Update for the month of January 2025. New positions include SUM, ATSG, HOG Puts (Short), along with commentary on the HOG thesis, the missed ATSG investment (currently in play as a merger arbitrage deal), and Jeppesen & Boeing. It is my belief that the currently sanguine valuations may be forestalled by steady or rising interest rates – froth which is required to serve up the perfect foundation for a strong uptrend.
Marketable Securities
The top 5 marketable securities held in the portfolio amount to a total of 60% of the total portfolio holdings. The positions include Sabre Inc., Visa, Fairfax Holdings, Kellogg, and VTI US ETF. The position for FNMA was closed out earlier this month as it is my belief that contrasting interests between the administration and the Treasury, in tandem with the current interest rate regime – which I opine will remain slightly elevated, will push back the timeline for the privatization of the GSEs. A future position may be re-initiated at a cost basis with much lower downside.
January Performance
The cumulative performance of the fund in January was 17.63% as compared to the S&P 500 (Benchmark) yielding a total of 11.87% since inception (Aug 2024). The MTD performance came out to be 2.35% which is 35 points lower than the benchmark. It is my expectation that we continue to target a 10% CAGR over the long run.
Sumit Materials (SUM), Air Transportation Group Holdings (ATSG)
Sumit Materials and Air Transportation Group Holdings are two new additions to the portfolio which are merger arbitrage plays. Both the deals are currently yielding north of 8% on an annualized basis. I believe that the timeline for the SUM deal may take a touch longer than required thereby bringing the yield lower. However, I conversely foresee the ATSG deal closing within the next two months or so. At present the thought is to recycle the SUM capital into ATSG at opportune levels as and when the situation presents itself post SUM deal closing

Harley-Davidson (HOG Puts)
My fair value estimate for the company rests within a range of $55 – $64. Aiming for a 15% CAGR over the next half decade would result in something close to an estimated purchase price of nearabout $26 or so. However, with the current increase in dealer inventories, general weakness in the bike and auto markets as well as the uncertainty of how the new administration will approach the interest rates has led to recent declines in revenues and free cash flows for the company. Owing to the same March puts for a $23 strike were sold, yielding a 6.1% synthetic dividend on an annualized basis. Furthermore, were the options to be assigned, yours truly would be extremely happy in taking a position in the underlying company at the adjusted price.

Boeing – Jeppesen & NVDA
The Boeing position was closed out at $182.85 for an annualized return of 26% after the earnings were reported and visibility about improving backlog delivery and the union situation was shared. Given that there is not much clarity on the Jeppesen situation, monies were cashed out. The dry powder is being held in reserve, for future usage and deployment in small and mid caps which are trading at attractive valuations and with long term growth prospects.
Furthermore, NVDA added 2bps to the portfolio in a single day through a volatility arbitrage book. The trade was initiated and closed the day after news about Deepseek AI broke and capitalized on elevated volatilities for the company.
General Portfolio Update
A slow month for the portfolio, I expect tepid performance until the earnings season numbers start hitting the tape for the top positions such as Kellogg and Sabre Inc. A heavy position has been taken in Sabre owing to the oligopolistic business model in tandem with positioning in the business cycle wherein earnings are likely to be pushed back up again, thereby reducing financial leverage organically through a valuation boost.
The remainder of the portfolio will likely remain unchanged and new positions if any will be initiated in arbitrage trades which look attractive on a post tax basis for the portfolio.
Thanks for reading and feel free to post any comments or other thoughts that you may have below.
Yours Truly,
Sanket Karve