Starvine Capital Q2 2025 Commentary

Starvine Capital's commentary for the second quarter ended June 30, 2025.

Dear Partner:

During H1 2025, fully-invested accounts in the Starvine Flagship Strategy increased 5.0% to 6.5%, while fully-invested accounts in the Mid-Large Cap Strategy increased 3.9% to 4.2%. During the period, the S&P TSX Total Return Index[1] increased 10.2% and the S&P 500 Total Return Index increased 0.8% in Canadian dollars (5.5% in USD).

[1] The benchmarks cited by Starvine are standards against which the performance of the strategies can be measured. However, the Starvine strategies approach portfolio construction with a bottom-up approach and thus do not refer to the composition of any index as a reference from which to select securities. Performance of the strategies may differ significantly relative to benchmarks in any time period.

The composite figures above are unaudited and include discretionary fee-paying accounts within each respective mandate. Composite results are presented as time weighted rates of return, net of management fees and other expenses. Results will vary with subscription date, most notably for recently formed accounts whose position weightings and cash levels tend to differ initially from the investment strategies. Clients will therefore each have their own net-of-all fees performance results from investing in Starvine. References made to indices may provide clients with a benchmark to compare results. However, the Starvine strategies are operated with a bottom-up framework and thus no effort is committed to tracking any index. Lastly, the composite results displayed above should not be interpreted as a reference for potential future returns.

Commentary

The first half of 2025 brought the steepest market drawdown since the onset of COVID in March 2020. Starvine strategies were not spared. This time, the volatility stemmed from uncertainty surrounding trade tariff proposals from the Trump administration. Yet, much like in 2020, the downturn reversed quickly—markets rebounded within just two months.

Currency movements also had a material impact. The weakening of the U.S. dollar relative to the Canadian dollar detracted approximately 3.5% and 3.2% from returns in the Flagship and Mid-Large Cap strategies, respectively.

While the tariff headlines were unsettling, the businesses we own were largely insulated in terms of free cash flow exposure. This was already evident as the situation unfolded in early 2025, and further validated during Q1 earnings calls in April and May, where management teams reiterated the limited impact.

Ten Years In - Reflections and Evolution

Now that Starvine has crossed the 10-year milestone, I’d like to share some reflections.

Since inception, the Flagship strategy has posted three down years—2015, 2018, and 2022. These years have weighed on the cumulative number, but returns remain firmly in double-digit territory. Notably, the strongest performance came during the back half of the decade, highlighted by standout years in 2021 and 2024, though tempered by the sharp pullback in 2022.

Evaluating any investment track record is complex, as it’s difficult to cleanly separate skill from luck. A professional athlete may deliver a few exceptional seasons, but that doesn’t ensure another great year is coming. Still, the athlete trains relentlessly, seeking improvement within their control. Similarly, we as investors cannot predict how any given year will unfold—but we can commit to sharpening our analytical skills, strengthening our investment philosophy, and managing behavior with discipline.

Even so, doing all the “right” things—sticking to a long-term approach and focusing on high-quality businesses—does not guarantee smooth results. There will still be rough years. Meanwhile, it’s possible to see good results from poor habits like chasing trends or succumbing to FOMO. Over time, however, the process wins out.

In hindsight, the first five years (2015–2020) could have been stronger. One area that weighed on returns was my overenthusiasm for spin-offs. The thesis was that forced selling could lead to mispricing and opportunity. That still holds true in certain cases, and some spin-offs have worked well for us. But in those early years, I occasionally prioritized the situation over the business, which led to two key mistakes: (1) investing in a few sub-par companies, and (2) lacking conviction in some holdings that later became big winners after I exited.

A key turning point came in 2017, when I introduced a basic checklist that placed greater emphasis on fundamental business quality rather than relying too heavily on valuation-driven setups. While valuation—the price paid relative to intrinsic value—remains important, I came to view it as just one part of a broader mosaic formed from imperfect information. A useful analogy is picking a cashier line at the grocery store: choosing the shortest line doesn’t always get you out faster. Sometimes, opting for the longer line (i.e., paying a higher valuation multiple) is wiser if it’s moving more quickly—akin to investing in a business with strong earnings growth. Conversely, a short line (i.e., a cheap stock) might be a value trap—perhaps the cashier is slow, and others are avoiding it for good reason. Overweighting price while neglecting quality can lead to suboptimal outcomes.

This shift in mindset helped frame my view of 2022—a year that looked poor on paper, especially due to sentiment turning against alternative asset managers amid rising interest rates. Yet fundamentally, these businesses continued to grow, ultimately validating the investment theses. Using the aforementioned analogy, the cashier line kept moving at a steady pace in 2022, but customers avoided it on the expectation that it would halt.

Since then, the philosophy has further evolved: from seeking “great returns” to prioritizing durable compounding. This has led to a deeper appreciation for the rarity and resilience of certain portfolio holdings. While there will always be some level of turnover—due to risk management, capital reallocation, or thesis violations—I expect a meaningful portion of the portfolio to remain long-term holdings.

Closing Thoughts

I often draw parallels between investing and athletics: both require discipline, continuous learning, and a mindset focused on the process, not the outcome. The key difference, however, is that investing allows for cumulative improvement over a lifetime—as long as one’s thinking remains sharp. Experience compounds just like capital.

That said, the work remains as dynamic as ever. I am constantly assessing new ideas, re-evaluating existing holdings, managing position sizes, and staying vigilant for potential value traps.

Thank you for your continued engagement.

Sincerely,

Steven Ko

Portfolio Manager

Starvine Capital Corporation

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