^Institutional Class shares of the Intrepid Income Fund commenced operations on August 16, 2010. Performance shown prior to August 16, 2010 (Since Inception) reflects the performance of Investor Class shares, which commenced operations on July 2, 2007, and includes expenses that are not applicable to and are higher than those of Institutional Class shares. Effective January 31, 2014, the Investor Class shares of the Fund were closed, and any outstanding Investor Class shares were converted into Institutional Class shares.
Performance data quoted represents past performance and does not guarantee future results.
Investment returns and principal value will fluctuate, and when sold, may be worth more or less than their original cost. Performance current to the most recent month-end may be lower or higher than the performance quoted and can be obtained by calling 866-996-FUND. The Fund imposes a 2% redemption fee on shares held for 30 days or less. Performance data does not reflect the redemption fee. If it had, returns would be reduced.
Per the Prospectus dated January 31, 2025, the annual operating expense (gross) for the Intrepid Income Fund-Institutional Share Class is 1.04%. The Fund’s Advisor has contractually agreed to reduce its fees and/or reimburse expenses until January 31, 2025 such that total operating expense (net) for the Income Fund-Institutional Share Class is 1.01%. The Income Fund may have Net Expense higher than the expense cap as a result of any sales, distribution and other fees incurred under a plan adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the “Investment Company Act”), acquired fund fees and expenses or other expenses (such as taxes, interest, brokerage commissions and extraordinary items) that are excluded from the calculation. As a result of the calculations, the Net Expense for the Income Fund-Institutional Class is 1.01%. The Net Expense Ratio represents the percentage paid by investors. Otherwise, performance shown would have been lower.
30-Day Subsidized SEC Yield: 7.82%; 30-Day Unsubsidized SEC Yield: 7.82%
April 21, 2025
Dear Fellow Shareholders,
It would be fair to call the first calendar quarter of 2025 the “calm before the storm.” While equity indices were down during the quarter due to a weak March after the United States began announcing new tariffs on its trade partners, fixed income indices performed well. Specifically, the US Aggregate Bond index, the US Gov/Credit 1-5 Year Index, and the US Corporate Index each returned over 2%. The high yield market, represented by the ICE BoA US High Yield Index, rose just under 1%. The Intrepid Income Fund returned +1.24% during the quarter.
Market activity was headline-driven throughout the quarter. The incoming presidential administration announced drastic changes to immigration policy, federal government spending, and, most significantly, U.S. trade policy. While these areas were on investors’ radars, the magnitude of change was much larger than expected, contributing to rising uncertainty. As is typical during such periods, U.S. Treasuries became more attractive, rallying as interest rates fell. The Fund’s relative underperformance versus the U.S. Aggregate and Gov/Credit 1-5 Year Indices is primarily attributable to its lack of duration, which benefitted from the rate decline. In contrast, the Fund’s short duration, which provides insulation from rate volatility, meant we did not participate meaningfully in a bond rally driven by falling yields. Nevertheless, we are pleased with the Fund’s return, which outpaced the high yield index.
Uncertainty translated into volatility with the announcement of “Liberation Day” on April 2, when the U.S. implemented sweeping, reciprocal tariffs. The measures were significantly more severe than expected and, in some cases, added to tariffs announced earlier in the year.
We will spare you the blow-by-blow of what has been announced or changed since then, but if you read the financial press at all it would be impossible to miss the 1) significant rise in uncertainty this has introduced into the financial markets, and 2) significant decline in confidence this has introduced into the real economy.
Instead, we would rather discuss how it has impacted the Fund and the steps we have taken to protect and take advantage of the volatility that the global trade war has brought.
We have written in past commentaries that, given our short duration focus, we are insulated from making portfolio decisions based on guessing where macro drivers like interest rates, inflation, Federal Reserve actions, and where government policy might head next. However, it is unfortunately true that the announced change in trade policy on “Liberation Day” caught us (and the market) by surprise and put several of the Fund’s holdings directly in the crosshairs of the trade war.
As a result, given the direct impact and intense escalation of the emerging trade war, the Fund was impacted a bit more than in past periods when volatility spiked and credit spreads widened.
We have responded to the change in the market in two ways.
First, we have worked hard the last few weeks to re-underwrite all our holdings to ensure they can endure in this new paradigm. We view this work as crucial – for many companies involved in the manufacturing and/or shipping of consumer and capital goods, the rules of commerce may have completely changed overnight. Not only do they need to have flexibility in their operations to pivot their sourcing and supply chain functions to “less-tariffed” regions, but they also need strong balance sheets and liquidity levers. This will be pivotal to withstand the potential for an extended period of stagnation. We expect many corporations to freeze hiring and capital investment as they wait for negotiations between countries to play out. Relatedly, we have written in the past about how a wave of potential early refinancings in 2025 could be a source of strong returns in the high yield market this year. But as we write this, the global trade war has almost completely shut down the capital markets – which is another reason to ensure our holdings have ample liquidity and strong cash flow to safely weather this period.
