DG Value Navigates Volatility with Distressed Debt Strategy, Nets +2.8% in August

In its August update, DG Capital reported a +2.8% return for its Value Funds, bringing its year-to-date performance to +4.09%. The firm's managers highlighted their strategy of navigating market volatility by investing in distressed debt and other special situations.

DG Value Partners (Legacy Class) currently stands at +3.41% gains on a year-to-date basis. On the other hand, DG Value Funds is performing better, bringing back in the same time frame +4.09%.

Macroeconomic Outlook

At the beginning of the letter to investors, the fund managers addressed current macroeconomic conditions, high volatility, and how they are addressing it to maximize portfolio gains.

In the current state of extreme volatility during the second quarter, the funds attempted to navigate by identifying “deeply distressed debt and out-of-favor debt and equity investments.” Those should provide enough potential for a value jump through a significant margin of safety, combined with the catalyst and/or event.

The mentioned volatility came from macroeconomic uncertainty triggered by tariffs and shifts in economic policies. The small caps and high-yield debt, which are important fund strategies, were pushed by volatility into declines during the month, triggering lower fund performance.

Also see: DG Capital Up In 2025; Buys Stressed P&C Insurer & Sells VEON [Exclusive]

As a part of the fund strategy with the outlook of the current macro environment, managers are looking at investments with lower correlation with capital markets.

Those include:

• Companies in distress in a scenario of a one-time fixable problem
• Companies that are coming out of bankruptcy
• Debt that, according to the fund, will be paid early
• Spinoff scenarios
• Companies are using asset sales to either repurchase stocks or refinance debt.