McIntyre Partnerships' commentary for the second quarter ended June 30, 2025.
Dear Partners,
McIntyre Partnerships Returns
To begin, I’d like to explain why our letter is late this quarter. As a rule, I aim to have our letter distributed by the first week of the month after the end of the quarter. I decided to delay this as I wanted to update you after our companies’ earnings reports, given my belief that they could be significant catalysts. I won’t bury the lead - they were, and the fund is now up 4% net YTD as of August end. What follows is our normal update, along with a discussion about factors, catalysts, and how I think they have impacted our portfolio in a particularly volatile period for US equities.
Performance and Positioning Review – H1 2025
Through H1, McIntyre Partnerships declined approx. -18% gross and -19% net. This compares to our benchmark, the Russell 2000 Value, which declined ~-3%. The fund’s trailing five-year returns are ~30% gross and ~26% net per annum, which compares to our benchmark’s return of ~10% per annum. Since inception, the fund has returned ~14% gross and ~10% net per annum, compared to our benchmark’s return of ~6% per annum.
There were no winners of >100bps YTD. In the losers column, SEG, SHC, LESL, MDRX, STHO and FTRE lost 100-500bps each.
We run a significantly more concentrated portfolio than most investment funds. Our concentration, along with our superior stock selection, has been a key driver of our success. As I like to remind partners, one of my favorite Buffettisms is “no one ever got rich off their eighth best idea.” However, the trade-off is that this concentration inevitably comes with added volatility, which during periods of acute market turmoil can lead to larger short-term variance than I would expect on fundamentals alone. In Q2 2025, the CBOE Volatility Index hit an intraday high of 60, the highest level since the COVID bear market. During the lows of the selloff, the fund was holding in “okay.” We were underperforming by about 500bps, which I consider within the realm of acceptable volatility. While that is a significant underperformance in isolation, the fund has outperformed our index by >1500bps in five of the eight years we have been operating. If I can hold our largest underperformance to 500bps, I expect to do quite well over time. However, as the market recovered into the end of Q2, our holdings largely went sideways, leading to a more significant underperformance. While any explanation of why something happens in the stock market is always closer to a guess than the scientific method, I believe our underperformance is mainly attributable to 1) our holdings not being included in index funds and 2) the significant underperformance of small cap special situations in H1 2025.
Broadly speaking, McIntyre Partnerships is a small cap value and special situations fund. We are specifically looking for off-the-run situations in lesser-followed areas of the market. As a result, many of our holdings are not included in the indices. At the start of Q2, over 50% of our capital was deployed in investments that were not part of any index. Over time, I consider this an advantage. However, our portfolio can often lag in quick market rallies. While this phenomenon occurs somewhat regularly, its effects are typically less pronounced than during the >20% rally the market saw intra-quarter. Many investors use market indexes to adjust their beta in rapidly changing markets rather than engaging in bottom-up stock picking, and our holdings get left behind. As time passes, stock picking returns and catalysts draw attention to our names, resulting in our positions catching up. I consider this phenomenon a frustrating but inevitable occurrence. So long as it results in a considerable lag only once every few years, I believe it is an acceptable risk.
The other significant occurrence in H1 2025 was the broad and significant underperformance of small cap special situations. I rarely speak of factors in our letters as they are largely irrelevant to our strategy. However, it is well documented that in periods of market volatility, the correlation between individual stocks tends to rise, which inevitably impacts us to some extent. As a factor, special situations are difficult to define. It is an inherently nebulous category that stocks tend to move in and out of without clear guidelines. For instance, most large companies have some degree of litigation, yet only some go up and down 30% based on jury verdicts. Further, the only prominent fund index I know that tracks special situation funds, the HFRI Event-Driven Index, largely follows more hedged strategies, though I would gladly take the comparison of our long-term results.
In the absence of an easily defined factor benchmark for small cap special situations, I think the best comparison is to the universe of sub-$5B market cap companies that have undergone a spinoff in the last three years, including parent companies. Of the 43 US-listed companies matching these criteria, the median decline through H1 2025 was -15% and the average was -15% excluding one notable outlier (GRAL). Additionally, only eight of these companies were positive YTD at the end of June. Simply put, small cap special situations are the sandbox we primarily play in, and significant short-term moves in these stocks as a group can have a material impact on our results. Further supporting my factor argument, as the fund recovered in July and August, these stocks also materially improved versus the market. At the end of August, their median and average ex-GRAL declines were both -8% YTD.
Combined, I believe these two factors largely explain our H2 underperformance versus the market. As the factor reversed and our catalysts played out, our performance significantly improved. Further, our factor is still underperforming the broader market for no discernible reason. I believe this sets our portfolio up for continued outperformance in the coming months.
Portfolio Review – Exposures and Concentration
At month end, our exposures are 111% long, 9% short, and 102% net. Adjusted for our options hedges, the portfolio is approximately 97% net long. Our five largest positions are our Pool Basket (SWIM, LESL, HAYW), SEG, SHC, STHO, and MDRX, and account for roughly 85% of assets.
Portfolio Review – Existing Positions
As noted above, I delayed this letter to allow certain catalysts to play out. Specifically, I was waiting for SHC to report volume growth and for SEG to announce the sale of 250 Water Street. Despite not technically occurring in Q2, I think it would be most useful to our partners if I address these subsequent events in this letter.
Sotera Health (SHC)
Over the last two years, SHC has been experiencing an atypical downturn in its end markets. I describe it as atypical, as one does not normally think of things like hip replacements and syringes as economically sensitive. However, excessive stocking of medical equipment during COVID and hoarding during the 2021 supply chain shortages created bloated inventories at hospitals and distributors, which, as these customers returned to normal inventory levels, resulted in flat volumes versus SHC’s historical mid-single digit volume growth. While SHC’s share price has expressed great skepticism, given my belief in SHC’s dominant position and long-term healthcare trends, I was confident it was a matter of when, not if, SHC’s volumes recovered. During H1, management’s tone began to change regarding the recovery, and SHC reported 6% volume growth in Q2, confirming my thesis and driving SHC’s shares from -16% YTD at the end of June to +21% at the end of August.
I believe this quote from the conference call best expresses the current outlook for SHC:
Michael Polark, Analyst:
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As we reflect on the last 2, 3 years… of, let's call it, post-COVID destocking of COVID era inventory bloat. We've worked through it because end markets are still pulling through units like hospital utilization and procedures and people are taking drugs and all the stuff. And like [business] is back [to normal].
Michael Petras, CEO:
Yes, Michael, I think some of your comments are right on. We've been talking the last couple of quarters that we are not hearing about destocking in a significant way, right? We've been telling you that. And again, we're not hearing that at all. I think you're starting to see volumes starting to match up a little closer with the volumes that you're seeing in the end markets.
We saw it across multiple categories here. We talked about bioprocessing a minute ago, but we're seeing it across multiple categories. And as we said earlier in the year, we expected that to continue throughout the year, and we think that will still be the case. And our customers, we're in active dialogue with them and the volumes are coming through.
For perspective, SHC grew volumes 4-7% from 2019 through 2022, and during that time SHC traded 18-22x EBITDA. If SHC can return to its historical EBITDA growth of ~10%, I believe SHC will again be viewed as a consistent compounder, warranting a high multiple. 18x my 2027 EBITDA estimate would yield $35 versus the current $16 price.
Seaport Entertainment Group (SEG)
In August, SEG announced two significant catalysts. First, SEG improved operations to a $7MM adjusted loss in Q2 2025 from a $28MM adjusted loss in Q2 2024. Second, SEG announced the sale of 250 Water Street for $151MM, yielding pro-forma net cash of ~$17 per share versus its current $24 price. Further, I estimate 250 Water Street was ~$10MM annual drag on results and believe the additional cash can result in at least $5MM of annual interest income. With this swing in profitability, I believe SEG will be comfortably profitable as Meow Wolf and other recently signed tenants begin operations over the next two years. I project $3 in 2028 FCF/sh. with at least $10 in net cash. A 15x multiple and credit for net cash yields a $55 price target.
Business Updates
As previously communicated, I closed the fund to outside investors over the summer. I plan to reopen the fund to new LPs sometime in 2026.
As always, please feel free to contact me with any questions.
Sincerely,
Chris McIntyre
(929) 399-5485
McIntyre Partnerships
