Artko Capital LP
April 19, 2018
Investing in small/micro cap companies and special situations within a concentrated portfolio

Artko Capital LP 1Q 2018 Partner Letter

For the first calendar quarter of 2018, a partnership interest in Artko Capital LP returned 5.5% net of fees. At the same time, an investment in the most comparable market indexes—Russell 2000, Russell Microcap, and the S&P 500—lost 0.1%, gained 0.7%, and lost 0.8%, respectively. For the trailing 12 months, an interest in Artko Capital LP returned 21.2% net of fees, while investments in the most comparable aforementioned market indexes were up 11.8%, 13.5%, and 14.0%, respectively. Our monthly results and related footnotes are available in the table at the end of this letter. Our results this quarter came from positive contributions from US Geothermal, Gaia Inc., Skyline Corporation and The Joint Corp., while pullbacks in Hudson Technologies, Destination XL, Premier Exhibitions Inc., and Leaf Group detracted from the overall performance.

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Peter Rabover, CFA
Portfolio Manager
Artko Capital LP
April 1
9
, 201
8
Dear Partner,
For the
first calendar quarter of 2018
, a partnership inter
est in Artko Capital LP
returned
5.5
%
net of fees.
At the same time, an investment in the most comparable market indexes
Russell 2000, Russell Microcap,
and the S&P 500
lost
0.1
%,
gained 0.7%, and lost 0.8
%, respective
ly. For the trailing
12
months
,
an
interest in Artko Capital LP returned
21
.
2
% net of fees
,
while investments in the most comparable
aforementioned market indexes were up
11.8%, 13.5%, and 14.0
%,
respectively. Our monthly results
and
related footnotes
are available in the table at the end of this letter.
Our results this qua
rter
came from
positive
c
ontributions from US Geothermal, Gaia
Inc
.
, Skyline Corporation
and
The Joint Corp
.
,
while
pullbacks in Hudso
n Technologies, Destination XL
, Premier Exhibitions
Inc
.,
and Leaf Group
detracted from
the overall performance
.
2Q17
3Q17
4Q17
1Q18
1 year
Inception
7/1/2015
Inception
Annualized
Artko LP Net
8.3%
1.9%
4.1%
5.5%
21.2%
62.4%
19.3%
Russell 2000 Index
2.5%
5.7%
3.3%
-0.1%
11.8%
26.8%
9.0%
Russell MicroCap Index
3.8%
6.7%
1.8%
0.7%
13.5%
22.7%
7.7%
S&P 500 Index
3.1%
4.5%
6.6%
-0.8%
14.0%
35.6%
11.7%
On
Suffering Through
Long
-
Term Investing
I think most people would be better off with more pain in their lives, honestly.
I think that, if nothing else,
they would appreciate the pain
-
free times more. But I think also there's th
is self
-
induced
aspect of, y
ou've
struggled, you've overcome, you've gotten through, then you're confident and you both enjoy the rest of
your life more, but also you feel like you can do things and you take on challenges that you wouldn't
otherwise try, a
nd you get to points that you wouldn't otherwise reach
.
Julian Jameson
, “
The
Barkley
Marathons: The Trail That Eats Its Young”
One of
our
core underlying beliefs in creating this partnership almost three years ago was that of the few
pockets of market
inefficiencies
that remain available to exploit by active investors,
in addition to the
illiquidity premium of
microcap
publicly traded
companies,
are opportunities in “time arbitrage
.
While
that phrase might sound
like
fancy
investment jargon
,
it’s
simply
the ability to
take advantage
of
the
market’s
intense
short
-
term
outlook
bias also
known as
“present bias”
or
the tendency
,
when making a
decision
, to undervalue the future in relation to the present
,
and be
able to invest for the long term and
make investment decisions the results of which are measured in
years instead of quarters and months.
Easier said than done of course.
Over the las
t few years, the market
has been
fueled by easy money and
low volatility,
which
has
created complacency am
ong
public market investors
. These investors are
not
accustomed
to
feeling
pain
driven by uncertainty
in both
fundamental
results and stock prices
,
where
even the smallest deviations from the assigned narrative
are
considered
investment thesis killers.
