Palm Valley Capital Fund Q3 2025 Commentary (PVCMX)

Performance Summary - The Palm Valley Capital Fund reported a total return of 2.35% for the quarter and 3.77% year-to-date, underperforming the S&P SmallCap 600 Index which gained 9.11% in the quarter and 4.24% year-to-date [2][29] - The fund's inception date is April 30, 2019, with an annualized return of 6.85% since inception [2] Fund Expenses - The gross expense ratio for the Fund's Investor class is 1.51%, while the net expense ratio is 1.26% [3] - Palm Valley Capital Management has agreed to waive management fees and reimburse operating expenses through at least April 30, 2026 [3] Market Analysis - The current U.S. bull market is noted as the most enduring, with the S&P 500 remaining above previous peaks despite a dip in October 2022 [5][6] - The S&P 500's performance during the pandemic was characterized as not a true bear market due to a quick recovery [6][9] Small Cap Market Insights - Small cap stocks have underperformed compared to larger companies over the last decade, with the Russell 2000 trading at low price ratios [18][20] - The median S&P SmallCap 600 constituent is trading at 25x trailing earnings, indicating that while small caps appear cheaper than large caps, they are not historically cheap [20] Fund Holdings and Transactions - The Fund acquired four new positions during the third quarter, including Teleflex, Robert Half, LKQ, and Avista [30][38] - Teleflex specializes in medical devices and is currently trading near record low valuations despite high operating margins [31] - Robert Half provides staffing services and remains profitable with a 7% dividend yield, although it faces challenges in the staffing industry [34] - LKQ is a distributor of aftermarket auto parts, experiencing cyclical challenges but maintaining a strong competitive advantage [36] - Avista is an electric and natural gas utility that is attractively priced despite recent impairments in clean energy investments [38] Performance Contributors - The top contributors to the Fund's performance in the third quarter included the Sprott Physical Silver Trust and the Sprott Physical Gold Trust, benefiting from rising precious metal prices [41] - Flowers Foods and Amdocs negatively impacted performance, with Flowers facing challenges in the branded bread category and Amdocs experiencing a decline in top-line revenue due to strategic business dispositions [43][44]