Top-Down Concerns; Bottom-Up Opportunity


ACR is a “bottom-up” investment firm – our focus is on building a diversified portfolio of the cheapest quality securities we can find.  Our investment decisions are not made on a “top-down” basis.  For example, we do not invest in the overall stock market because we believe GDP will rise faster than expected.  Avoidance of top-down decision-making does not mean we ignore macroeconomic conditions.  Rather, we incorporate the analysis of economic cycles, interest rates, and global growth rates into our company level valuations.


In the past year a propitious divergence developed between macroeconomic conditions and investment opportunity at the company level.  Consequently, our bottom-up selection process led us to purchase a few cheap stocks despite broader macroeconomic concerns.  We believe that the prices we have secured will produce sound long run returns, regardless of whether the divergence widens or the general economy enters a recession.  Below is a brief overview of current market conditions, our strategic response, and recent portfolio changes.


The macro economy is still a major concern:

  • Trillions a year in investment spending out of China remain unsustainable.
  • The US expansion is aging and recession at some point is inevitable.
  • Overall markets are dangerously priced – stock prices are high and interest rates low.


A few bottom-up opportunities have developed:

  • The recent decline in commodity prices has created economic ripple effects.
  • A recession in industrial stocks has depressed earnings and stock prices of certain companies.
  • Recent volatility has shaken loose a few good investment ideas in these and other sectors.


Leading us to new purchases with continued caution:

  • Six new companies were added to the EQR portfolio in the past year.
  • EQR’s average cash balance is down from 39% to 26%.
  • ACR is avoiding overexposure to commodities and China and valuing cyclical companies cautiously.


The overall market in the first quarter ended up slightly from the end of the year, with a nice 10% dip in between.  The mid-quarter decline allowed us to add three of the six companies which are new to the EQR portfolio in the past year.  Yet we remain defensive.  26% cash is still high.  Additionally, several companies jumped higher toward quarter end and are now too pricey for new portfolios.  Therefore we are once again investing new account cash slowly.  A summary of EQR investment returns can be found at


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In our September 2015 commentary entitled “Staying Right Sized”, we described the importance of managing the size of our investment strategies.  Endless expansion is guaranteed to become a drag on investment performance – it limits our opportunity set and the ability to concentrate on our best ideas.  Ever larger pools of capital require investment in ever larger companies and/or more portfolio holdings.  Many a great fund manager has been laid low because their assets outran their talent.  The ACR investment team is committed to avoiding this fate.


With this in mind, ACR will officially “soft” close our EQR stock strategy on June 30 of this year.  We expect assets under management in the EQR strategy to be approximately $2.75 billion at that time.  During the soft close phase, new accounts will be limited in size to $10 million or greater; additions to existing accounts will be accepted until EQR’s official “hard” close.  ACR plans the hard close at approximately $3.75 billion in assets under management (based on comparative market value metrics to today), at which time we will no longer accept new accounts or additions to existing EQR accounts.  The timing of the hard close is difficult to estimate.  Our best guess is in the next few years.  After the hard close, ACR plans to compound the capital in our EQR strategy for many years to come based solely on long term investment return generation.


ACR is humbled by EQR’s growth.  Instead of reaching for greater heights, we believe that limiting EQR’s size is the next right thing to do.  Constructing a focused portfolio of our best ideas from a very large universe of small, medium, and large capitalization securities is a structural advantage we plan to maintain.


The entire ACR team wishes to thank each and every partner and client for your continued trust and confidence.  We look forward to protecting your capital and maximizing your investment return in the years ahead.


Nick Tompras

April 2016




Past performance is not indicative of future returns.  Data in this Commentary represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Performance has been calculated on a total return basis, which combines principal and dividend income changes for the periods shown. Principal changes are based on the difference between the beginning and closing values for the period and assume reinvestment of all dividends and distributions paid. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of any examples discussed.  You should consider any strategy’s investment objectives, risks, and charges and expenses carefully before you invest.  The volatility of any Indexes portrayed may be materially different than the composite presented. Investors cannot invest directly in an index.


The adviser’s fees are disclosed in the Firm Disclosure Brochure, ADV Part 2A.  Fees vary and will have an impact on returns actually received over time. Please refer to detailed performance data and additional applicable disclosures at  Performance data is from ACR’s Advised/SMA Composite, the manager’s broadest composite. All applicable expenses such as advisory fees have been included in calculating performance.


This information should not be used as a general guide to investing or as a source of any specific investment recommendations, and makes no implied or expressed recommendations concerning the manner in which an account should or would be handled, as appropriate investment strategies depend upon specific investment guidelines and objectives. This is not an offer to sell or a solicitation to invest.


This information is intended solely to report on investment strategies implemented by Alpine Capital Research (“ACR”).  Any opinions and estimates offered constitute our judgment as of the date set forth above and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. Under no circumstances does the information contained within represent a recommendation to buy, hold or sell any security.  There are risks associated with purchasing and selling securities and options thereon, including the risk that you could lose money. All material presented is compiled from sources believed to be reliable, but no guarantee is given as to its accuracy.



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