Marram Investment Management’s commentary for the second quarter ended June 30, 2024.
Dear Investors,
The Portfolio* appreciated +5.7% (net) year-to-date through 6/30/2024.
Since inception, Marram has generated +506.6% cumulative return and +14.3% annualized return, net of fees.
For monthly details, see Historical Performance Returns* at the end of this letter. Also, please refer to your separate account statement for exact account return figures.
Portfolio Allocations
Below is the target portfolio allocation – the optimal allocation as of the writing of this letter. Investor separate accounts may differ from this allocation due to changes in asset prices, availability to acquire/divest securities in the marketplace, margin & trading capabilities, and tax considerations. Over time, all investor separate accounts converge upon the target portfolio allocation.
Large-Cap Financials: 37% NAV
In March 2023, the U.S. banking system experienced a brief crisis when three banks failed in quick succession. The prices of large regional banks fell precipitously as investors indiscriminately sold shares, allowing us to significantly increase our exposure at fire-sale prices. Current market sentiment does not distinguish between Held To Maturity (“HTM”) vs. Available For Sale (“AFS”) securities unrealized losses, presenting us with a unique opportunity. While other market participants view the AFS unrealized losses as an undesirable risk, we view them as a juicy source of future upside as the losses naturally reverse with time. Taking into account recent price appreciation, we estimate this basket (through the combination of AFS unrealized loss reversals, profitable earnings yields, and valuation multiple expansion) will generate 2.0X to 2.5X+ in the next 4 years. See our 2023 1st Quarter Letter for our Regional Bank investment thesis.
Energy Infrastructure / Master Limited Partnerships (MLPs): 26% NAV
Energy infrastructure companies with assets indispensable to the smooth function of modern society. These investments were made in early 2020, taking advantage of commodity price volatility, shareholder turnover, forced selling, and uncertainty related to the long-term demand of fossil fuels which drove prices to extremely low levels. Since then, geopolitical strife, inflation, and increased recognition of the limitations of renewable energy has led market participants to reembrace fossil fuels, which in turn has lifted the prices of our MLPs. The size of this allocation peaked at 42% of NAV in late-2021, and has since gradually declined due to harvested gains, trimmed exposures, and M&A activity. Our diversified basket of MLPs trades, on average, at 8% NOI, 12% Cash Flow Yield, and pays 6% in dividends per year, and is still a cornerstone of the portfolio given favorable industry demand dynamics, stable cash flows, conservative balance sheets, reasonable valuations, and generous cash distributions. See our 2019 4th Quarter and 2021 2nd Quarter Letters for our MLP investment thesis.
Reinvestment Growth (Payments & Financial Technology): 17% NAV
Fast-growing payments & financial technology businesses with favorable revenue tail winds, operating in areas with vast untapped total addressable markets, generating cash profits, actively reinvesting profits back into the business at high incremental margins, and self-funding future growth with little/no equity dilution. We purchased these investments at attractive prices that should generate at least 3X return in 5 years based on reasonable topline growth & margin assumptions. See our 2022 1st Quarter Letter for more details.
Cash & Cash Equivalents: 20% NAV
This category will fluctuate depending on investment opportunities available in the marketplace. We collect ~4% interest and dividends per year which continuously replenishes our cash balance.
Target Portfolio Allocation % Over Time
Portfolio Return* Analysis & Future Positioning
The portfolio* returned -1.8% (net) in the 2nd quarter of 2024, bringing our year-to-date 2024 return to +5.7% (net).
The market value of our portfolio did not change much during the 2nd quarter. Our energy MLPs and cash interest contributed positively to performance, while our large bank and payment technology investments dragged. After the quarter ended, our large bank investments rocketed higher, contributing to significant appreciation for the overall portfolio. We took advantage of lower prices in the payment technology sector by adding two new investments and increasing the size of two others. No other significant changes were made to the portfolio during the quarter.
Please do not hesitate to reach out with any questions. As always, thank you for your trust. We look forward to continuing our capital compounding adventures in the years ahead.
Yours very truly,
Vivian Y. Chen, CFA
Portfolio Manager
Marram Investment Management
Historical Performance Returns (Net Of Fees)*
