Pabrai Wagons｜年度股东信｜2024-06-30

First Year Outperforms S&P 500 Without Heavy Tech Allocation

Performance Comparison: From inception on September 29, 2023, to June 30, 2024, WAGNX rose 24.64% and WGNIX rose 24.86%, slightly trailing the S&P 500's 28.77%. However, as of July 31, 2024, WAGNX had accumulated a gain of 32.65% and WGNIX 32.97%, outperforming the S&P 500's 30.34%. For the year-to-date period through July 31, 2024, WAGNX gained 23.03% and WGNIX 23.19%, significantly ahead of the S&P 500's 16.70%. The author emphasizes that the fund achieved this performance without heavy exposure to the tech stocks driving the S&P 500's gains, such as NVIDIA.

S&P 500 Valuation Nears Bubble Levels, Fund Portfolio P/E at Just 7.5x

Market/Macro View: The author holds a [cautious] stance on the S&P 500. He notes that in September 2000, the S&P 500's price-to-earnings (P/E) ratio was 25.6x, and the subsequent 11-year return was nearly zero. Currently, the S&P 500's P/E stands at 27.5x, almost on par with the 2000 level and well above the long-term average of 16x. The author believes that while the S&P 500 could continue to rise for a few more quarters, buying at a P/E above 25x carries high risk. In contrast, the fund's portfolio has a P/E of just 7.5x. The author states: "We believe the odds of our outperforming the S&P 500 from here are plausible."

Portfolio Concentrated in Four Key Areas, with Turkey and U.S. Coal at the Core

Position Moves (all held for observation, no explicit new positions, additions, or reductions disclosed): As of June 30, 2024, the fund held 27 global stocks, with 94% of the portfolio concentrated in four sectors:

• Turkish Core Assets: TAV Airport Holdings (12.2%), Anadolu Efes (10.5%), Coca-Cola Icecek (10.2%), AG Anadolu Grubu Holding (4.0%). The author refers to these as the "Turkish main force," noting that Coca-Cola Icecek operates in 11 countries, Anadolu Efes is Turkey's largest beer brand, and TAV operates airports in 8 countries.
• U.S. Coal: Arch Resources (7.0%), Alpha Metallurgical Resources (5.4%), Consol Energy (4.1%), Warrior Met Coal (4.0%), covering both thermal and metallurgical coal.
• U.S. Auto Dealers: Asbury Automotive (4.0%), Penske Automotive Group (3.9%), Lithia Motors (3.7%), AutoNation (3.6%), Group 1 Automotive (3.3%).
• U.S. Homebuilders: PulteGroup (3.6%), Toll Brothers (3.3%), Tri Pointe Homes (3.3%).

Other holdings include: Occidental Petroleum (3.9%), Danaos (3.8%), Daqo New Energy (3.3%), Amazon.com (1.5%), Microsoft (1.0%), Mongolian Mining (0.5%), Topicus.com (0.5%), Restaurant Brands International (0.3%), Spirit Airlines (corporate bond) (0.2%), Tiny (0.1%), Constellation Software (0.0%). Cash accounts for 0.9%.

Investment Philosophy: Long-Term Holding of a Few Great Companies

Outlook and Risk Disclosure: The author reiterates the fund's investment philosophy—that exceptional investment returns typically come from a small number of great investments held for the long term, with the key being to "find and hold." Drawing an analogy to the defensive tactics of American pioneers, the fund will "circle the wagons around the highest-conviction positions." The author hopes to be "smart enough to hold the companies in the current portfolio for the long term." Risk Disclosure: The fund is non-diversified, and concentrated holdings may amplify individual stock volatility; investments in small- and mid-cap companies carry liquidity risk; holding a large cash position may cause the fund to miss market upside opportunities. On fees, the retail class net expense ratio is 1.25%, and the institutional class is 1.00% (contractually reduced through October 31, 2025).

Position Moves