The top-performing fund of 2022 is just as degenerate as r/WallStreetBets investors – The Average Joe
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    The top-performing fund of 2022 is just as degenerate as r/WallStreetBets investors

    victorlei

    January 9, 2023

    Only 40 of the 1,410 actively managed funds (2.8%) were up by the end of 2022. The entire group lost an average of 18.2% (WSJ).

    Were you up in 2022? Congrats. You were in the top 96th percentile. And all you had to do was sit in cash.

    But there’s only room for one at the top.

    With a 31.9% return, the Kinetics Small Cap Opportunities Fund took home WSJ’s top-performing fund of 2022.

    • The funds considered had to meet certain criteria, like having more than $50M in assets.
    • Even more impressive is that Horizon Kinetics’ other funds took home second and fourth place as well.

    Wanna be like Mike Horizon Kinetics? All you had to do was put a large position in oil in 2022… and take a degenerate mentality…

    • Horizon Kinetics went big on energy — putting 30-60% of their fund into the sector.
    • But one company — Texas Pacific Land Corp (NYSE:TPL) makes up 55% of their Small Cap Opportunity Fund.

    Gooble Gobble, one of us. We accept her, one of us.

    Another thing about Horizon Kinetics you need to know: They love royalties.

    You can find them everywhere — music, television and land use. Attractive for their recurring, more stable, predictable revenue qualities — what’s not to like?

    • Texas Pacific owns over 880K acres of land — and licenses that land to oil drillers.
    • $TPL soared 91% in 2021 from a surge in oil prices — but has fallen over 20% alongside tumbling oil prices.

    Even the stability from royalties might not save the company from a reversal in oil prices. And the energy boom won’t last forever — so Horizon Kinetics is taking its talents to other areas of the commodities industry with a focus on metals.

    One metal shined brighter: Gold.

    Where’s Horizon putting their attention now?

    Per WSJ, portfolio manager of Horizon Kinetics, James Davolos, has taken an interest in Franco Nevada (NYSE:FNV) — a dominant player in the gold royalty business.

    Gold is known to be an inflation hedge that performs better during economic uncertainties.

    That was certainly the case in 2022.

    • $FNV was down 3.6% in 2022 before including its dividend yield (current 0.92%).
    • The SPDR Gold Trust (NYSE:GLD) — an ETF that tracks the price of gold — was down 0.8% in 2022.

    Both had performed better than the S&P 500 — but cash was still king (and less of a headache).

    Other ideas from Horizon Kinetics

    1/ CACI International (NYSE:CACI) provides IT services to government agencies focusing on defense and intelligence.

    • Davolos likes CACI for its exposure to government contracts — which are more “immune to inflation.”
    • $CACI is Horizon Kinetics Small Cap Opportunity Fund’s third largest position (4.1%).

    2/ Brookfield Asset Management (NYSE:BAM) is a $750B manager of commercial properties, power and infrastructure assets.

    • Davolos likes Brookfield, which could benefit from increased government infrastructure spending.
    • $BAM is Horizon Kinetics Paradigm Fund’s second largest position (3.7%).

    Beware the fund manager’s curse….

    The top fund managers of one year rarely stay on top the next — after all, beating the market is difficult. Doing it twice is even harder.

    Horizon Kinetics’ big oil play could go south real quick if prices continue falling — just as tech did for Cathie Wood.

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