Khrom Capital Having Another Decent Year, Sees Value In a New Small-Cap Idea

Khrom Capital has an impressive record of achieving market-beating performance. Since its inception in 2008, the firm has achieved a gross average annual return for investors of 16.3%, compared to 9.4% for the S&P 500. After fees, the average performance is 12.5% p.a. to the end of June 2018. The small-cap focused hedge fund has been closed to investors for several years.

2018 has been a mixed year for Eric Khrom, the firm’s founder, and managing partner, who was named by Forbes as one of the 30 managers under 30 to watch in 2014. After adding 26.2% net in 2017, so far in 2018 (for the year to the end of June) the firm is up 3%, marginally better than the S&P 500’s return of 2.6% — that’s according to a copy of Khrom’s half-year letter to investors, which has been reviewed by ValueWalk.

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Eric and his team run a value-focused strategy, searching for the most undervalued equities on the market with the most impressive cash flow metrics.

The firm invests as if is “permanently purchasing the entire business,” allowing the team to “avoid the distractions arising from near-term uncertainties.” The portfolio is currently spread across 14 different positions, with an average earnings yield of 9%. The Khrom strategy is to find companies generating vast amounts of cash from operations, that have a record of reinvesting this cash back into the business and grow earnings per share at attractive rates.

One company that perfectly personifies Khrom approach is