Alluvial Capital Management’s Q1 2019 Investor Letter

Alluvial Capital Management is a registered investment advisory firm, that was founded five years ago by a Chartered Financial Analyst, David Waters. He previously worked at Wilmington Trust, and BNY Mellon Wealth Management. The fund’s investment philosophy is value-oriented, as it looks for the securities who are currently undervalued, focusing mainly on those less popular areas of the market such as foreign markets, or unlisted securities for example. Recently Alluvial Capital Management has released its Q1 2019 Investor Letter, a copy of which you can download below. In the letter, among other things, the fund reported a return for its Alluvial Fund LP Net of 7.8% for Q1 2019, trailing the S&P 500 and the Russel 2000, which brought back 13.7% and 14.8% in the same period, respectively.

Dear Partners,

What a change a quarter can make! Investors seem to have forgotten all about the fears that roiled markets as 2018 drew to a close. These first months of 2019 have seen indexes reclaim nearly all of the ground they lost in the fourth quarter of 2018. It’s astonishing that in the space of only three months, investors could value the small-cap Russell 2000 index at both 1,267 and 1,590. Surely the underlying values of the stocks that make up the index did not change by 25% in the course of a single season? The only conclusion I can draw is that at least one of these values is simply wrong, wholly unjustified by the future cash flows these companies will produce. Either the December 24, 2018 closing value of 1,267 was too cheap, or the recent February 22, 2019 high of 1,590 is too expensive. Of course, it’s also possible that both values are way off the mark. Perhaps the justifiable level for the Russell 2000 Index based on future cash flows is only 900, or perhaps it’s twice that. Unfortunately, we can only make our best guesses based on predicting company results and assuming macroeconomic trends. The future remains stubbornly unknowable.

You can download a copy of Alluvial Capital Management’s Q1 2019 Investor Letter here: