Mutual Fund Commentary

Intrepid Capital Fund

3Q 2022

October 1, 2022

“October: This is one of the peculiarly dangerous months to speculate in stocks.

The others are July, January, September, April, November, May, March, June, December, August and February.”

–Mark Twain

Dear Fellow Shareholders,

This would have been the year to heed Mr. Twain’s advice! The Intrepid Capital Fund (“the Fund”) had reasonable “relative results” as one would expect from a mutual fund holding stocks, bonds, and a cash buffer. For the 3rd calendar quarter of 2022, the Fund returned -2.83%. Coincidentally, the Fund was down a similar amount in the 3rd quarter of 2021: -2.89%. For the fiscal year ending 9/30/2022 the Fund’s total return was -13.39%.

For the S&P 500 Index, this makes the third straight quarter of losses for the first time since 2009. The markets are confronting the “higher rates for longer” message coming from the Federal Reserve, as they combat rates of inflation this country hasn’t seen since the late 1970’s. In an attempt to subdue the inflation monster, the central bank has increased the fed funds rate at each of its last two meetings by 75 basis points, with a similar increase likely in store at their next scheduled meeting in early November.

As I have discussed duration math in past communications, I won’t belabor it here. To give you an idea of how things have changed in just the last quarter due to Federal Reserve activity, the 2-Year Treasury note yielded 2.95% on June 30th and 4.28% on September 30th. In keeping with the trend, the 10-Year Treasury note yielded 3.01% on June 30th and 3.83% on September 30th.

This begs the question “where do we go from here?” Hopefully up! All kidding aside, the stock indices are down 25% year-to-date and investment-grade bond indices are down 15% year-to-date. This is coupled with a VIX index over 30 (a heightened degree of risk aversion as measured by S&P 500 option premiums). I think that the market is waiting of a whiff of an indication the Fed is finished raising short-term rates to quell inflation. I am reminded of the slogan I attribute to a strategist long since dead (Marty Zweig, a frequent guest on Wall Street Week). He said regularly “don’t fight the Fed,” which in this environme

nt is sound advice. But for those with a multi-year investment horizon, adding to positions here should make sense.

There are three areas I think could change investors’ current negative outlook:

  • War in Ukraine The effects on energy and agricultural prices could be substantial
  • Inflation moderates and Fed pauses raising short-term rates
  • A change in control of the House and or Senate, leading to a lessening of tax and regulatory burdens on businesses

Thank you for your continued support. If there is anything we can do to serve you better, please don’t hesitate to call.

 

Top Contributors (Calendar Q3 2022).

Civitas Resources, Inc. (CIVI)

Skechers USA Inc.,- Class A (SKX)

WNS Holdings (WNS)

TJX Cos, Inc. (TJX)

DCP Midsream LP, 06/14/2023, 7.375%

Top Detractors (Calendar Q3 2022)

Atento Luxco 1 SA, 02/10/2026, 8.00%

Trulieve Cannabis Corp. (TRUL CN)

Becle SAB de CV (CUERVO MM)

Carter’s Inc (CRI)

Alphabet Inc. – Class A (GOOGL)

Thank you for your investment.

Sincerely,

 

 

Mark F. Travis, President
Intrepid Income Fund Co-Portfolio Manager

Mutual Fund investing involves risk.
All investments involve risk. Principal loss is possible. The Fund is subject to special risks including volatility due to investments in smaller companies, which involve additional risks such as limited liquidity and greater volatility. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments by the Fund in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. The Fund may invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. The risks of owning ETFs generally reflect the risks of owning the underlying securities they are designed to track. ETFs also have management fees that increase their costs versus the costs of owning the underlying securities directly.
The S&P 500 Index is a broad-based, unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. The Bloomberg US Gov/Credit 1-5Y TR Index measures the performance of U.S. dollar-denominated U.S. Treasury bonds, government-related bonds, and investment-grade U.S. corporate bonds that have a remaining maturity of greater than or equal to one year and less than five years. The Bloomberg (BBC) Combined Index consists of an unmanaged portfolio of 60% common stocks represented by the S&P 500 Index and 40% bonds represented by the Bloomberg US Government/Credit 1-5 Yr Index. You cannot invest directly in an index.
Duration is an approximate measure of the price sensitivity of a fixed-income investment to a change in interest rates, expressed as a number of years. Basis point is a standard financial measure for interest rates. One basis point equals 1/100th of 1%. The Cboe Volatility Index, or VIX, is an index which measures the market’s expectation of price fluctuation of the S&P 500 Index over the next 12 months.
Opinions expressed are subject to change, are not guaranteed and should not be considered investment advice or recommendations to buy or sell any security.
The Intrepid Capital Funds are distributed by Quasar Distributors, LLC.
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