Kernow Asset Management tear sheet for the month ended December 31, 2024.
December: Closing a Strong Year on a High Note
The strategy delivered a useful gain of +0.8%, standing resilient in the face of declining local and global markets. This positive close capped off what has been a good year for Kernow’s investors.
2024: A Year of Outperformance
We achieved a +23% return in 2024, far exceeding the market’s +9% (including dividends). This performance would place us first in the IA Targeted Absolute Return category (out of 75 funds) and third in the IA UK All Companies category (out of 221 funds) for the year.
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While such outperformance won’t occur every year, our philosophy remains steadfast: long-term investing rewards patience and discipline. Investors partnering with Kernow should adopt at least a five-year time horizon, as the strategy’s success becomes even clearer over extended periods. Since our inception in 2019, Kernow’s performance has outpaced 98% of UK equity strategies available to the public at large.
2025: Positioned for the Next Wave of Growth
Looking ahead, 2025’s gains will likely come from companies with qualities akin to Wise. This quality global winner continues to exceed expectations. Most recently, it added Morgan Stanley as an FX client, just months after Standard Chartered came aboard.
This move to add wholesale volume at scale to a traditionally retail-only business is hugely impressive and three years ahead of our expectations. To put this into perspective, expected catalyst milestones typically only move by a few months. Accordingly, we are comfortable that Wise is now our largest position.
We know the stock is prone to significant pullbacks, as it is hard for analysts to model costs correctly. So, it will be a difficult one to ride over the coming years. Given the balance of the rest of the portfolio, we are prepared for this.
Wise: A Thesis with Eyes Wide Open
The biggest risk for the FX industry is the emergence of a global currency. That’s at least 100 years away, so put that in the thought bin. Wise’s biggest risk today is its peers. More precisely, how its competitors react to the prisoner’s dilemma. If they all start adopting the same winning business model as Wise, then its returns will collapse.
As it stands the incumbent FX price gougers are making too much money for little effort to change their practices. The other FX start-ups compete through service and have not focused on establishing the same low-cost infrastructure as Wise has. Hence, they cannot compete on price. Naturally, the competitive dynamics will evolve. We are closely watching them to try and disprove our investment thesis.
Portfolio Moves: Strengthening the Core
This month, we topped up our positions in Card Factory and Saga, as both companies hit milestones. On the short side, we exited Pennon Group. We walked away as the asymmetric probabilities shifted. While the UK water industry’s economics remain flawed, recent government price increases have brought short-term certainty, paving the way for refinancings and takeovers. The narrative has changed. We’ve adjusted accordingly.
Short Book Wins: Delivering High-Impact Gains
Last month, one of our shorts raised several hundred million via a convertible bond. Its share price responded by falling more than 30% over the month. In September, management said the “Group has adequate resources for a period of at least twelve months”. It then attempted a normal equity placing. This failed. Management then had little choice but to go cap-in-hand to the distressed lenders. Of the three founders, one has recently passed away, and the Chairman left “with immediate effect” last month. Meanwhile, the CEO is still rolling the dice. The soap opera continues.
Since its inception in November 2019, the Kernow strategy is up 61%, compared with the UK equity market, which has increased 33% over the same period. The collective upside in the portfolio is worth more than 218%.
- Book of the month: Bite the Ass Off a Bear by Garth Friesen
- Good month for: On The Beach Group +52% after announcing share buyback
- Bad month for: Ashtead Group -21% after announcing moving primary listing to USA
Kind regards
Alyx Wood
Chief Investment Officer
Kernow Asset Management
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