As
you may
be aware
,
the partnership’s
portfolio manager is an avid
long
-
distance
trail runner
who
occasionally participa
tes
in trail races from
5
0 to 100 miles long
.
For runners,
like
our portfolio manager
,
who
are
slower than a herd of turtles running through spilled peanut butter
,
th
e
se
types of
races c
an
take
12
to 36 hours to complete and require a
long
-
term oriented mindset
that
in addition to being
comfortable
with
significant
uncertainty must also be comforta
ble with
extensive
suffering to reach a goal
.
And make
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|
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no mistake about it
;
these are not 5k
sprint
races
where the
suffering ends quickly.
There
are
emotionally
intense
ups and downs,
constant
adjustments of
original goals, relentless
self
-
doubt
,
and
overwhelming
loneliness while climbing up
a
giant hill in the middle of the woods
at 3 a.m.
We like to think
about
our
investment process in
a
similar fashion. No pain, no gain. W
hen we look for potential investments
,
we
are
not looking for
short
-
term,
lo
w double
-
digit upsid
e
investments
but for
triple
-
digit upsides over a span of
multiple years.
With those
types
of goals
,
the
jo
urneys in each of our investments require
us
not only to
have vision beyond next quarter’s results but
to
also
be prepared for
periods of intense suffering
and
continuous
self
-
re
-
assessment
o
f
whether
it
is temporary or
a significant injury to our portfolio
that
requires us to pull out of “the rac
e.”
W
here we really like
focus
our
investment
proces
s
is
on
the ability to
identify
real risk
, or
injury
, of
permanent capital impairment of our investments
versus
just additional
uncertainty about future results
,
or
temporary
suffering, on
our way to higher long
-
term returns.
I
s the
stock down
significantly
this quarter
because the
new
value of underlying assets
can
no longer
offer us
a margin of safety protect
ing our
ca
pital
and we should take our losses an
d
exit
the position
? Or
is
it
because the
market fears the uncertainty of
near term results and
thus
is giving
us
the opportunity
t
o add to our position at cheaper prices?
Ou
r
investing experience has shown that the market
mistakenly
assigns
near term certainty, such as quarterly
channel checks
;
o
bsessive parsing of management commentary
at a recent conference
;
or
the
results of
the
n
ext killer
data driven
model
,
as
a valuable “edge”
,
while discounting the
hard
-
to
-
forecast value of
future results at extreme rates.
It is with this belief in mind that we try to construct a
Core Portfolio
full
of
high future uncertainty/low probability of permanent capital impairment
investments
and are willing
to
suffer through periods of
drawdowns to achieve superior
long
-
term returns.
This quarter
s quip into our investing mindset is no coincidence.
As
we discu
ss belo
w, our results
this
quarter were
driven
by our original July 2015
C
ore
P
ortfolio
investments in US Geothermal and Gaia
,
whose stock prices
have certainly caused us some suffering
along
the way to
positive
results
,
as well as
our continued
challenges
in
our high uncertainty position in
Hudson Technologies
.
Portfolio Updates
US Geothermal
(
HTM
)
In 4Q17
,
our 10%
Core Portfolio
position in US Geothermal was down 20%
to
a price of
$3.45
, almost back to the
~
$3.00
levels where we
initially
purchased it
2.5
years prior
.
It
seemed that the
market
,
frustrated with lack of progress
on
attaining Power Purchase Agreements
(PPAs)
on
two major growth projects
in 2017, has thrown in the towel
.
As
mentioned
in our last letter
,
we believe
d
the company
’s $60mm
2017 year
-
end
market value was underpinned by
several key
components:
o
Three
fully developed
42
-
megawatt (MW)
geothermal projects that
were to continu
e
generating
$9
mm
-
$1
1
mm a year
in Free Cash Flow for the next 25+ years;
o
3
5
MW of
new
capital equipment
i
n storage;
o
T
he development of its
70MW of
probable
geothermal
resource
projects.
