S&C Messina Capital Investments semi-annual letter for the first half ended June 30, 2016.
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To My Partners,
As of June 30, 2016, the partnership was up 10.24% YTD versus 3.84% YTD for the S&P 500. This represents an outperformance of +6.40% YTD.
As we are outperforming the S&P 500, we are having a good year thus far. The market values of the P&C insurance carriers in our portfolio have appreciated steadily. However, we put little weight into our performance over such short time periods. What we are more pleased with is the continued, strong underlying business performances of the P&C insurance companies in our portfolio whose fundamentals are getting stronger and stronger. In the mid to long term, strong underlying business performance should lead to strong share price performance.
S&C Messina Capital Investments Outlook for 2016
Such degree of outperformance versus the S&P 500 is unlikely to be repeated on a consistent basis. In other words, I would not expect similar gains in outperformance for the second half of 2016 such that the fund would be outperforming the S&P 500 by +12.80% YTD (i.e. +6.40% YTD times two).
If indeed we were to sustain such levels of outperformance year after year, we would be stumbling our way onto the chart below alongside some of the greatest investors in history. This chart shows each investor’s outperformance versus the S&P 500 over various numbers of years. Getting onto this chart is not our goal. Many of these investors have used some form of leverage to achieve their results. We, however, only use leverage on an opportunistic basis, striving to take less-than-commensurate risk per unit of return while still compounding annually at above-market rates.
Our goal is to outperform the S&P 500 by at least +200 basis points on annualized basis over long periods of time. This may not sound like much, but over extended periods the power of compounding translates this spread exponentially into a much bigger pool of capital. If we assume the long-term annualized rate of total return for the S&P 500 to be 7%, which is what the S&P 500 has done over the past decade, this chart shows the value of $100,000 invested after 15 years. The same is shown for the value of $100,000 after 15 years if the S&P 500 returns 10% per year.
Where we aim to be is at least +200 basis points net of fees above the S&P over the long term. For instance, if the S&P 500 achieves 10% per year, we aspire to achieve at least 12% per year after fees.
Administrative Update
First, we wish to thank those that have already participated by investing in the fund. The level of interest in the fund has exceeded our expectations. Second, due to the limited number of spots available for limited partners, we have increased the minimum investment from $100,000 to $250,000 as of July 1, 2016; the minimum is likely to go up to $500,000 by January 1, 2017, once the $250,000 spots have been filled.
We wish everyone a good rest of the summer, and we’ll be in touch soon.
Best regards,
Noh-Joon Choo
Managing Partner
S&C Messina Capital Management, LLC
www.scmessinacapital.com
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