Leaven Partners Q2 2024 Letter To Partners

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Leaven Partners is a hedge fund management firm based in Michigan. The firm utilizes a deep value investing approach.In the second quarter of 2024, total fund assets declined by -0.4%. For the three-...

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For the three-...</p>\n\n<a href=\"https://seekingalpha.com/article/4704787-leaven-partners-q2-2024-letter-to-partners\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Leaven Partners Q2 2024 Letter To Partners</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nLeaven Partners Q2 2024 Letter To Partners\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-07-18 20:40 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4704787-leaven-partners-q2-2024-letter-to-partners><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Leaven Partners is a hedge fund management firm based in Michigan. The firm utilizes a deep value investing approach.In the second quarter of 2024, total fund assets declined by -0.4%. For the three-...</p>\n\n<a href=\"https://seekingalpha.com/article/4704787-leaven-partners-q2-2024-letter-to-partners\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE0004086264.USD","symbol_name":"BNY MELLON GLOBAL OPPORTUNITIES \"A\" (USD) ACC","start_time":0,"source_url":"https://seekingalpha.com/article/4704787-leaven-partners-q2-2024-letter-to-partners","article_id":"2452248514","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/551986071/image_551986071.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2452248514","pubTimestamp":1721306400,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Leaven Partners is a hedge fund management firm based in Michigan. 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The firm utilizes a deep value investing approach.In the second quarter of 2024, total fund assets declined by -0.4%. For the three-year period, the fund is up 17.4% compared to the S&P 500 return of 33.6%.Following strong performance in the first quarter, our core holdings declined slightly this quarter, contributing -0.1% to total gross returns.Our hedging strategy continues to be a drag on overall performance.Monty Rakusen     Q2 2024 1-Year 3-Year 5-Year Inception†   Leaven Partners, LP* -0.4% 20.1% 17.4% 55.8% 49.9%   S&P 500 (SP500) (SPX) 4.2% 26.6% 33.6% 102.7% 119.9%   MSCI EAFE (EFA) -0.2% 12.6% 7.6% 38.2% 35.1%   Vanguard Total World (VT) 2.4% 20.2% 15.5% 67.2% 70.3%  \nClick to enlarge  *Leaven Partners, LP are time-weighted gross cumulative returns (unaudited) provided by our prime broker, Interactive Brokers. Performance data, (net of all fees and expenses), for each partner, is provided by Liccar Fund Services. †Trading began on March 16, 2018. \nClick to enlarge Dear Partners,  Investment Terms and Service Providers  Investment Structure: Michigan LP   Management Fee: 0%   Performance Fee: 25% over 6% hurdle   High Water Mark: Yes   Initial Lockup Period: 3-year   Minimum Investment: $50,000   Auditor: Summit LLC   Prime Broker: Interactive Brokers, LLC   Custodian: Interactive Brokers, LLC   Fund Administrator: Liccar Fund Services   Legal Counsel: Cott Law Group, PC  \nClick to enlarge In the second quarter of 2024, total fund assets declined by -0.4%. For the three-year period, the fund is up 17.4%1 compared to the S&P 500 return of 33.6%. Following strong performance in the first quarter, our core holdings declined slightly this quarter, contributing -0.1% to total gross returns. Our foreign currency strategy was the lone shining star in the quarter-contributing 1.5% to total returns. Due to the recent trend in the weakening Japanese yen, we were short the yen during most of the quarter, and, with the help of the positive carry, benefited from a positive contribution, as the yen devalued against the dollar from approximately ¥152 to ¥161 in the quarter.   Return Contribution Q2   Hedge Strategy: -1.8%   Core Holdings: -0.1%   FX Strategy: 1.5%   Total Return -0.4%  \nClick to enlarge Based on economic fundamentals, the yen is considered to be quite undervalued-with an estimated valuation of approximately ¥100 to ¥110 to the U.S. dollar. But the yen has not traded based on its fundamentals for years now. Part of the reason is the wide gap in interest rates between Japan and the U.S. The Bank of Japan continues to hold interest rates at 0% while the Federal Reserve has increased the federal funds rate to 5.25%. The significant divergence between interest rates has artificially inflated the value of the dollar versus the yen as the rate of return on the dollar is significantly higher than the yen. A more simplified explanation for the weakening yen is basic momentum effects: selling begets more selling. As the yen weakens due to increased selling pressure, it reinforces more selling pressure as the cost to borrow in yen relative to the dollar is ever more enticing. This has resulted in the world's largest carry trade. The carry trade refers to a financial strategy where an investor borrows money at a low interest rate in one currency and invests it in another currency with higher interest rates. One does not have to go to the local bank to execute this strategy but can be easily accomplished in financial markets by selling one currency (in this case, the Japanese yen) and buying another currency (in this case, is predominantly done in the U.S. dollar). Once in dollars, it can remain in dollars or it can be deployed into other financial instruments, like stocks, bonds, and real estate. It is difficult to estimate how large this borrowing exercise has become. Many cite a study done by Deutsche Bank (DB), in 2023, that estimates this massive carry trade to be around $20 trillion (USD). To attempt to put the size of this trade into perspective, the total world stock market capitalization is around $100 trillion and the total value of all financial assets around the world is estimated to be north of $500 trillion. If, for example, the yen were to increase in value relative to the dollar the net result would be an urge to close out the carry trade by buying yen to close out the short yen position. To do so, if one had bought stocks or bonds with borrowed yen, they would first have to sell those assets and then use that foreign currency to buy yen (to pay off their \"yen loan\"). The collective acts of closing out all of these borrowed yen positions could have a reflexive effect in the opposite direction from simple supply/demand dynamics--as increased demand to buy yen to close out short yen positions will cause the yen to appreciate which will increase the urgency to close out more short yen positions. There is debate aplenty about the severity of the estimated $20 trillion (USD) that has been borrowed in yen and used to invest in other currencies, stocks, bonds, etc. More importantly, when the massive carry trade is unwound, how quickly will it unwind? At an estimated $20 trillion, if the speed of the unwind was quick enough, there is not much debate that it would not have serious implications for all financial assets around the world. If, however, the yen/USD carry trade2 is unwound gradually enough, it could have minimal impact. With your money at Leaven Partners, I have not taken a stance on what I think will happen next. (Which is a good thing because I have no idea.) Our currency strategy is based purely on price movement. When the price of the yen weakens to a calculated degree, we will be short the yen. When the price of the yen strengthens to a calculated degree, we will be long the yen. This strategy guarantees two things: (1) I will not be able to time the top or bottom of the yen/USD price change, and (2) we will participate in and benefit from the major moves of the yen, either up or down. For the past couple of years, this strategy of being long or short the yen (relative to our stock holdings in Japan) has provided satisfactory returns. I expect this to remain true in most market environments. Our hedging strategy continues to be a drag on overall performance. On the one hand, this is to be expected as the strategy is designed to make money during severe market downturns and the markets have performed quite to the contrary. On the other hand, the cost to implement this strategy is material and has had considerable negative effects on fund performance over a multi-year period. It certainly begs the question if we should continue the strategy with grit or overcome the bias of not giving up and quit. As I have mentioned in prior letters, I view the hedging strategy as an insurance policy that pays out during severe market corrections. As with any insurance policy, there is a cost, in the form of insurance premiums, that must be absorbed to keep the policy in force. The benefit, of course, is that one is protected from catastrophic loss. I believe that limiting losses and, more importantly, avoiding catastrophic losses to the fund is more valuable to long-term performance than the benefits received from opting out of the insurance premiums. There is plenty of evidence to suggest that now is the time to start paying those insurance premiums. Aside from valuation alone, which is at extreme levels, we are witnessing a significant divergence that is bifurcating the markets into a few winners and a multitude of losers. For example, the top 10 companies in the S&P 500 make up 35% of the total market capitalization but, astonishingly, only account for 23% of total earnings. As Apollo Global Management (APO) notes, this divergence has never been bigger and was last seen in the roaring 90s.  There are numerous ways to look at the extreme market divergence witnessed today. Another way to look at it is the percentage of component stocks outperforming the index- which are at, or near, record lows. As I have mentioned before, if you do not own those select few stocks, like Apple (AAPL) and Nvidia (NVDA), your performance has been lackluster and will look nothing like the S&P 500 returns scrolling by on CNBC.  Of course, none of these charts prove anything. The future is uncertain and perhaps we have entered a new paradigm that will continue for many years, or, maybe, indefinity. What the charts do suggest is that, historically, when we have seen such divergence in the market, coupled with extreme valuations, we have witnessed severe market corrections in the relatively near term with a high degree of frequency. I wish I could tell you what exactly will happen next. Our pocketbooks would be much fatter. With an unknowable future in mind, the data suggests caution and protection. I aim to provide that as best as I can. At approximately $6 trillion (USD), the combined market capitalizations of Nvidia and Apple now surpass the entire amount of United States Treasury bills outstanding!3 At your next cocktail party, when you impress your friends with such knowledge, they might ask you what is the significance of two companies being valued higher than all of the short-term debt of our nation. Tell them you're not sure, but that it is difficult to wrap your head around it! In Closing I am grateful for your participation in Leaven Partners, and that you have entrusted me with managing your assets. I look forward to reporting to you at our next quarter-end. In the meantime, if there is anything I can do for you, please do not hesitate to contact me. Sincerely, Brent Jackson, CFA  Footnotes 1 This equates to an approximate 5.5% annualized gross return for the 3-year period. 2 It is estimated that most of the borrowed yen has been done in U.S. dollars as it is one of the few markets large and liquid enough to handle such a large trade. 3 Thanks to the folks at Palm Valley Capital Management for pointing this out in their latest quarterly letter. Disclaimer The information contained herein regarding Leaven Partners, LP (the \"Fund\") is confidential and proprietary and is intended only for use by the recipient. The information and opinions expressed herein are as of the date appearing in this material only, are not complete, are subject to change without prior notice, and do not contain material information regarding the Fund, including specific information relating to an investment in the Fund and related important risk disclosures. This document is not intended to be, nor should it be construed or used as an offer to sell, or a solicitation of any offer to buy any interests in the Fund. If any offer is made, it shall be pursuant to a definitive Private Offering Memorandum prepared by or on behalf of the Fund which contains detailed information concerning the investment terms and the risks, fees and expenses associated with an investment in the Fund. An investment in the Fund is speculative and may involve substantial investment and other risks. Such risks may include, without limitation, risk of adverse or unanticipated market developments, risk of counterparty or issuer default, and risk of illiquidity. The performance results of the Fund can be volatile. No representation is made that the General Partner's or the Fund's risk management process or investment objectives will or are likely to be achieved or successful or that the Fund or any investment will make any profit or will not sustain losses. As with any hedge fund, the past performance of the Fund is no indication of future results. Actual returns for each investor in the Fund may differ due to the timing of investments. Performance information contained herein has not yet been independently audited or verified. While the data contained herein has been prepared from information that Jackson Capital Management GP, LLC, the general partner of the Fund (the \"General Partner\"), believes to be reliable, the General Partner does not warrant the accuracy or completeness of such information. \nClick to enlarge Original Post Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2452248514"}