Q3 2025 Memo

Q3 2025 INVESTOR UPDATE

EQUITIES

The Value Equity strategy underperformed during the third quarter. Year to date, our portfolio is down approximately 6.0% while the value index is up 9.7%.

We don’t take stretches of underperformance lightly, particularly when we’re down in an up market. But if you’re wondering what’s behind the lull, it isn’t very complicated:

First, a handful of our larger positions, namely Apollo, Fiserv, and GoDaddy, have given back some of last year’s extraordinary gains. As you know, investing is nonlinear; price and value don’t always move in sync. In our view, this pullback reflects temporary disinterest rather than a lasting impairment. To be sure, these companies remain exceptional and are attractively priced to boot. While volatility may persist in the coming months due to tax-loss selling, we expect them to generate far-above-average returns in the years ahead.

We also made an unforced error and bought a stock we shouldn’t have (Avantor). The position was relatively small, so its impact on the portfolio was limited. That said, it coincided with several holdings pulling back, making the decline feel a bit more acute.

Still, periods of short-term underperformance are inevitable. The market counts votes in the short run, but in the long run, it counts cash flow. With our holdings attractively valued and their cash-earning power intact, the odds of doubling capital over the next five years remain as strong as ever.

In our last memo, I described the portfolio as a coiled spring—compressed for now but loaded with potential. That still feels like the right metaphor today. We can’t say exactly when it will happen, but when it does, it should be worth the wait.

 -Joe Di Scala, CFA 

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FIXED INCOME 

Q3 was a productive quarter for Seabird’s fixed income strategies, Performing Credit and MuniPlus. Notably, over the past several months Performing Credit deployed substantial assets in 3 new positions – each with yields exceeding 8%. While our mindset of simply lending to creditworthy borrowers at attractive rates while keeping write-offs to a minimum remained consistent, our ability to operate in more esoteric areas – and in an altogether broader swath – of fixed income markets, provided access to attractive opportunities despite an overall environment of tighter fixed income spreads.

Additionally, each of these recent purchases demonstrates a unique competitive advantage: fluency in under-followed markets such as taxable municipals, cross germination of ideas between our investment management teams, and the ability to access supply in thin markets.

The quarter-end metrics supplied below highlight potential portfolio returns versus the current 10 year treasury yield:

Performing Credit
Current Yield: 5.8%
Total discount to Par Value: 7.5%*
Average Duration: 3.7
Years US 10 Year Treasury: 4.15%

Our MuniPlus operation was busy in Q3 as well, accumulating over $32 million in gross new bond purchases. The ability to source bonds at yields well above the market was aided by a brief April sell-off in the market as well as the ready cash on hand to make those purchases. We view cash on hand as a strategic weapon, without which we would be unable to seize on these occasional but brief opportunities.

Aside from the occasional broad sell-off, our normal blocking and tackling would not be possible without cash in reserve. Our “direct to market” approach relies on our ability to buy quickly when supply is available – often within a window of minutes and certainly not on our own time schedule. Indeed, attractive bonds have come available at the least likely of times – proving cash to be our most underrated asset.

As you see below, our current portfolio is positioned well to drive distributable income and deliver total return in excess of that available in the broader municipal bond markets.

MuniPlus
Current Yield: 4.3%
Total discount to Par Value: 5.2%*
Average Duration: 4 Years
Bloomberg AAA 10 Year yield: 3.2%

* Non-performing credits excluded in discount calculation

-Arch Peregoff

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 

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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