We were buyers of the shares at
year
-
end prices and were pleasantly surprised by a
January 201
8
offer of $5.45
per share
almost
a
60% premium from year end
by Ormat
Technologies.
With the
deal likely to close this quarter
,
this seemingly
finishes
the chapter on this investment.
While we
believe that the true value of US Geothermal is above $
7
.
50
and are still hop
eful
for a competing offer
to emerge
, we recognize that
the path to $
7
.
5
0
is
fraught with
high uncertainty
regarding the
comp
le
tion
of projects
,
the
availability of high
-
cost capital
,
and
management
’s ability to
execut
e
on
its pipeline
without a new CEO
.
In the end, r
eflecting on our earlier musings on high un
certainty/low
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downside risk investments
,
US Geothermal ended up being
a great example of an investment worth
suffering through to get to an 80%
total return
.
Gaia
Inc
.
(
GAIA
)
Our
investment in Gaia Inc
.
, a provider of
streaming
yoga and documentary
content,
returned over 25% this past quarter
,
as the compan
y continued to execute on its strategy of growing
its subscriber and revenue base by 80% a year to
reach
over
1
million subscribers by 2019
. The
company reached
a base of
400,000 subscribers earlie
r this year,
up
from
about
100,000
when we
first invested in mid
-
2015
and
has continued to drive its customer acquisition costs
(CACs)
lower
each
quarter. While
the story is not without
its concerns, such as a lower than we would like implied
retention rat
io,
we’ve been impressed by
the consistent delivery of “as promised” results
and
professionalism
by the CEO Jirka Rysavy
and the rest of the management team
that is a rare sight in
today’s public markets world of “hype and under deliver” CEOs.
While the stock has
r
eturned
close to
175
% for us since the launching of the partnership, it too has
not been without its
“suffering”
bumps in the road
.
T
he real
issue
for us
today
, however,
is
what
to
do
with
an
investment in a
very large
portfolio
position
that has outgrown its
value
status with a
n
original
hard
margin of safety and
has
enter
ed
the
momentum
category.
As the stock reached over
$17.00 per share during the quarter and almost 1
4%
of overall value
in
the
partnership’s
portfolio
,
we
have reduc
ed our stake by
25%
,
as part of our portfolio risk management protocols.
Our original thesis
was underpinned by a har
d, asset
-
based, margin of safety with the corporate headquarters building
and cash value
that today, post a secondary
equity
raise, stands
at about a $
9
0mm
-
$100mm
. That
leaves
$
175
mm of enterprise value
for what we see
is $50
-
$55mm in revenues in 2018
or
approximately a
3.5
X
enterprise value to revenue
multiple
. On the surface
,
that number
appears
not
to
be
very
cheap
for a company generatin
g consistent losses and burning through massive amounts
of cash.
However, digging into the valuation further
,
we are mindful of a number of potential
scenario
outcomes with
various
probabilities. On the
“more likely than not” probability
upside
scenario
,
we
see a company that could be exiting 2019
, or less than two years from now,
with
1.
2 million
subscribers
;
generating $1
40
mm in annualized revenues
with
close to
9
0
% gross
profit
margin
s
;
and
$25mm
-
$30mm in corporate costs. This would leave the company
with $
8
0
mm
-
$110
mm to decide
between continuing to
rapidly
grow
its customer base
at almost triple digits or grow at a more
manageable 20
-
25% and
begin to
generate $4
5
mm
-
$50mm in high
double
-
digit growth
annualized
Free Cash Flow
toward
2020
and beyond
. At
a
somewhat conservative
15x/6.7% Free Cash Flow
multiple/yield
valuation targets
,
this would imply an almost $40 per share stock price
,
or over a 150%
potential
return from today’s price levels
,
though we believe the true price is probably closer to $60.