Second, while we have always prioritized keeping a highly liquid positioning in the Fund, we have deliberately increased the Fund’s liquidity as a response to the elevated market volatility. We accomplished this through holding a slightly larger cash position than normal in April, funded by both maturities and calls/redemptions of existing holdings as well as the decision to sell holdings that did not pass our re-underwriting exercise above. While it is unfortunate that certain holdings ended up being collateral damage and severely impacted in the emerging trade war, we think it is important to jettison them quickly should there be any question of their ability to withstand serious economic uncertainty for an extended period. These actions allow us to further reduce the credit risk in the Fund should the trade war continue to heat up, while arming us with abundant liquidity to take advantage of other opportunities that emerge from the volatility.
Indeed, market volatility has surged. High yield credit spreads, which many had lamented as too tight for too long, exploded higher following “Liberation Day” as investors began to price in the potential for much slower economic growth. Perhaps even more worrisome is that risk-free assets – US Treasuries – typically act as a safe haven asset during periods of market uncertainty (as they did in Q1) but for a time were also declining sharply along with risk assets such as stocks and corporate bonds. The US government’s communication has not helped things, with announcements by the President and his Cabinet often contradicting themselves or altering their policies on short order.
Encouragingly, as we publish this letter, tensions have started to cool. The US has put a pause on the Liberation Day reciprocal tariffs, indicated it will soften some of its harder-line stances, and is actively working with countries to hash out new bilateral trade agreements. Markets have responded, most notably with stocks bouncing meaningfully off their lows and high yield credit spreads quickly declining from their recent peaks.
Despite these developments, we plan to continue to position the Fund more conservatively with regard to credit risk and with higher liquidity. While we will stay focused on finding idiosyncratic short-duration credits and blocking out the noise from the financial media, we do suspect that the volatility genie could be “out of the bottle” after two years of an extremely benign market environment. We hope policymakers around the world come to sensible solutions quickly, but it’s impossible to deny that 1) the recent cooling of tensions is one tweet away from ending at any moment; 2) were the Liberation Day tariffs to go into effect after the current “pause,” it could be very harmful for the economy; and 3) meaningful damage to economic momentum may have already been done as businesses across the world temper growth plans while awaiting the new trade agreements.
While credit spreads widened significantly in April for a time, even at their peak they did not reach their long-term average and were far below levels they have reached during past recessions. We are not calling for a recession, but it is reasonable to think the probability of one has increased. Even if not, we think it makes sense to err on the side of caution and prepare the Fund for a more volatile environment than the last two years. It is very possible that risk premiums in the market could rise over the medium-term as investors try to protect themselves from any future sudden changes in economic policy. Regardless, we feel it makes sense to continue to reduce credit risk opportunistically (as we have the past several quarters) and keep the Fund extremely liquid.
It has not been all defense. We have also used the volatility to date to selectively add to our core positions that we feel most confident about after undergoing the re-underwriting process mentioned above. While we hope that countries around the world can come to quick agreements and put an end to the high degree of uncertainty that consumers and corporations have today, we believe further volatility is likely and could be an excellent opportunity for fundamental credit-picking. Just as the “transient” inflation from earlier this decade lasted longer than the market expected, we expect volatility to linger regardless of how the current trade uncertainty resolves.
Fortunately, our investment process does not rely on picking the path of the market from here. We will stay focused on our universe of “small cap” credits while remaining extremely vigilant on credit risk and the operating and financial stability of our holdings. We also will continue to minimize interest rate risk through our short duration focus. Our objective is to earn equity-like returns without the corresponding risk. We are proud to have delivered on that objective so far, and believe the actions we have taken in response to the recent market gyrations best position the Fund to do so going forward. With greater volatility comes greater opportunity, and we are excited about this environment.
Thank you for your trust and investment. If there is anything you would like to discuss, please do not hesitate to reach out.
Sincerely,
Hunter Hayes
Intrepid Income Fund Co-Portfolio Manager
Mark F. Travis, President
Intrepid Income Fund Co-Portfolio Manager
Matt Parker, CFA, CPA
Intrepid Endurance Fund Co-Portfolio Manager
Joe Van Cavage, CFA
Intrepid Endurance Fund Co-Portfolio Manager