Q3 2022 - Investor Letter

Dear Partner,

In the quarter from July through September of 2022 the NJC Horizon Fund’s -4.2% rate of return was somewhat better than the -5.2% rate of return of S&P 500. Management does not celebrate negative returns, though we are encouraged that the fund outperformed the S&P despite its outsized exposure to sectors leading market declines, namely communications services, technology, and semiconductors.

We built modest short positions using inverse ETFs, such as the ProShares UltraPro Short QQQ ETF (Ticker SQQQ), as markets rose throughout the late-summer rally. We realized gains from these positions as markets deteriorated through September. We also made tactical trades following the surprise announcement of a sweeping federal bill that offered $370 billion in funding and programs to accelerate green energy infrastructure in the US. During the price jump following the bill’s announcement we exited several green energy positions, and subsequently re-entered most of them later at post-exuberance [read: ‘lower’] prices.

While real economic pain likely remains ahead, we continue to believe it is a mistake to hoard cash and attempt to go ‘all-in’ at a deeper discount. We expect that much of the market’s performance over the next few quarters will be contingent upon when high rates impact the real economy, when inflation actually slows, and when good macroeconomic news breaks. In other words, market performance will be a matter of timing. Since market timing is essentially -if not demonstrably- impossible, we built positions in high-potential companies that appear able to withstand a multi-year recession and offer valuations we view as fair or low given current conditions. Throughout the quarter, we accumulated substantial positions in Freeport McMoran, Datadog, Adobe, Wolfspeed, Eli Lilly, and Moderna. Though we are happy with the price paid for these assets, we maintain a cash position around 12 to 20% of the portfolio to take advantage of the further downturns should they materialize.

Finally, we would like to thank you again for your patience awaiting this report while our accountant served jury duty. We also thank you for your fortitude as we brave this wild market to build a portfolio that can deliver the long-term outperformance for which we endeavor.

Nicholas Carpenter,
Manager, NJC Capital Management LLC