On the other hand,
a
possible but low probability
downside
scenario
is one
where management
faces
an
inability to grow
net subscribers
beyond
~
20%
a year
, with unsustainabl
y
expensive
CACs
and
a
higher disconnect rate
. This would
leave
the potential for
GA
IA
to exit 2019 with
“only”
600,000
subscribers/$75mm annualized revenue run rate and a low cash balance
. It is in this scenario where
we want to ask ourselves what
would
the company
be
worth then? The
good news
in this scenario
, is
that unlike a
t a
100,000 subscriber number
in 2015
, a 600,000 one (or even a 400,000 one today)
shows
that G
ai
a
’s content channels and 8,000 title library, a
s
kooky and weird as
some of them
may
be,
are
a
proven concept and
should
have significan
t
strategic value to someo
ne who
would
not have
to shoulder $2
5
mm
-
$
30m
m in corporate costs
in a potential acquisition
. One need not look far to
see an ongoing
global
arms race for content and subscribers in today’s post
-
cable, “app
-
stacking”
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world by major media, communication and
e
-
commerce conglomerates.
A managed sale by a CEO
with a proven history of successful exits, to anyone from Amazon
, Comcast
or Verizon, at low single
-
digit revenue multiples would imply a downside stock price of around $12.
50
or 2
0
% from today’s
price.
T
o be clear, we envision this as a
very
low probability scenario
in our assessment of
potential
for
permanent capital impairment
, however, the purpose of this exercise is to show that a move from
a hard margin of safety backed by real assets to a softer one
backed by the company’s
new
strategic
value, need not be complicated
.
D
espite the high uncertainty of the outcomes
,
at a 1
-
to
-
7
risk
-
reward
ratio
,
we
continue to
feel
comfortable keeping our position in GAIA at our highest, 10% of the
portfolio,
conviction weight going forward.
Hudson Technologies (HDSN)
Our investment in Hudson Technologies
, a market lead
er in
distribut
ion
of refrigerant gases,
was down 19% this quarter, in addition to a down 20% quarter in
4Q17. While we are still up signific
antly from our original entry
in July 2016
, the round trip in this
position has certainly been frustrating
. Our investment thesis in this company
is grounded
in the belief
that the EPA
-
mandated phase
-
out
of
virgin production of highly pollutive R
-
22 refrig
erant gasses
,
known as
hydrochlorofluorocarbon
s
(HCFC
s
),
would lead
to
eventual
increases in price of R
-
22
and
allow Hudson,
which
controls a large part of the higher margin R
-
22 reclamation market
,
to benefit
significantly
. Lo
oking out a few years further
, as the installed base of R
-
22 gas compatible refrigeration
and air conditioning
units is reduced and the market transitions to the next
phase of refrigerant gasses
(
h
ydrofluorocarbons
, or
HFCs)
,
Hudson is
already
well positioned as
a
leading distributor
of
virgin and
reclaimed HFCs
a much bigger market than
the
one for HCFCs
. To th
at
end, in 2017
,
Hudson acquired
the refrigerant gas
distribution
unit from Airgas
,
which strengthened
the company’s
distribution
channels and
reclamation
capacity in HCFCs and
HFCs
,
and significantly increased its market share and
long
-
term
pricing power. The good news is that our conviction in our original thesis remains as strong
as it was in 2016
,
and we have not seen any significant developments that would cause us to chang
e
our mind
s
.
Of course
,
nothing is ever
that
easy
,
and this
investment
is certainly not a straight
line
shot to the
finish line
.
The market for R
-
22 gases is opaque and fraught with misinformation on the supply and
demand trends
,
which led the R
-
22 user m
arket to stock
pile
the gas in
late
2016 and
early
2017
. This
dr
ove
prices from under $10 per pound in 2016 to over $20 per pound
by mid
-
2017. This has certainly
led to some demand destruction and lower quality product substitutions, driving R
-
22 demand low
er
and unsold inventory in the
channels
higher, causing the prices of the gas to drop
to below $15
per
pound in late 2017 and early 2018
.
D
istributors that lost money in 2017 order
ed
less
inventory so far
in
early
2018. If this sounds like a
patter
n for supply, demand
,
and pricing
behavior
of a typical
commodity
market
,
that’s
because it is.
