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Blue Tower Asset Management, LLC’s Q2 2019 Investor Letter

Blue Tower Asset Management, LLC is an investment management firm based in Austin, Texas. It released its Q2 2019 Investor Letter – a copy of which is available for download below. Blue Tower is known for its strategy of applying innovative analytics to value investing. Andrew Oskoui, CFA is the firm’s Principal and Portfolio Manager. Before starting his career in the field of finance, he spearheaded a research group at Halcyon Molecular and worked as an engineer at Covidien. Oskoui also worked at YCG and Allometric Research and Management. He holds a Bachelor’s Degree from Washington University in St. Louis and a Master’s Degree from the University of Wisconsin-Madison.

In Blue Tower’s Q2 2019 Investor Letter, Oskoui announced that the fund returned 6.5% net of fees. He also discussed the fund’s new position in Cornerstone Building Brands as well as several portfolio exits done in order to allot capital for opportunity-rich environments.

“The Blue Tower Global Value strategy returned 6.5% net of fees in the 2nd quarter of this year. In this letter we discuss our new position in Cornerstone Building Brands (CNR), a North American construction materials company resulting from a series of private equity transactions and mergers. The company was named NCI Building Systems when we made our initial purchases and has since been rebranded. We will also discuss several stocks that we have exited in order to provide capital for the opportunity-rich environment we are currently seeing.

Portfolio Exits

This quarter we made several changes to the portfolio, with the liquidation of our positions in Fujitsu Frontech, Apple, and two other stocks. Apple is a solid business with the most valuable brand in the world. Their walled garden combination of their app marketplace, operating software, content production, and hardware development gives them significant pricing power relative to other smartphone and PC manufacturers. Since 2014, our investment in Apple had nearly tripled when dividends are taken into account. Our exit from Apple is due to the prospects of the business having slower growth going forward and that it is trading at a high multiple of free cash flow relative to its recent past. The replacement frequency of devices by Apple customers is slowing significantly with some customers owning phones for several years. In China, the US/China trade conflict and falling domestic demand pose dual issues for the company. Apple is a stock where the market’s opinion has fluctuated between euphoria and gloom. I believe that at some point, we may have the opportunity to reenter at a lower multiple to its current levels. Our exit was at a little above $205/share or 16.4x trailing free cash flow.

For Fujitsu Frontech, their global products segment has experienced declines in sales that exceeded our expectations. As the world transitions to a cashless society, we expect that ATMs will eventually become less common and demand for them will decrease. Although we realized the business was a melting ice cube, it melted faster than we expected. With the decline of that business segment, it appears even at a lower stock price, we would not receive adequate returns going forward. We have a target-rich environment currently for our capital and we should make sure we do not fall victim to the loss aversion cognitive bias1. Therefore, we liquidated the position and reinvested the capital.

Daiichi and Tyson Foods were also sold to free up capital for other investments. There were no changes in our views of the businesses but our requirements for forward rates of return have increased due to the opportunity set of other investments available. These stocks did not make the cut that would allow them to continue in the portfolio at this time.”

You can download a copy of Blue Tower Asset Management, LLC’s Q2 2019 Investor Letter here:

Blue Tower Asset Management LLC’s Q2 2019 Investor Letter

You can also see the list of our 2019 Q2 investor letters and download them on this page.

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