PROOF POINTS.
“A wise man proportions his belief to the evidence.”
David Hume
POSITION TICKER INDUSTRY WEIGHT SINCE INCEPTION*
Cash USD 12.8% 4.0%
Ingles Market IMKTA Grocer 5.7% 58.7%
Omega Flex OFLX Building Products 5.6% 5.5%
Scholastic SCHL Publishing 5.2% 129.7%
Chemed CHE Hospice/Plumbing 4.8% (-42.3%)
Leggett & Platt LEG Furniture 4.1% (-3.7%)
National Presto NPK Defense 3.1% 26.5%
CBIZ CBZ Professional Services 3.0% (-17.0%)
MDU MDU Utilities 2.8% 41.1%
SIZE-WEIGHTED AVERAGE RETURN (EX-CASH) 30.4%
*DOLLAR-WEIGHTED RETURNS SINCE INCEPTION THROUGH 3/31/26.
Keeping with prior practice, I’ve chosen to disclose the fund’s top ten holdings quarterly, one month in arrears. I first presented this list last July, and while few are household names, hopefully familiarity improves with repetition. The constituents and their order may change quarter to quarter, but this overstates turnover as the fund still owns eight of the original ten. Position sizing will fluctuate due to performance, inflows, loss harvesting or changes in conviction.
I’ve been told that I have a head for detail, which I’m not sure is a compliment. I’ve written extensive reports on the top three (Ingles Markets, Scholastic and Omega Flex), but since only the most die-hard enjoy that sort of thing, I thought a high-level status update and a few corroborating proof points might make for enjoyable reading. Every investment requires a hypothesis; a theory or prediction on why the future might differ from the present. As the fund enters its sixth quarter, we’ve started to accumulate some evidence.
When presented with a list, it’s instinctive to look for patterns. All are mature industries with limited risk of obsolescence, and many are defensive (building products and furniture being the most cyclical). They’re not dissimilar to what a mid-market private equity firm might buy were it limited to public companies. Calling them boring won’t hurt my feelings as they deliberately lack sizzle and have struggled to capture the market’s attention (part of why I like them). In my experience, an attractive wrapper isn’t necessary to generate impressive returns.
IMKTA: My thesis on Ingles was two-fold. The first is that operating results were likely to improve as they lapped the impact of Hurricane Helene (which hit its largest market in 2024). The second was that owning 11 million square feet of real estate provided substantial downside protection and wasn’t adequately reflected in its valuation. On the first count, earnings have increased 58% but are still below pre-Helene levels. On the second, Summer Road, an activist investor began soliciting proxies in April, hoping to influence the company’s capital allocation, address conflicts of interest and explore real estate monetization. I’m not an activist, but when you specialize in the mispriced and misunderstood, they’re often not far behind.
OFLX: Demand for flexible metal hose is highly correlated with single family housing starts which are down 33% from their 2022 peak. While the conflict in Iran has lowered expectations for a housing recovery, there’s meaningful pent-up demand for affordable homes. After twelve quarters of declining revenue, sales growth turned positive in Q225, which proved to be a false start as revenue resumed its modest decline, likely due to pre-ordering ahead of tariffs. I still believe revenue can grow absent a housing recovery but I’m fairly certain we’ll be building more homes five years from now, not less. Trading at an all-time low valuation with high operating leverage, no debt and a robust dividend, I’m happy to wait.
SCHL: I wrote a report on Scholastic in June of 2025, suggesting that their real estate could be worth $400-$600 million which compared favorably to the $465 million market cap at purchase. The company announced a sale-leaseback in December for $481 million net of taxes and commenced a $200 million Dutch tender offer. They repurchased 14% of their shares at $40 which is more than twice the fund’s purchase price (we did not participate in the tender). The company announced an additional, concurrent buyback which may explain why the tender was only 57% subscribed.