However, unlike other commodit
ies
,
such
as
oil or copper,
there will be no new supply of R
-
22 coming online
as of
20
20
, while the demand
by
the
current
installe
d
unit
base
should persist for many years to come. This is of course where the short
-
term
uncertainty factor is incredibly high
,
as the challenges in identifying near
-
term
supply and
pricing
patterns create a ripe opportunity for market participants to exhibit the aforementioned present bias.
In addition to the
inherent
operating leverage of Hudson’s business model, where growth in
the
bottom line
is
very sensitive to
the company’s ab
ility to drive volume
-
and price
-
based gross profit
dollars off a fixed cost administrative base
, with the purchase of Airgas the company has taken on
s
ignificant debt
,
adding financial leverage uncertainty to the mix.
In
general
,
we are allergic to
com
panies with
high
debt
loads
and try to avoid initial investments
in companies with
weak
balance
sheets
. However,
we don’t necessarily view taking on new debt
for
high
R
eturn on
In
vested
C
apital
(ROIC)
projects or acquisitions
as
an absolute negative
.
In f
act, one of the reasons we like to invest in
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high
-
quality companies with
clean balance sheets
is
because
unlike companies already laden with
debt
,
this gives unleveraged companies relatively more room to maneuver in making strategic
investment decisions an
d makes them more attractive acquisition candidates by private
equity
market
participants.
Today’s stock price of ~$4.50
,
with the company guiding to over $0.50 per share in 2018 cash earnings
,
implies that the market simply does not believe that R
-
22 prices are coming bac
k,
this year
or ever
.
The market may be correct
in the short term
. In fact, things may actually get worse before they get
better.
But not bankruptcy
or permanent capital impair
ment
worse. The company acquired a
significant amount of inventory
with its purchase of
Airgas
,
the release of which should generate
significant
operating
cash flow by year
-
end
2018
and
will allow
Hudson
to pay down a big part of the
acquisition
debt.
Whi
le the short
-
term uncertainty has the potential to keep the stock price down for
2018
and maybe even 2019
to
prolong our proverbial suffering
our long
-
term price target remains
over $15.00 with a potential to return over 200%. We believe the company should
be able to earn
over $1.00 per share in a normalized R
-
22 price and volume environment once the supply uncertainty
shakes itself out
,
and we will continue to be buyers of the stock at these price
levels
.
Skyline Corporation
(
SKY
)
In late 2017
,
we took
a
n initial
2% portfolio position in
Skyline Corporation,
a
$100mm market cap
company
,
which
was the
No. 4
player in the manufactured home industr
y
. At
the time
,
we
considered that
the market was underestimating the
potential
future
industry
revenue
growth as well as
Skyline’s
cash flow generation ability. We felt we were getting a good
deal
by buying
the stock, around $12.50 per share,
at less than 10x our estimated 2018 earnings. We’ve followed the
manufactured home industry for a long time and
thou
ght
the timing
,
on the heels of a major 2017
hurricane season
and subsequent
increased
demand from the Federal Emergency Management
Agency (FEMA)
,
was a good time to enter the industry
,
as we also bought a 1% portfolio position
in
call options on the
stock
of the
No. 3
player
, Cavco Industries. While timing position entries can be
considered
a fool’s errand, in retrospect this worked out well for us on both investments
.
(
W
e’ve
cashed out on our Cavco calls since then
.
)
As we mentioned in our previous lette
r, in January 2018 Champion Enterprises, the privately held
No.
2
player in the industry (
No. 1
being Warren Buffett’s Clayton Homes, so we’re in good company)
made a reverse merger offer for Skyline. In
simple
r
terms, the
larger
,
privately held company wa
nted
to go public by combining with an already public, but much smaller
competitor
. The
deal
announcement certainly had a positive effect on our 1Q18 results as the stock appreciated 70% to
$22.00 during the quarter. Since then we’ve had an opportunity to
study the combined potential
financials of the new company, Skyline Champion, and
get more comfortable with the
current industry
dynamics
. We
felt that despite the significant run up in the stock, at under $22.00 per share, there
is
still a lot of potentia
l shareholder value left on the table.
