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Barel Karsan
Barel Karsan

Karsan Value Funds: 2020 Q4 Results

Discussion of markets and holdings

Karsan Value Funds (KVF) is a value-oriented fund, as described here. Due to securities regulations, the fund is not open to the public at this time. Should that change in the future, there will be an announcement on this site.

For the fourth quarter ended December 31st, 2020, KVF gained $4.91 per share, increasing the value of each share to $30.89. This pre-tax 22% quarterly return bested the 15% and 11% returns of the S&P 500 and S&P/TSX, respectively, but was below the 28% return of the Russell 2000. KVF's result would have been even better but for currency losses which reduced returns by $0.31 per share in the quarter.

For years, I've been discussing KVF's portfolio weighting towards small-caps for valuation reasons, and this quarter we got paid for that positioning. Gains were fairly broad-based throughout the portfolio, but there were some stand-outs as well:

- Australian software company RXP Services (ASX:RSP) received and accepted a buyout offer, resulting in a 140%+ gain since its purchase in April.
- Beazer (NYSE:BZH) was sold from KVF's portfolio after a more than 100% gain since its purchase in March.
- CIT (NYSE:CIT) received and accepted a buyout offer for another large gain, once again since its purchase in March.
- Jefferies (NYSE:JEF) was sold following strong price appreciation since its purchase in July, as discussed here.

The quarter did have its detractors as well, including Freightcar America (NASDAQ:RAIL), which was sold for a big loss, as discussed here.

This quarter's returns are not sustainable. It is much harder to find value now than it was just a few months ago. KVF's cash balance has been growing as it has been difficult to find appealing investments as fast as KVF has been bailing out of investments that are reaching what I estimate to be fair value. As such, I'm not as optimistic going forward as I have been recently.

That said, there are still some potential opportunities out there. Needless to say, the market remains unpredictable; another strong return (or loss) should not be surprising: it's just how the market behaves. By taking a long-term approach and employing a margin of safety, I expect KVF to continue to protect and grow capital.

KVF's income statement and balance sheet are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD:

About the author:

Barel Karsan
Charlie Tian, Ph.D., is the founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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