Big growth vs. small value

Large cap and growth are the clear winners so far in 2017.  In fact, those with market caps under $2B are down on average.  Value REITs have gotten even cheaper, widening the multiple gap.

We could capitulate and follow the trend, but that is not what we do at 2CHYP.  We buy underpriced REITs and wait for the market to return to normal.  Nobody knows how long it takes to normalize, but history has shown that it always does eventually.

That being said, we think the return to proper multiple spreads could happen fairly soon.  Given how large the magnitude of spread is, there is a certain fundamental gravity pulling prices toward normal.  Expectations for the growth names are sky high so even good quarters will have trouble carrying them higher.  Likewise, value REITs can positively shock the market with tepid performance.

We could be wrong about the return to normalcy, but even in that case 2CHYP’s dividend yield has gotten quite high which allows the cashflows to carry us through the rough market.

I do not mean to suggest that value is always better than growth, rather that growth is overpriced presently.  In cases where growth is trading without the premium we like it quite a bit.  This is why we brought Jernigan Capital into the portfolio.  On its recent secondary stock offering it dropped about 8% giving a cheap entry point into a fast growing bottom line.

JCAP’s pipeline is enormous relative to its size and it already made acquisitions this year that exceed 50% of its market cap.  At a ~9% ROIC, we anticipate substantial accretion as the developments kick in.

Commentary may contain forward looking statements which are by definition uncertain.  We retain no obligation to update or correct forward looking statements should the available information change.  Actual results may differ materially from our forecasts or estimations.

2CHYP Portfolio Snap Shot

6/22/17 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report