Hazelton Capital Partners commentary for the second quarter ended June 30, 2025.
Dear Partner,
Hazelton Capital Partners, LLC (the “Fund”) increased by 11.1% from April 1, 2025, through June 30, 2025, returning 3.5% for the year. By comparison, the S&P 500 increased 10.9% during the same quarter and returned 6.2% for the year. The Fund ended the quarter with a portfolio comprised of 18 equity positions and a cash level of nearly 12% of assets under management. The top five portfolio holdings, account for roughly 42% of the Fund’s net assets, are: Micron Technologies (MU), British American Tobacco (BTI), Liberty Broadband (LBRDK), KKR & Company (KKR), and Burford Capital (BUR). During the first half of the year, negative returns from key portfolio holdings Apple Inc. (AAPL) and KKR & Company (KKR), as well as PayPal (PYPL), muted the returns of the portfolio led by Liberty Broadband Corp (LBRDK), British American Tobacco (BTI), and Micron Technologies (MU).
Mamma Mia, Here We Go Again - The Quarter in Review
Starting in early April, equity markets became exceedingly volatile with large day-to-day fluctuations, as investors became fearful of the economic impact the Trump Tariffs would have on the global economy. Many of those reporting on the markets pinned the increased volatility on market “uncertainty.” However, what was truly driving the market volatility was not uncertainty but a lack of clarity. Clarity is a state of understanding without ambiguity, while certainty is a measure of confidence in future outcomes. Investing in the markets always comes with a level of uncertainty. What is currently impacting businesses is the ambiguity surrounding their future costs, what those costs will be, and whether they will be able to pass along those costs or be forced to absorb them. With numerous unknown variables to consider, many CEOs were choosing not to provide or limit their future revenue/earnings guidance.
Over the past 18 years, investors have been fed a steady diet of economic headwinds impacting the market’s performance including: the Subprime Housing Bubble, the Great Financial Crisis, and Covid-19. What makes the recent market volatility different is that the economic tariffs are a demon of our own design. Instead of the government or the Federal Reserve coming to the rescue, it is the government that has created the headwind, which begs the question: Is this a short-term disruption or a long-term market disorder?
Market valuations have become stretched. This does not mean that every stock is overvalued, but many come with lofty earnings estimates for the upcoming quarters. Currently, when companies meet or beat their earnings expectations, the market rewards the stock by moving its attention to the next name on its list. However, if companies provide less than inspiring future guidance or speak of potential future headwinds, the market takes the company’s stock to the “woodshed.” The price action of many companies will remain volatile for the foreseeable future. Some of the rapid declines will be warranted, but many will be an overreaction.
Wealth is Historically Transferred from the Impatient to the Patient Investor
Investing is easy to understand but challenging to execute. The challenge of investing is that it requires both patience and the ability to remain in control of one’s emotions, especially when markets become volatile. Most investors claim to have a long-term investment horizon until markets become unhinged. A common adage that we learned growing up is, “Don’t just stand there, do something.” For certain occupations, this is a hard and fast rule. Any job where the speed of action is critical to the outcome, engagement is the right decision. Investing is not one of those professions. In fact, a better investing mantra, and one that Hazelton Capital Partners follows is, “Don’t just do something, stand there.” Stand there until an investment opportunity presents itself.
It is important not to confuse inactivity with lack of progress. Investing requires an extended time horizon. Before investing in a business, one needs to understand how the company generates revenue and, more importantly, how that revenue is alchemized into cash (profits). What drives a company’s success is not only its competitive edge but also how well its management allocates its capital. Identifying a quality investment for the long-term at a discounted price is only the first step along the investment journey. Recognizing when it’s time to sell, hold, or increase a holding is just as important. These investing principles can be easily forgotten during stressful, volatile markets when it feels more comfortable to reduce one's equity exposure and head to the sidelines.
Assets Come in Three Flavors
Throughout any investing period, Hazelton Capital Partners’ portfolio is comprised of undervalued, fairly valued, and overvalued assets. This is not by design but a reflection of market valuations. In the past, the Fund would actively prune its “overvalued assets” in favor of purchasing undervalued ones. Often, the “need” to redeploy the Fund’s cash in an undervalued asset would result in an investment whose long-term competitive edge or management’s capital allocation was not durable or capable. Over time, Hazelton Capital Partners learned the hard way that religiously selling an asset simply because it reached a predetermined stock level was short-sighted, leading to loss of future gains.
