Unveiling Strategic Insights in a Dynamic Market
Decoding H1 2025 Performance: Navigating Market Swings with a Focused Strategy
In the initial half of 2025, McIntyre Partnerships experienced a gross decline of approximately 18% and a net decline of 19%. This contrasts with the Russell 2000 Value index, which saw a decline of about 3% during the same period. Despite this, the fund's trailing five-year returns remain robust, boasting approximately 30% gross and 26% net annually, significantly outpacing the benchmark's 10% annual return. Since its inception, the fund has maintained an impressive annual return of around 14% gross and 10% net, compared to the benchmark's 6%. The quarter witnessed significant market volatility, with the CBOE Volatility Index reaching levels last seen during the COVID-19 bear market. The fund's concentrated portfolio, while historically a key to its success through superior stock selection, led to increased short-term variance. The underperformance was primarily attributed to the fund's holdings not being part of major indices and the broader underperformance of small-cap special situations in H1 2025. This situation highlights the inherent trade-off between concentration's potential for high returns and its susceptibility to volatility during market turmoil.
Strategic Positioning and Resilience: Adapting to Unindexed Assets and Market Factors
McIntyre Partnerships primarily focuses on small-cap value and special situations, deliberately investing in lesser-followed market segments. This strategy means that over half of its capital is often deployed in unindexed investments. While this provides a long-term advantage, it can lead to underperformance during rapid market rallies, as many investors adjust their portfolios using market indexes rather than bottom-up stock picking. The fund acknowledges this as a frustrating but inevitable aspect of its strategy, accepting the risk of considerable lags if they occur infrequently. Another significant factor impacting performance in H1 2025 was the widespread underperformance of small-cap special situations. The fund, however, believes that as these market factors reverse and its specific investment catalysts materialize, its performance will significantly improve, especially given that its target segment continues to underperform the broader market for no apparent fundamental reason. This positioning sets the stage for potential outperformance in the coming months.
Key Portfolio Updates: Shedding Light on Sotera Health's (SHC) Recovery Path
Sotera Health (SHC) has been a focal point within the portfolio, experiencing an unusual downturn in its end markets over the past two years. Despite economic insensitivity typically associated with its services (like hip replacements and syringes), excess inventory from the COVID era and supply chain disruptions led to flat volumes. However, with management signaling a recovery and SHC reporting 6% volume growth in Q2, the fund's thesis of a volume recovery was confirmed, leading to a significant rebound in SHC's share price. Historically, SHC traded at 18-22x EBITDA with 4-7% volume growth from 2019-2022. The fund anticipates a return to historical EBITDA growth of around 10%, which would justify a higher multiple and a target price of $35, up from its current $16.
Key Portfolio Updates: Seaport Entertainment Group (SEG) and Its Future Prospects
Seaport Entertainment Group (SEG) also saw significant developments in August. The company dramatically improved its operations, reducing its adjusted loss in Q2 2025 to $7 million from $28 million in Q2 2024. More notably, SEG announced the sale of 250 Water Street for $151 million, resulting in pro-forma net cash of approximately $17 per share, relative to its current share price of $24. The fund estimates that 250 Water Street was an annual drain of about $10 million on results, and the newly acquired cash could generate at least $5 million in annual interest income. This shift in profitability is expected to make SEG comfortably profitable as new ventures like Meow Wolf begin operations. The fund projects SEG to achieve $3 in free cash flow per share by 2028, coupled with at least $10 in net cash, leading to a target price of $55 when valued at a 15x multiple and accounting for net cash.
Looking Ahead: Strategic Reopening and Sustained Engagement
The fund closed to new investors over the summer, with plans to reopen to new limited partners in 2026. This decision reflects a strategic move to manage capital inflows and maintain the fund's concentrated investment approach. The fund remains committed to transparent communication with its partners, inviting any questions or discussions regarding its strategy and performance.