I
NCANDESCENT
C
APITAL
40 Fulton St, 20
th
Floor
• New York, NY 10038 • 64
6-912-8886
•
February 5, 2016
Dear Investor
i
: Our portfolio was roughly flat in December of 2015
versus the S&P 500’s
decline of -1.58%, bringing our full year (unaudited) return to 3.69%. This comp
ares to the S&P 500’s total return
of 1.38%. The table and charts below include other performance figures:
Incandescent S&P 500
Difference
2015 Year
3.69% 1.38%
2.31%
Since Inception (36 Months)
75.46% 52.54%
22.92%
CAGR
20.61% 15.11%
5.50%
0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%
Returns Since Inception
Incandescent S&P 500 Total Return(8.00%)(6.00%)(4.00%)(2.00%)0.00%2.00%4.00%6.00%8.00%10.00%J F M A M J J A S O N D
Last 12 Monthly Returns
Incandescent S&P 500 Total Return
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I
NCANDESCENT
C
APITAL
Although Incandescent Capital was officially founded in 2013, I have personally managed money for friends and family since 2009. Gross returns (unaudited) from my personal reference account (where I keep 95% of my net worth) since then are thusly:
Incandescent S&P
Difference
HFRX
1
Difference
2009 50.75% 26.46%
24.29%
13.40%
37.35%
2010 18.78% 15.06%
3.72%
5.19%
13.59%
2011 2.28% 2.05%
0.23%
(8.88%)
11.16%
2012 16.38% 16.00%
0.38%
3.51%
12.87%
2013 60.68% 32.31%
28.37%
6.72%
53.96%
2014 5.31% 13.69%
(8.38%)
(0.58%)
5.89%
2015 3.69% 1.38%
2.31%
(3.64%)
7.33%
CAGR
20.73% 14.79%
5.94%
2.02%
18.71%
And here is how $100,000 would have compounded versus those two benchmarks if it was invested at the end of 2008: All figures above are
gross
of fees (that is, before any fees are deducted). Since each investor in Incandescent Capital has the option to negotiate different fee arrangements, net returns will vary. For 2015, if you elected our standard 20% performance fee (no hurdle, no management fee) arrangement, your
net
return would be around 2.95% compared to your
gross
return of 3.69%. Also, depending on when your account was on-boarded, your results may differ from the main reference account reported above. It takes a bit of time to sync each account to the same exposure as I buy/sell according to the ebb and flow of the market. As always, your patience is asked for as I build your new portfolio up, but rest assured: what you own, I own. I am committed to eating my own cooking
2
.
1
This is the
HFRX Global Hedge Fund Index
, a widely used index to praise or pan hedge funds in the press.
2
The main reference account statement is available upon request from any investor.
$373,950$262,673$115,027
$100,000$150,000$200,000$250,000
$300,000
$350,000$400,0002008 2009 2010 2011 2012 2013 2014 2015Incandescent S&P HFRX
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I
NCANDESCENT
C
APITAL
The View From 30,000 Feet
Here are how our positions look as a percentage of total portfolio and its geographic split:
And here’s a snapshot of where our investments fall into various
types and sectors: As a reminder:
―Compounders‖ are businesses I believe have long, predictable runways for growth that we’ve
invested in at fair, if not arguably bargain
prices. ―Mispriced‖ are businesses
undergoing transformation or have fallen out of favor with the market and are thus in my opinion widely misunderstood and misvalued.
―Special Situations‖ are businesses with hidden
assets and/or have potential catalysts that will unlock value in the near future, e.g. spin-offs, buyouts, arbitrage, and the sort. Despite being relatively concentrated in our top five names, I am comfortable with the degree of our diversification. More significantly, it is the moat of safety created by investing at a discount to intrinsic value that fuels my confidence. Our weighted average price-to-earnings ratio (with
20.1%13.6%11.5%11.0%7.4%9.2%
Position Size by %
Cash
12.1%87.9%
Geographic Split
Canada USA
Mispriced45%Compounders45%Special Situations10%
Investment "Type"
Tech27%Financials32%Energy15%Consumer Cyclicals18%Other8%
Sectors