We decided to move the stock from our Enhanced Portfolio, where our positions tend to be smaller
due to their perceived riskiness and smaller margin of safety, and made it a full 8% position in our
Core Portfolio,
where our investments tend to be of higher quality and have a smaller perceived
downside.
We believe
the stock of
the
combined company
,
that already has
an implied
enterprise
value
of over
$1
billion
,
should trade over $40 per share
in the near future
once the deal closes in the
next few weeks.
T
he combination of
stock
specific drivers, such as inclusion in passive indexes and
increased Wall Street coverage,
and
fundamental drivers
discussed below,
should provide significant
upside to the partnership.
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One of the more interesting aspects of
the present bias on
Wall Street is the consistent
underestimation of operating leverage, both on the way down and up, inherent in business models of
companies growing off a fixed
-
cost administrative base. We believe
the new combined company is in
a sweet spot to take advantage of a growing revenue base and
, a post
-
combination cost
-
cutting
round
,
smaller
administrative base
.
While Clayton Homes certainly enjoys a competitive advantage in
having access to Berkshire’s c
heap capital to offer financing options to its customers, we believe
Government Sponsored Enterprises’ (GSEs) release of their “Underserved Markets Plan”
,
that
describes specifically their three
-
year plan to meet the “Duty to Serve” obligations under previ
ously
passed
legislation,
will be a significant tailwind to the rest of the industry.
The creation and expansion
of a secondary chattel loan market will have a significant positive effect on the demand for affordable
manufactured housing
,
as more favorable
finance options are made available.
The manufactured
housing market is in the nascent stages of a resurgence coming out of a secular low and
,
with a
significantly better product
suite
line
-
up and potential availability of more consumer financing
,
should
c
ontinue
along
its double
-
digit
revenue
growth trajectory for the next few years. We do not believe
it’s a far stretch for the new combined company to earn over $2.50 in earnings per share and $200mm
in EBITDA by 2020
. The manufactured home industry has low
capital expenditure requirements
,
and
with the new lower corporate tax
rates,
we expect
very high
conversion of
F
ree
C
ash
F
low
from
operating profits
.
It’s
no coincidence that Cavco Industries is currently trading at 18x and 16x on Wall
Street’s 2019 and
2020 EBITDA estimates, as the market expects significant cash flow
conversio
n
and
growth in Return On Invested Capital (ROIC)
from this company
. At the same time, Skyline Champion
,
with a better growth and margin profile,
is trading a
t
less than
half this valuation on our estimates
.
W
e believe that once the deal is closed and the company has a better profile with additional Wall
Street coverage and visibility
,
th
e
valuation gap should c
ontract
quickly. Finally, as part of the deal
close
,
we expec
t a $1.00
-
$2.00 special dividend from old Skyline as it pays out its cash balances to
existing shareholders
on its last day as a stand
-
alone company
.
We’re certainly excited about this
unique under
-
covered opportunity and look forward to updating you on th
is investment
s progress in
the future.
Our other significant portfol
io
contributors
last quarter w
ere a 3
7
% increase in The Joint Corp
.
(JYNT)
as well as our timely intra quarter add to our position in the warrants of Hostess Brands (TWNKW)
and Village
Supermarkets (VLGEA). On the other hand, a
more than
30% drop in the stock
s
of Leaf
Group (LFGR)
and Premier Exhibitions
(PRXIQ)
;
and a
20% drop in our small position in
Destination XL
(DXLG
)
detracted from the overall portfolio performance.
Market Outlook and Commentary
In 1Q18
,
the market finally began to shrug off the complacency of the last few years and began paying
attention to
economic and political factors that could
begin to
derail
one of the longest economic
expansions in history.
Retail sales have fallen for three straight months, construction spending
decelerated at the start of the year, and auto sales have largely plateaued.
