, we introduced on a guide whom I’ve identified and collaborated with for a number of years. With a decade of expertise in short-selling and event-driven methods, we’re excited concerning the precious synergies this addition will create.
The fund is presently open to new subscriptions. Accredited buyers can contact us at ir@tourlitecapital.com with any questions or inquiries.
Sincerely,
Jeffrey G. Cherkin
Footnotes
1 Any web returns introduced herein mirror the returns of the Fund assuming an investor “since inception”, with no subsequent capital contributions or withdrawals. These returns usually are not essentially indicative of your web returns within the Fund, and it’s best to follow-up with Tourlite in case you have any questions concerning the returns introduced herein
2 Bloomberg Complete Return
3 Annualized Return from Fund inception in April 2022
4 Modified beta-adjusted exposures to be relative to the Russel 2000 as of This autumn 2024. Prior beta-adjusted publicity ranges have been adjusted to mirror this. Publicity represents YTD common
5 Consists of foreign money hedges and different buying and selling prices. Borrow price included in brief return
6 Common of trade gross publicity over the interval. Different sectors embrace healthcare and actual property
7 Efficiency of brief portfolio is relative to the inverse of chosen Index
8 Represents gross return on invested capital. Lengthy and brief P&L adjusted for respective contributions of hedges
IMPORTANT NOTES
This letter is being furnished by Tourlite Capital Administration, LP (“ Tourlite”) on a confidential foundation to recipient and doesn’t represent a proposal, solicitation or suggestion to promote or a proposal to purchase any securities, funding merchandise or funding advisory providers. Such a proposal or solicitation of an funding in Tourlite Fund, LP (the “ Fund”) could also be made solely by supply of the Fund’s confidential providing paperwork that include an outline of the fabric phrases regarding such funding, of which this letter will not be an element. The knowledge and opinions expressed herein are supplied for informational functions solely, are as of the date indicated, are abstract in nature, usually are not full, are topic to alter and shouldn’t be relied upon by any individual in investing choice. An funding within the Fund is speculative resulting from quite a lot of dangers and concerns as are detailed within the confidential providing paperwork of the Fund, and this letter is certified of their entirety by the extra full data contained therein.
This letter is strictly confidential, and the data contained herein or supplied herewith is probably not disclosed or distributed by the recipient to every other individual (aside from the recipient’s associates, companions, members, administrators, officers, workers and advisors and different brokers who’ve a legit want for such data in reference to evaluating the recipient’s funding). Your receipt and evaluate of this letter constitutes your settlement to adjust to these provisions.
An funding within the Fund entails a major diploma of threat, and there could be no assurance that its funding goals will likely be achieved or that its investments will likely be worthwhile. This letter incorporates numerous estimates, targets and projections which might be based mostly upon numerous assumptions made as of the date such estimates, targets or projections have been developed. Precise realized returns on unrealized investments and proceeds will rely on numerous components together with, however not restricted to, future working outcomes, the worth of the belongings and market circumstances on the time of any disposition, any associated transaction, operational and different prices and the timing and method of sale. Whereas estimates, targets and projections supplied herein are believed to be cheap approximations based mostly upon accessible data accessible to Tourlite as of the date of this letter, no assure or assurance could be supplied as to their accuracy or that such estimates, targets or projections will likely be achieved or met. Except in any other case famous, the efficiency outcomes of the Fund included on this letter are introduced on a net-of-fees foundation and mirror the deduction of, amongst different issues, underlying administration and efficiency charges and bills in addition to brokerage and/or custodial charges and bills. Efficiency outcomes additionally embrace the reinvestment of dividends and different earnings. Sure of the efficiency data introduced on this letter are unaudited estimates based mostly upon the data accessible to Tourlite as of the date hereof, and are topic to subsequent revision on account of the Fund’s audit. An investor’s precise efficiency and precise charges could differ from the efficiency data proven resulting from, amongst different components, capital contributions, withdrawals and eligibility to take part in “new points.” The worth of investments can go down in addition to up. Previous efficiency will not be essentially a sign of future efficiency or profitability.
References to Dow Jones, S&P 500, NASDAQ, Bloomberg and different indices herein are for informational and common comparative functions solely. There are vital variations between such indices and the funding program of the Fund. The Fund doesn’t put money into all or essentially any significant slice of the securities, industries or methods represented by such indices. References to indices don’t counsel that the Fund will, or is prone to, obtain returns, volatility or different outcomes much like such indices.
Sure data set forth on this letter relies upon data obtained from numerous third events believed by Tourlite to be dependable. Neither Tourlite nor any of its associates has independently verified any such data and so they shall not have any legal responsibility related to the inaccuracy or inadequacy thereof.
This letter and the accompanying dialogue embrace forward-looking statements. All statements that aren’t historic information are forward-looking statements, together with any statements that relate to future market circumstances, outcomes, operations, methods or different future circumstances or developments and any statements concerning goals, alternatives, positioning or prospects. Ahead-looking statements are essentially based mostly upon hypothesis, expectations, estimates and assumptions which might be inherently unreliable and topic to vital enterprise, financial and aggressive uncertainties and contingencies. Ahead-looking statements usually are not a promise or warranty about future occasions.
The knowledge on this letter will not be supposed to offer, and shouldn’t be relied upon for, accounting, authorized, or tax recommendation or funding suggestions. Every recipient ought to seek the advice of its personal tax, authorized, accounting, monetary, or different advisors concerning the points mentioned herein.
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Editor’s Notice: The abstract bullets for this text have been chosen by Searching for Alpha editors.
Editor’s Notice: This text discusses a number of securities that don’t commerce on a serious U.S. change. Please pay attention to the dangers related to these shares.