CHE: Chemed has been frustrating as it’s the highest quality company in the fund, but one of its worst performers. From 2003 to now, earnings grew almost 20% a year, the company returned over $3.5 billion in capital yet the stock is down 62% from its 2024 peak. Two factors account for this. Medicare caps the annual hospice benefit per patient at $35,361 and if the average patient lives too long, providers must refund the difference (how’s that for a flawed incentive?). Second, robust competition for leads by private-equity backed plumbers has hurt Roto Rooter’s profitability. Both strike me as temporary. In the past three years, the company has returned $1.4 billion via buybacks which compares favorably to its $5.6 billion market value and it trades at its lowest valuation in a decade. Buying a dominant franchise when it’s on sale doesn’t seem like the worst idea.
LEG: Leggett and Platt is a major supplier of bedding, furniture, automotive seating and textiles. While many of these markets are interest rate sensitive, the 143-year-old company has navigated its share of cycles, previously raised its dividend 50 years in a row (before cutting it in 2024) and has an investment grade balance sheet. The fund initiated its position last September after they sold their aerospace business, which meaningfully improved debt metrics. Somnigroup (the former Tempur Sealy) expressed interest in acquiring the company in December and announced an all-stock merger in April, which requires a shareholder vote for approval. I view their offer as both opportunistic and insufficient as mattress sales are below 2009, and I suspect they may need to improve terms to appease shareholders. Offering $12 for a stock that was $50 five years ago is unlikely to sit well with voters.
NPK: National Presto was primarily known for household appliances until they acquired a manufacturer of military ordnance called Amtec in 2001 for less than $6 million (today, it has a $1.7 billion backlog). If you’re struggling to think of synergies between pancake griddles and grenade launcher shells, you’re not alone. They dominate 40mm artillery which is in high demand due to the Ukrainian conflict, a surge in European defense spending and the U.S. reprioritizing its military. Backlog is up 450% in the past five years, revenue growth all but guaranteed through 2030 and should margins recover to historical norms, earnings upside is substantial.
JBSS: Staples are a tough business as high inflation has reduced grocers’ sales, yet this nut wholesaler has grown revenue organically four years in a row. While most consumer packaged good companies are stuck confronting challenger brands or snacking changes caused by GLP-1s, nuts remain a healthy, minimally processed, on-trend source of protein. The company has a long history of stable earnings and robust capital returns via special dividends yet was purchased for less than half their 2023 peak. They recently bought a snack bar facility which could add $150 million to sales at attractive margins.
CBIZ: CBIZ is a new addition to the fund and is the seventh largest accounting firm in the US (and only publicly traded). It completed a transformative acquisition by acquiring Marcum in 2024 and merging two large professional service firms poses significant integration risk. Revenue dissynergies are inevitable, partners may be less motivated after a large payout and non-competes are difficult to enforce. I believe the price more than reflects this as today’s market cap is below what they paid for Marcum two years ago. In the past three years, roughly 1/3rd of the largest accounting firms were acquired by private equity, often at valuation multiples twice where CBIZ currently trades. I’m not suggesting a sale is imminent but am always intrigued when a company can be bought below private market value.
MDU: Historically, natural gas distributors have traded at a discount to electrical utilities, due to investor disdain for fossil fuels. North Dakota has two data centers, six more in various stages of development and MDU has signed 580mw of electric service agreements, making it one of the faster growing utilities (they’re guiding to 6-8% EPS growth). Given its sparse population, low electricity costs, ease of permitting and access to ample Bakken natural gas, North Dakota is an attractive footprint for future development. Infrastructure funds have recently acquired several utilities/natural gas pipelines and now that MDU is a pure play (it divested two non-regulated businesses in 2023-2024) they’ve become an attractive target in an industry that values scale.
Grocers, publishers, hospice nurses and plumbers, manufacturers of flexible metal hose, mattress springs and artillery, nut wholesalers, accounting firms and utilities. These are not businesses that stir men’s souls or lead to bragging rights at cocktail parties. I would describe each as a special situation, where management has pullable levers to create shareholder value, often with less than inspiring raw material. Since the fund began, two have drawn activist attention, two dramatically shrunk their share count and one is in the process of being acquired. My goal is to find idiosyncratic returns that aren’t reliant upon a strong market for value creation which seems to be working. I hope you agree.
Dan Walker