Inflation is back on the menu
,
and
the latest
U
.
S
.
job growth reading
was sluggish at best.
Add a dash of
the
threat of trade war
, uncertain
2018 elections
,
and rising interest rate
s
and the macroeconomic picture
looks ve
ry muddy. While we are
not expecting
a near
-
term recession
,
a
pickup
in
market
volatility
was long overdue
.
We continue to be
concerned
th
at
the stock market is over
-
valued in the face rising interest rates
and may run out of steam
way before the recessionary indicators begin to show up, not unlike the beginning
of the 2000
-
2003 stock
market and economic
down
cycle.
7
|
P a g e
We
remain
100% hedged v
ia
put spreads on the Russell 2000 index and continuously
re
-
evaluate our
hedging program relative to gains on our hedges
;
stock market volatility
;
and macroeconomic and market
specific factors.
While th
e hedging program
is not a
permanent
staple of our
long
-
term
strategy
,
we
believe that we are still
in a period
when we can experience
significant
market and
macro
-
economic
shocks
versus relatively smaller
potential
gains left in th
is
cycle.
With the close of US Geothermal (HTM)
deal in 2Q18
,
we should be
close to
15% in cash
.
W
e st
ill
see
some
pockets of opportunities
in the micro
-
and nano
-
cap space
but
we are
also
being more cautious about taking on new positions
in the portfolio
at these market levels.
Partnership Updates
We welcomed
t
wo
new partners
to the partnership th
is quarter
,
bringing our total to 2
7
at
the end of
April
.
We
enjoyed having you at our annual event in San Francisco in February and look forward to hosting
many more in the future
.
We’ve successfully completed our 2017 audit and are grateful to the hard work
from our partners at HC Global Fund Services and M
.
D
.
Hall & Company. We’ve also partnered with our
friends at Canalyst to assist us in a steady flow of forecasting models to s
treamline our research process.
Finally, as we will reach the end of the 3
rd
year of the partnership in July 2018
,
we will be ending
the
Founders Share class fee structure in the next few months.
Next Fund Opening
Ou
r n
ext
partnership openings will be
May
.
1
, 2018, and
June
1
, 2018
. Please reach out for updated
offering documents and presentations at
info@artkocapital.com
or 415.531.2699
8
|
P a g e
Appendix: Performance Statistics Table
Artko LP Net
Russell 2000 Index
Russell MicroCap
Index
S&P 500 Index
Jul-15
1.7%
-1.2%
-3.2%
2.1%
Aug-15
-3.7%
-6.3%
-5.4%
-6.0%
Sep-15
1.4%
-4.9%
-5.8%
-2.5%
Oct-15
1.5%
5.6%
5.4%
8.4%
Nov-15
3.3%
3.3%
3.8%
0.3%
Dec-15
0.0%
-5.0%
-5.2%
-1.6%
Jan-16
-5.4%
-8.8%
-10.4%
-5.0%
Feb-16
0.8%
0.0%
-1.5%
-0.1%
Mar-16
7.5%
8.0%
7.1%
6.8%
Apr-16
1.1%
1.6%
3.2%
0.4%
May-16
2.7%
2.3%
1.3%
1.8%
Jun-16
1.8%
-0.1%
-0.6%
0.3%
Jul-16
10.0%
6.0%
5.2%
3.7%
Aug-16
0.4%
1.6%
2.6%
0.1%
Sep-16
0.1%
1.1%
2.9%
0.0%
Oct-16
-1.3%
-4.8%
-5.7%
-1.8%
Nov-16
11.0%
11.2%
11.6%
3.7%
Dec-16
1.4%
2.8%
4.6%
2.0%
Jan-17
-2.3%
1.5%
0.4%
1.9%
Feb-17
2.2%
1.9%
1.0%
4.0%
Mar-17
-3.5%
0.1%
0.9%
0.1%
Apr-17
2.7%
1.1%
1.0%
1.0%
May-17
0.1%
2.1%
2.4%
1.4%
Jun-17
5.4%
3.5%
5.2%
0.6%
Jul-17
2.7%
0.7%
-0.6%
2.1%
Aug-17
-1.7%
-0.5%
-1.4%
0.3%
Sep-17
0.9%
6.2%
8.2%
2.1%
Oct-17
0.9%
0.9%
-0.2%
2.3%
Nov-17
0.9%
2.9%
2.5%
3.1%
Dec-17
2.3%
-0.4%
-0.5%
1.1%
Jan-18
4.8%
2.5%
2.4%
5.7%
Feb-18
-2.2%
-3.9%
-3.2%
-3.7%
Mar-18
2.9%
1.3%
1.5%
-2.5%
Artko LP Net
Russell 2000 Index
Russell MicroCap
Index
S&P 500 Index
YTD
5.5%
-0.1%
0.7%
-0.8%
1 Year
21.2%
11.8%
13.5%
14.0%
Inception 7/1/2015
62.4%
26.8%
22.7%
35.6%
Inception Annualized
19.3%
9.0%
7.7%
11.7%
Monthly Average
1.5%
1.0%
0.9%
1.0%
Monthly St Deviation
3.4%
4.0%
4.4%
3.0%
Correlation w Net
1.00
0.76
0.70
0.60
9
|
P a g e
Legal Disclosure
The Partnership’s performance is based on operations during a period of general market growth and
