In the second quarter of 2025, the investment landscape for Longcast Advisers saw a notable recovery, with net returns climbing by 19%. This positive shift, however, was not enough to erase the year-to-date deficit, as cumulative net returns still stood at -4%. Since its establishment in November 2015, the firm has generated an impressive 253% cumulative return, translating to a 14% compound annual growth rate. This performance has consistently surpassed several widely recognized benchmarks for small-cap investments, including the Russell 2000 Index, the iShares US MicroCap ETF, and the iShares SmallCap EAFE (ex-N. Am) ETF, aligning closely with the S&P's cumulative returns. The firm emphasizes that past performance does not guarantee future results and individual account outcomes may differ.
During the quarter, significant contributions came from holdings such as CCRD, PESI, and MAMA, which were marginally counteracted by dips in RELL, QRHC, and PDEX. As the quarter concluded, the five largest positions accounted for approximately 65% of the total portfolio, with cash reserves making up about 10%. Recent strategic adjustments include expanding several smaller holdings and maintaining a higher-than-usual cash position, reflecting a cautious approach due to prevailing economic uncertainties. A key development was CCRD's announced sale to Euronet Worldwide in an all-stock deal. This transaction offers CCRD a stable environment to re-establish its revenue streams in a post-Apple Card market, while Euronet gains a robust digital payments platform. Although not the ideal outcome, this acquisition addresses pressing issues for both entities. Meanwhile, QRHC showed its first substantial cash flow generation in two years, prompting selective increases in its position, despite ongoing concerns about the company's board leadership and the necessity for more experienced oversight to drive operational improvements.
The current economic climate evokes a sense of apprehension, even as major market indices reach unprecedented highs. Several factors suggest a potential downturn in consumer demand, including non-free trade policies inflating input costs, reduced international visitation, heightened policy instability affecting long-term investments, and cuts in federal government employment. While recent earnings reports may indicate isolated areas of strength, these could merely be a temporary boost from activities accelerated in anticipation of future tariffs. The growing contribution of data center investments to the economy, now on par with consumer spending, might also be masking underlying economic fragility. In these uncertain times, patience is deemed a valuable asset, and the firm remains committed to its strategy of building a resilient business through a consistent investment approach and prudent capital allocation, continuing to welcome clients who share its long-term vision focused on small companies and intensive research.