Today, Hazelton Capital Partners is less dogmatic about transitioning the portfolio, especially when the Fund has had an opportunity to invest in an exceptional management team. Over the course of time, an undervalued asset can convert into a fairly valued or overvalued asset, and vice versa for overvalued assets. What distinguishes an assets lies in its management. Before selling an asset, Hazelton Capital Partners needs to understand why it is overvalued. Is it because the company’s earnings have plateaued or are in decline, or has the stock price risen faster than the fundamentals currently support? When an asset’s earnings power has peaked or is in decline because of poor management or industry disruption, Hazelton Capital Partners will eliminate the holding from the portfolio. However, when an asset’s stock price has gotten ahead of its fundamentals, the Fund is more pragmatic, taking a longer-term view by holding or scaling back on the position vs. selling out entirely. Hazelton Capital Partners recognizes that holding this position will mean that the stock price will likely decline or, at best, be “dead money” for the foreseeable future. A decline in the stock price could turn into a positive long-term result as it may provide another entry level to add to the holding (See Micron Technology below). Each of Hazelton Capital Partners’ holdings is reviewed at least 4 times per year, not only through the prism of its fundamentals but also its management team and potential for future growth.
The market finds itself at a crossroads. One path points to a potential economic slowdown, where the full impact of tariff inflation has yet to be felt, possibly leading to a recession. The other suggests that while some sectors of the economy are slowing, the overall health of the economy remains in good shape. With interest rate cuts expected in the coming months, the economy would expand, weather any tariff inflation, and avoid a recession. This bifurcated outlook means that the market will shoot first and ask questions later, meaning that the recent market volatility will be with us for a while.
Micron Technology (MU) Current Holding
“Just When I Thought I Was Out, They Pull Me Back In.” - Michael Corleone
Micron Technology has been a member of Hazelton Capital Partners’ portfolio for nearly 15 years, but not always as a top 5 holding. Recognizing that both the company and industry are very cyclical, the Fund adjusts its position concentration based on where the company is in its earnings cycle. Over the last five years, Micron’s earnings cycle (peak to trough) and the duration of that cycle have been improving, leading to higher stock peaks and troughs over a shorter duration. This was due in part to more rational behavior among industry competitors and the ongoing demand for memory and storage for mobile devices, PCs, data centers, and AI’s recent insatiable demand for HBM (High Bandwidth Memory).
Micron had been Hazelton Capital Partners’ largest holding, by a significant margin, until an AI- driven rally began in early 2024. Through June of 2024, the Fund reduced its position based on the growing gap between the company’s stock price and its fundamentals, removing Micron as a top five holding. By the end of 2024, Micron’s share price had fallen over 42% from its mid- year high, with a further 30% decline in April 2025 amid fears of a global tariff war. By late April/early May of 2025, the gap between Micron’s share price and fundamentals had completely reversed. With the stock undervalued in relation to the company’s fundamentals, Hazelton Capital Partners reacquired shares, more than doubling its position and restoring Micron as the Fund’s top holding.
At the time, Hazelton Capital Partners was repurchasing MU shares, Micron was busy ramping up its HBM3E offering, while shipping samples of its next-generation HBM4 for testing. HBM3E was designed to work with Nvidia’s H200 & Blackwell GPUs to increase workloads and reduce power consumption, which significantly improved the performance of Large Language Models (LLMs) during both training and inference. Designed to work with Nvidia’s and AMD’s next-generation GPU (Rubin-Vera & MI400 due to ship in mid ‘26), Micron’s HBM4 provides 60% more bandwidth and is 20% more power efficient than its HBM3E predecessor. HBM4 also marks the first time HBM is being customized to meet precise specifications, which primarily involves modifying the base die (the logic layer) to optimize performance, power consumption, or latency. Micron is working directly with both AI Accelerators (Nvidia, AMD, and Broadcom) as well as Cloud Hyperscalers (AWS, Google, Meta, and Azure) to design HBM4 to meet their specific needs. Between shipping HBM4 starting in mid-2026 and ramping their customized HBM4 between 2027-2029, Micron expects both revenue growth and improving margin performance to continue over the next few years.