extraordinary market volatility during part of the period, and is not necessarily indicative of results the
Partnership may achieve in the future. In addition, the results are based on the periods as a whole, but
results for individual months or quarters within each period have been more favorable or less favorable
than the average, as the case may be. The foreg
oing data have been prepared by the General Partner and
have not been compiled, reviewed or audited by an independent accountant and non
-
year end results
are subject to adjustment.
The results portrayed are for an investor since inception in the Partnersh
ip and the results reflect the
reinvestment of dividends and other earnings and the deduction of costs, the management fees charged
to the Partnership and a pro forma reduction of the General Partner’s special profit allocation, if
applicable. The General
Partner believes that the comparison of Partnership performance to any single
market index is inappropriate. The Partnership’s portfolio may contain options and other derivative
securities, fixed income investments, may include short sales of securities an
d margin trading and is not
as diversified as the indices, shown. The Standard & Poor's 500 Index contains 500 industrial,
transportation, utility and financial companies and is generally representative of the large capitalization
US stock market. The Russ
ell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000
Index and is generally representative of the small capitalization U.S. stock market. The Russell Microcap
Index is comprised of the smallest 1,000 securities in the Russell 2000
Index plus the next 1,000 securities
(traded on national exchanges). The Russell Microcap is generally representative of the microcap segment
of the U.S. stock market. All of the indices are unmanaged, market weighted and reflect the reinvestment
of divid
ends. Due to the differences among the Partnership’s portfolio and the performance of the equity
market indices shown above, however, the General Partner cautions potential investors that no such
index is directly comparable to the investment strategy of t
he Partnership.
While the General Partner believes that to date the Partnership has been managed with an investment
philosophy and methodology similar to that described in the Partnership’s Offering Circular and to that
which will be used to manage the Pa
rtnership in the future, future investments will be made under
different economic conditions and in different securities. Further, the performance discussed herein does
not reflect the General Partner’s performance in all different economic cycles. It shou
ld not be assumed
that investors will experience returns in the future, if any, comparable to those discussed above. The
information given above is historic and should not be taken as any indication of future performance. It
should not be assumed that reco
mmendations made in the future will be profitable, or will equal, the
performance of the securities discussed in this material. Upon request, the General Partner will provide
to you a list of all the recommendations made by it within the past year.
This d
ocument is not intended as and does not constitute an offer to sell any securities to any person or
a solicitation of any person of any offer to purchase any securities. Such an offer or solicitation can only
be made by the confidential Offering Circular o
f the Partnership. This information omits most of the
information material to a decision whether to invest in the Partnership. No person should rely on any
information in this document, but should rely exclusively on the Offering Circular in considering wh
ether
to invest in the Partnership.
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