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Seven months since inception, my 2020 Triple Net Active Versus Passive Portfolio continues to deliver interesting results. Over the past month, the Active Portfolio (up 47%) has taken the lead over the Passive Portfolio (up 43%) The Active Portfolio, unveiled on October 21st and October 23rd rose about 9% over the past month, to overtake the Passive Portfolio which was up about 4%.

The Active Portfolio is now ahead of the Russell 2000 Index (up 43% since 10/15), but both portfolios trail the Russell Microcap Index (up 57%). Small value also continues to rally with the Russell 2000 Value Index (up 62%) and Russell Microcap Value (up 73%).

All eight Active names remain in positive territory, with Haynes (HAYN) (up 110%) continuing to separate itself from the pack, rising 24% since the last update. That came on the heels of better than expected second quarter results.

Daktronics (DAKT) (up 77%) slid into second place on no news, but is making a run at a 52-week. Sanmina (SANM) (up 58%) remains in second place, while Daktronics (DAKT) (up 56%) rounds out the top three. Culp (CULP) (up 20%) had a decent month, rising 15% on no news. Otherwise, there was not much excitement.

Performance of the remaining Active names:

Madison Square Garden Entertainment (MSGE) (up 30%)

REX American Resources (REX) (up 25%)

Weyco Group (WEYS) (up 38%)

Argan (AGX) (up 17%)

All but two of the Passive names, GSI Technology (GSIT) (down 12%) and American Public Education (APEI) (down 7%) are in positive territory. The best Passive performer (which includes the Active names plus 19 others) is now RPC Inc (RES) (up 115%), which took the reins from AAR Corp (AIR) (up 107%) after the latter led for the past four consecutive months. Active name Haynes rounds out the top three. The fact that there are now three active names (Daktronics (DAKT) holds the fifth spot, Sanmina (SANM) is 10th) in the top 10 among passives is a good sign, at least to the guy who thought he could pick the top performers among all triple-nets. However, that needs to improve.

The objective of this annual experiment is twofold; to see whether triple-nets (companies trading at between 2x and 3x net current asset value) can outperform the broader markets overall, and whether taking an active approach can outperform a passive approach. The Passive Portfolio is comprised of all triple-nets available at the time of construction, with the following attributes:

  • Market capitalization in excess of $100 million
  • No financials or development-stage companies
  • Trading at between two and three times NCAV (NCAV is calculated by subtracting a company’s total liabilities from current assets)

Twenty-seven names made the cut, and are included in the Active Portfolio. I then selected the eight names that are most interesting to me, which comprise the Active portfolio, and took positions in all eight. My belief is that within this deep value pond, an active approach can outperform passive.