Q2 2025 Memo

Q2 2025 INVESTOR UPDATE

EQUITIES

Accounts in Seabird’s Value Equity strategy declined by approximately 3.8% during the first half of 2025, and over this short period, lagged the benchmark. 

We’re not surprised by recent results—nor are we concerned. Today’s market feels one-sided, with investors crowding into a narrow group of stocks we would have no interest in buying at current prices. Meanwhile, businesses we love are being overlooked. We see them as coiled springs: compressed by low expectations yet likely to outperform over time. 

During the quarter, we used market volatility to add to existing positions that had become too discounted to ignore. We nearly doubled our position size in two of our smaller-capitalization stocks: WillScot (WSC) and Bath & Body Works (BBWI). 

Both companies were clear beneficiaries of the COVID-era boom and had been in a hangover period as growth investors abandoned them. More recently, concerns around tariffs have pushed their share prices even lower, making the risk/reward very attractive. We don’t see much risk of impairment from tariffs. What we do see is two market leaders in their respective industries—cash flow machines, each with 

a sound long-term game plan and a catalyst to create value.

 -Joe Di Scala, CFA 

***

FIXED INCOME 

Should we be talking about the Fed? Probably not. No matter what the Fed may do – or should do – we recognize three important truths. First, there’s little evidence that anyone possesses the ability to accurately predict where the Fed will set rates. Second, the timing of Fed action may lend itself even less to predictability than that of an ephemeral “ultimate” level. And third, a focus on the Fed has a high likelihood of obfuscating and even conflicting with our investment mandate. 

This third point cannot be overstated. Our mandate is twofold: to protect capital from the triple threat of credit loss, inflation, and self-inflicted damage from interest rate speculation;  while at the same time delivering a stream of reliable incometo those who choose to take it.

Interest rate speculation has in fact grown to such heights over the past several years that we’ve enjoyed the unusual benefit of getting paid not to speculate on the direction of rates. This of course allows us to do what we do best – sit back and collect income. So, while the wind remains at our back, we’ll let the rest of the world watch the show.

-Arch Peregoff

Q1 2025 Memo

Q1 2025 INVESTOR UPDATE

EQUITIES

Accounts in Seabird’s Value Equity strategy declined by ~5.2% during the first quarter of 2025 (and of course quite a bit farther over the first few days of Q2). Our attention, however, is focused on delivering long-term returns. We live under no illusion we won’t endure temporary – and sometimes testing – downturns. Our annualized cumulative returns below are more indicative of how we view the proper timeframe:

Value Equity

• 1 year: 9.4%
• 5 year: 23.3%
• Inception*: 15.7%

Thoughts & Commentary: In times of volatility and uncertainty, we remind ourselves of two things: First, volatility is an enterprising investor’s ally for the opportunities it provides. Second, good businesses are, on average, likely to grow more valuable over time. Economic dynamism and the free enterprise system will see to that, tariffs and trade wars notwithstanding. In short, today’s volatility produces the building blocks for tomorrow’s performance.

In Q1 we struck a balance between taking chips off the table and putting new money to work. And today, opportunities are shaking free from some of our favorite counterparties: nervous retail traders, rule-based computer algorithms, and short-sighted hedge funds. As usual, we’re scouring some of the hardest hit corners of the market for exceptional opportunities to acquire shares in “cash machine” businesses.

During the quarter we sold the last of our shares in Microchip Technologies (MCHP) for a small
profit. We owned the shares for several years previously selling some at higher prices. MCHP has long been one of the best-run companies in the semiconductor industry, but a series of company-specific missteps and widespread industry challenges proved hard to overlook, so we sold.

We also acquired shares in Avantor (AVTR), a life science tools company that supplies the “picks and shovels” needed for scientific discovery and biologic drug production. Avantor’s secret sauce is its highly profitable distribution business serving early-stage research labs. This gives them visibility into their customers’ future production needs, which they leverage to have their products permanently specified into large-scale drug manufacturing. The company calls the model “beaker-to-bulk,” and it’s brilliant. There is a lot to like here: predictable growth, recurring cash flows, and regulatory barriers that make this business incredibly sticky. We found this in the abandoned property bin after temporary headwinds compelled many “growth” investors to flee. We’ve had success investing in distribution businesses before and see a compelling risk/reward with double-digit return potential over time.

FIXED INCOME
Our fixed income strategies delivered unremarkable Q1 performance of 0.6% and 0.5% in our Performing Credit and MuniPlus strategies respectively. Below are our long-term results.

Performing Credit

• • 1 year: 7.6%
• • 5 year: 11.5%
• • Inception: 8.4%

MuniPlus

• 1 year: 4.9%
• 5 year: 6.1%
• Inception: 6.0%
• ( * 9/30/2016 – inception date for all strategies)

Thoughts & Commentary: While fixed income markets have not experienced a similar level of volatility to that seen in equities, we certainly prefer the opportunity set offered today to the tighter market that developed in late 2024 and persisted well into the new year. We’re already finding ourselves more aggressive in the late stages of Q1 and into Q2 as yields have become considerably more generous across the gamut of Corporate Bonds, Preferred stocks, and Municipal Bonds, the bread and butter of our fixed income universe. Though we did add to positions judiciously as attractive offerings presented themselves, Q1 was mostly just blocking and tackling as usual.
-Arch Peregoff
-Joe Di Scala, CFA