Jefferies Financial Group Inc

Jefferies Financial Group Inc. is mentioned as part of the Fund's financial investments, which accounted for 17.1% of the Fund’s net assets. The letter discusses the strong recurring earnings generated by financial businesses through subscriptions and premiums, highlighting their predictable earnings and cash flow. However, there is no explicit directional argument made about Jefferies Financial Group Inc. itself.

We believe the long-term investment cases of Jefferies remain unchanged, other than being more attractively valued following recent share price declines. We added to each position in 2025. Our focus is not on the next five weeks or months, but on the next five years or longer, and on the ability of these businesses to potentially create value over the long run.

Jefferies Financial Group, the U.S.-based investment bank and capital markets service provider, saw its shares decline by roughly 29% amid the uncertainty surrounding tariffs and their potential indirect impacts on Jefferies’ business. Given the uncertainty in the business environment sparked by ongoing trade/tariff negotiations, many businesses contemplating issuances of debt or equity or considering M&A have hit the 'pause' button, weighing on Jefferies’ shares. That said, over the years Jefferies has used earlier slumps in other parts of the world to expand its footprint in Asia, Australasia, Europe, and Latin America, taking advantage of the retrenchment of other investment banks by hiring bankers that were leaving stressed competitors.

Jefferies Financial Group has experienced a material slowdown in capital markets activity, which has negatively impacted its recent results and stock price. However, the manager believes that Jefferies has done well with the aspects it can control and maintains a long-term outlook for continued value creation. With the stock now trading around stated book value and at a valuation of just over 10x earnings in a recovering environment, the manager sees significant upside potential for Jefferies moving forward.

Jefferies Financial Group missed on EPS and revenue as investment banking activity disappointed investors’ high expectations. This underperformance indicates potential vulnerabilities in their business model, particularly in the current market environment where investor expectations are high. The disappointing results suggest that Jefferies may struggle to meet future growth targets, raising concerns about its ability to deliver consistent returns.

I view JEF as having 4 parts: a broker/dealer in bonds and equities, an investment bank, an asset manager and a collection of 'extra assets'. The tangible book value of the first 3 parts ('core') is approx. $21 per share and the value of the 'extra assets' I believe exceeds $10 per share. About 3 years ago, JEF embarked on a process to dispose of its extra assets and refocus on its core business. Since then JEF has returned over $3.4Bn to shareholders through dividends and accreditive share repurchases. I expect this process to continue with a conclusion sometime in the next 24 months.