In the second quarter of 2025, Hazelton Capital Partners was purchasing shares of Micron on a trailing twelve-month P/E (price to earnings) ratio of roughly 10.5x. This was neither cheap nor expensive when compared to the company’s historic P/E levels. However, when measured by MU’s expected forward earnings growth, its P/E ratio falls into the mid-single digits. By the end of Q2 2025, even with the share price appreciation, Micron’s forward P/E was roughly 9.5x. Hazelton Capital Partners believes there is more room to the upside for Micron shares but given the cyclicality of Micron shares and its industry, the Fund will keep a watchful eye on the company, its fundamentals, and growth.
KKR & Company (KKR) Current Holding
After two strong years, shares of KKR stock were weighed down by Q2 profit taking as investors were concerned that the tariffs would negatively impact the global equity markets. KKR’s business thrives from liquidity and a well-functioning capital market. Its economic flywheel centers around raising capital, deploying that capital into undervalued, inefficiently run assets, improving the operations, and selling the asset for a profit. The entire lifespan of their investment takes approximately five years. Whenever one of the components of their business model is disrupted, their entire economic flywheel slows down. Through April of 2025, the global Initial Public Offering (IPO) market was all but shut down. As of May, the IPO market began to recover as investor confidence slowly returned. Unlike other industries, it does not take a lot of time for KKR’s flywheel to recover and quickly rebuild its momentum. Currently, KKR generates roughly 40% of its revenues from Private Equity investments, but going forward, most of the capital will flow into alternative assets like Private Credit. Based on new capital raised over the last few quarters, approximately 25% of the capital will be allocated to Private Equity, with 26% going to Real Estate/Infrastructure, and the remainder going into Private Credit.
At the end of Q2, KKR traded at roughly 27x its trailing 12-month ANI/share (Adjusted Net Income = Fee Related Earnings, Total Operating & Investing Earnings, adjusted for Interest Expenses and Income Tax) of $4.97, a 26% increase over the same period a year ago. In the nearly 3 years that Hazelton Capital Partners owned KKR, its share price has more than doubled, with half of the appreciation from multiple expansion and the other half from earnings growth. Management’s 2026 guidance reflects continued growth in key areas of AUM (Asset Under Management), fee related earnings, investments, and total operating earnings. Over the next 9 years, KKR’s Management has set a goal of $15/share of ANI which works out to be 13% ANI growth per year. This may seem a bit lofty, but given management’s breakdown of how it intends to achieve this goal, the $15/share could turn out to be on the conservative side. Currently, the market has given the stock a vote of confidence with its elevated P/E ratio as it expects KKR’s earnings growth to continue. Unlike its previous 3 years, nearly all of KKR’s future stock growth is expected to come from its earnings and not multiple expansion. In fact, if KKR is successful in expanding its earnings, its P/E will actually decline over time.
Hazelton Capital Partners’ initial investment in KKR reflected confidence that KKR’s management would be able to navigate the challenging macroeconomic backdrop of rising interest rates and recession fears. The company and its management have done an admirable job expanding beyond being a sole private equity firm to include an insurance firm as well as establishing a strong foothold in the private credit market. KKR’s fundraising over the last few years has been noteworthy, reflecting its strong brand as a trusted alternative asset manager. Even though KKR appears to be overvalued based on current multiples, Hazelton Capital Partners believes that the Fund has invested in a premier management team that will continue to leverage the company’s expertise in capital markets.
Investing in Hazelton Capital Partners
Hazelton Capital Partners was created as an investment vehicle, allowing those interested in long-term exposure to the equity market to invest alongside me. With a substantial portion of my own capital in the fund, I manage Hazelton Capital Partners assets in the same way I manage my own capital. The best source of introduction to potential investors in the Fund has come from those that have invested or followed Hazelton Capital Partners progress over the years. Introductions are both welcome and appreciated.
If you are interested in making or increasing your contribution to Hazelton Capital Partners or just learning more about The Fund, please feel free to contact me.
Please do not hesitate to call me at (312) 970-9202 or email me [email protected] with any questions or concerns.
Warm Regards,
Barry Pasikov
Managing Member
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