Q1 2025 STRATEGY PERFORMANCE:
2025 has been an interesting time to start a microcap fund. Markets have rapidly moved from euphoria after the Presidential election to uncertainty around the impact of proposed economic policies in February to outright panic in the “aftermath” of Liberation Day. This narrative translated into a decline of -12.9%1 , -4.53% and -4.27% for the portfolio, the Russell, and the S&P 500.
MARKET OVERVIEW: MARKETS REPRICE AMID SHIFTING CONDITIONS AS EMOTIONS RUN RIOT
Our results this quarter certainly offer an opportunity to validate a core tenant of our microcap focus: volatility is a feature to be exploited rather than a flaw to be avoided. In fact, the opportunity has grown in absolute and relative terms. First quarter price declines combined with growth in aggregate free cash flow caused portfolio FCF/EV yields to rise from 12% in January to 15% currently. On an absolute basis, L2’s Micro strategy has rarely had higher FCF yields. A portfolio of growing free cash flows priced at a 15% yield seems like an opportunity.
L2 Micro Cap – Q1 2025
Table of contents
When
April 10, 2025
Who
Matthew Malgari
Dr. Sanjeev Bhojraj
Nathan Przybylo
Q1 2025 STRATEGY PERFORMANCE:
2025 has been an interesting time to start a microcap fund. Markets have rapidly moved from euphoria after the Presidential election to uncertainty around the impact of proposed economic policies in February to outright panic in the “aftermath” of Liberation Day. This narrative translated into a decline of -12.9%1 , -4.53% and -4.27% for the portfolio, the Russell, and the S&P 500.
MARKET OVERVIEW: MARKETS REPRICE AMID SHIFTING CONDITIONS AS EMOTIONS RUN RIOT
Our results this quarter certainly offer an opportunity to validate a core tenant of our microcap focus: volatility is a feature to be exploited rather than a flaw to be avoided. In fact, the opportunity has grown in absolute and relative terms. First quarter price declines combined with growth in aggregate free cash flow caused portfolio FCF/EV yields to rise from 12% in January to 15% currently. On an absolute basis, L2’s Micro strategy has rarely had higher FCF yields. A portfolio of growing free cash flows priced at a 15% yield seems like an opportunity.