Alluvial Up 41% In 2025, 3% YTD [2025 Investor Letter]

Alluvial Fund’s commentary for the first quarter ended March 31, 2026.

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Dear Partners,

Alluvial Fund returned 3.0% in the first quarter of this year, a solid start against flattish benchmarks. Looking at the quarter’s returns in isolation, one might conclude that markets were sedate, lacking investor excitement or anguish to push them higher or lower. A brief glance at the headlines would quickly dispel that point of view. The outbreak of war shook markets, and our holdings were not unaffected.

TABLE I: Alluvial Fund LP Returns (%) as of March 31, 2026

Partnership began operations 01/01/2017

Before I write anything about the Iran War’s impact, let me acknowledge that the situation seems to change by the day, if not by the hour, and that anything I write could be out-of-date before I finish this page. I will not speculate on the timing of the Strait of Hormuz fully reopening or when a peace agreement might be achieved. Instead of prognosticating on geopolitics, I believe my time is better spent ensuring our portfolio is robust to a wide range of outcomes and looking for opportunities caused by the disruptions.

Thus far, the war has had only limited effects on the outlooks of our portfolio holdings. We have always preferred boring businesses with predictable cash flows, offering products and services that people and businesses tend to need in good times and in bad. Our investments in industries like staple foods, cleaning products, and communications should be protective if energy prices stay high and the economy suffers.

Since quarter’s end, markets have rebounded strongly on signs of de-escalation and increased hopes for peace and normalizing energy flows. The small-cap Russell 2000 Index is up 11% so far in April, hitting new all-time highs. This degree of exuberance strikes me as premature, but time will tell. Most European and Asian markets are taking a more cautious tack and remain off their February highs. For our part, Alluvial Fund has recovered nearly all of its March decline, but we are not keeping up with the higher octane domestic small-cap and micro-cap indexes.

I do expect that if the worst of this conflict is truly behind us, the market’s enthusiasm will eventually extend to the sleepier names in our portfolio. If there is more strife ahead, we have cash to take advantage of opportunities.