Q2 2022 - Investor Letter

Dear Partner,

The financial news at the end of Q2 abounded with phrases like “the worst first-half [of a year] since 1970,” and “worst first half since inception.” Such phrases capture the Q2 2022 performance of every major US stock index as well as the great majority of hedge funds, including the NJC Horizon Fund.

We expect that, much like a forest after a wildfire, the scorched earth of markets in mid 2022 will prove fertile ground for growth. Following the plan put forth in our mid-May letter, we invested heavily in businesses that we anticipate will negotiate fresh long-term sales contracts. Our hope is that new contracts will bring steady revenues and inflation protection for years to come, mostly in manufacturing related to energy, defense, and water management. Per the plan, we also invested in entertainment, cashflow-positive tech, and some choice biotech. Finally, we opened opportunistic positions in a couple retailers such as Costco and RH, believing that their earnings would prove more robust than markets feared.

We found good buying opportunities much earlier than anticipated when June brought forth an attractive combination of despondent market sentiment and unexpectedly positive economic indications. Presented with such attractive buying opportunities, we deployed about 12% of the fund’s total assets to open and expand several positions between June 13th and June 30. Encouragingly, 28% of the capital deployed in June was invested at the market low between June 16th and 17th. While we anticipate that markets may revisit June’s lows before the year’s end, we believe that the mid-June lows will prove a sound entry point for our investments. Because of the June opportunity, the fund’s cash position at the end of Q2 diminished to about 20% of total value. We intend to use the remainder opportunistically as the market fluctuates between competing economic narratives.

There are numerous major macroeconomic factors exerting opposing pressures on economies, both local and global, which make the details of the economic future murkier than usual. As our recent investments suggest, we are cautiously optimistic about the future of markets. This is a fine time for long-term investments, with abundant opportunities for the patient investor.

Nicholas Carpenter,
Manager, NJC Capital Management LLC