Q3 2023 Memo

7 YEARS AT SEABIRD

SEABIRD MUNI+: +49.3%
S&P Muni Bond Index: +0.99%

SEABIRD INCOME+: +62.3%
Bloomberg Agg Bond: -0.09%

When Seabird opened its doors 7 years ago, we didn’t set out to outperform our peers. In fact, we’ve never given a single thought to our peers when making an investment decision. Then and now, we’ve stuck to a simple philosophy that defines success not in relative terms, but in desired outcomes.

We view Fixed Income investment in the only manner that makes sense to us; a vehicle for accessing distributable income while protecting the buying power of invested dollars. Meeting those two goals is where we set the bar.

To put that challenge in perspective, over the past 7 years, the broad fixed income market failed to deliver either of these essential ingredients. To be more specific, over that period, the buying power of invested assets was reduced by over 20% before returning a penny of distributable income.

Outperforming “the market” by 2 or 3 percentage points is generally celebrated in the investment industry, but in recent markets those celebrated relative returns would have produced no real value to you at all.

Seabird’s competitive advantage lies in both our unique ability to source potential investments in tough markets, and our unwillingness to participate unless our two clearly defined goals are likely to be met.

It should be noted that every day the best and brightest of the business world wake up trying to figure out how to pay less interest on their debt. But while the majority of the investors will be swimming against the tide when investing in generally available fixed income products, we see an opportunity set today as lucrative as we’ve seen in over a decade.

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SEABIRD EQUITY+: +246.3%
S&P Value Index: +91.7%

Similarly, our success in Equities has been due to framing our mission in terms of a desired outcome: amassing wealth at pace in excess of historic returns.

Over the past 60 years the S&P500 produced annualized returns of approximately 10%. While inflation will come and go, and may be painfully high at times, that 10% return has proven to be a reliable benchmark for successful equity investing.

Seabird’s day-to-day focus, however, is on generating returns well in excess of 10%. In essence we’re looking to check three boxes: predictability, added value, and a margin of safety. Taking advantage of these investments whenever and wherever they exist is what separates us from investors who focus on traditional benchmarks.

-Arch Peregoff

-Joseph Di Scala

Q2 2023 Memo

FIXED INCOME

If you’re looking for cheap entertainment this summer, look no further than the fixed income markets as they spasmodically react to each and every emanation from the Federal Reserve and the Bureau of Labor Statistics. To us it’s a level of mindlessness that can only be achieved by those entirely focused on the short term, and who see their mission in terms of their position vis a vis their peers rather than a meaningful deliverable to investors. In contrast, any prognostication of interest rates and economics can be relegated to mere cocktail chatter when a fixed income portfolio is positioned to meet several basic standards: delivering the desired stream of regular income, maintaining a defensive position in regard to interest rates, and playing offense judiciously and conservatively. To wit, our favorite data points follow:

Income+ as of 6/30/23:

Cash Yield: 6.6%
Avg. maturity/float: <3 years
% Discount to par: >17%

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US Treasury 10 Year Yield: 3.84%

Muni+ as of 6/30/23:

Cash Yield: 4.65%
Avg. maturity/float: 5 years
% Discount to par: >10%

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Bloomberg AAA 5yr Muni Yield: 2.61%

EQUITIES

We should probably rename our Equity strategy. The strategic mission of Seabird’s “equity” strategy is to preserve and grow assets as fast as possible, so in our minds it is clearly a “growth” strategy. Alas, the industry assigns a certain definition the the terms “growth” and “value” which we find to be pure hogwash, but would give some a false impression of what we do.

Seabird’s fundamental competitive advantage lies in being unconstrained by a typical style box and therefore able to employ any means at our disposal to accomplish the mission of growing assets rapidly.

In Q2, we found the best opportunities not in equities, but in several bonds priced for returns in the mid-teens. Interestingly, we would describe neither of these as “distressed”, but rather “mis-priced”; offering the rare combination of the security of a fixed income instrument and the potential returns of an equity security.

-Arch Peregoff

-Joseph Di Scala