Apis Global Discovery Fund commentary for the fourth quarter ended December 31, 2024.
Dear Partners,
The Apis Global Discovery Fund was down 2.6% net in Q4 2024 and was up 8.6% for the year. Over the same periods, the MSCI ACWI SMID-Cap benchmark index was down 3.4% and up 8.7%, respectively.
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Performance Overview (Gross Returns)
The Global Discovery Fund had a relatively solid fourth quarter, bringing its annual returns in line with the global benchmarks. North American returns contributed almost 5.5% in the quarter, but this was more than offset in other regions, especially Asia ex-Japan (mostly Korea), which detracted almost 4.5%. For the year, North America also stood out, adding 14.2%, while Europe and Japan detracted, and Asia ex-Japan added about 2%. Technology was the big winner, adding 3.5% in the quarter, while Industrials led the year, adding 9.5%. Other sectors were mostly flat, with Healthcare being the worst performer, down 3%.
The top contributor in the quarter was Red Cat Holdings (mentioned below), adding 4.5%, followed by Hallador (also below) with a 0.8% gain. Red Cat was a more speculative position, but moved sharply after winning an Army contract, prompting us to increase our position. Hallador gained on confirmation that a data center power deal is in the works. On the downside, TransMedics detracted almost 1% due to weak earnings while several Korean names fell, which we mainly attribute to political instability as the President called for martial law and now faces impeachment. We (and I think everyone) were surprised by these developments, and the situation remains unclear. Our best read is that the Supreme Court must rule on impeachment, but this could take 3-6 months to resolve completely.
Reflecting on the year, we have mixed feelings. While we pay little attention to the index itself, it generates (if we earn it) performance fees so our goal is to far exceed it, not match it. For several years now, the U.S. market has been the only place to be. The MSCI U.S. SMID index gained 12.1%,1 while the MSCI SMID ex-U.S. was up 1.1%.1 Our underweighting of the U.S., which started the year at 12%, has been a significant drag on performance, requiring excellent stock picking to overcome. For example, in Korea, we generated positive returns (about 1% contribution) despite allocating 15%+ of the portfolio to a market that was down about 21.0% (in USD terms)1 in the year. Looking ahead to 2025, our U.S. allocation has increased to 33%, still well below the high-50% index weight.
Portfolio Outlook And Positioning
Instead of re-visiting the topic of how expensive the U.S. is relative to other markets…
…or how years of outperformance have left the U.S. overrepresented in the global indices (a 63% weighting is getting ridiculous!)…
…or the persistent undervaluation of small companies, we thought it would be more valuable to focus this letter on highlighting some top ideas that we think will work in 2025, despite the damning characteristics of being small and/or outside the borders of the United States. It’s worth remembering that Japan, once accounting for 37% of the world’s market capital, now represents just 6%...
Investment Highlights
Long Ideas
Hallador Energy (U.S. – $500 million market cap)
Hallador is just over a 4% position in our Global Discovery Fund. The company owns a coal mine and an electric power plant in Indiana, where it is poised to benefit from a dramatic increase in average power prices in 2026 when current contracts expire. We believe Hallador could potentially earn twice as much as the Street is estimating for 2026. Trading at just over 4x P/E for 2026, the stock is valued at less than half of its peers. We think the timing is favorable as Indiana is a key hub of data center activity, which could further drive power demand and prices upwards. We anticipate that growing sentiment driven by this theme along with announcements of lucrative power contracts should result in both upward revisions to earnings estimates and increased investor attention.
Iljin Electric (Korea – $900 million market cap)
This 4.5% position is an under-the-radar Korean electrical equipment company. High-margin export sales of transformers are expected to drive a more than 50% increase in earnings for 2025. Trading at just 12x earnings, with orders booked through the end of the decade, we anticipate robust growth and a potential re-rating, which should propel the stock much higher.
Osaka Soda (Japan – $1.6 billion market cap)
Osaka Soda is a 3% position in the Global Discovery Fund. Superficially, the company appears to be an unexciting chemicals company. A closer look, however, finds its healthcare (HC) segment, while only representing 12.5% of sales, accounted for 54% of operating profit in 2024. This success is driven by the company’s market-dominant position in supplying silica gel beads, a key ingredient in the production of peptide drugs, including the blockbuster weight loss drugs, Ozempic and Wegovy. While struggling to add capacity to keep up with demand, we believe sales in the HC division will grow 20-30% for the next several years. With a P/E of 14x forward earnings, we see more than 100% upside.
Red Cat Holdings (U.S. – $900 million market cap)
One of the “spicier” names in the portfolio (about a 5% position), Red Cat (RCAT) is a leading supplier of drones, primarily for military applications. The stock surged in 2024 following a major $500mm contract with the U.S. Army to provide field reconnaissance drones. Based on current orders, RCAT trades on a price-to-earnings multiple of 100x next year’s earnings. However, the company’s recent transformative Army contract opens the door to additional opportunities with other military branches and NATO countries. We expect the momentum of the drone theme/narrative to drive the stock’s growth as the incoming Trump administration is highly supportive and weary of alternative (primarily Chinese) suppliers.
Talen Energy (U.S. – $9.5 billion market cap)
Talen is about a 4% position in the Global Discovery Fund. As an independent power producer (IPP), it owns the 6th largest nuclear power plant in the U.S., located in a region poised for significant power price increases driven by rising demand from data centers. Talen already secured a contract with Amazon to supply power to a data center campus at prices 50% above the forward curve and has the capacity to sign similar agreements in the future. While the stock may seem expensive on current earnings, it is only 12x our 2026 free cash flow estimates, a significant discount to its peers. Management continues to capitalize on this gap through an aggressive repurchase program.
As always, we encourage your questions and comments, so please do not hesitate to call our team here at Apis or Will Dombrowski at +1.203.409.6301.
Sincerely,
Daniel Barker
Portfolio Manager & Managing Member
Eric Almeraz
Director of Research & Managing Member
Also see:
- Apis Flagship Fund Q4 2024 Commentary here and Factsheet here.
- Apis Deep Value Fund Q4 2024 Commentary here and Factsheet here.
