March 2020 Investment Commentary

¹Comments and opinions expressed reflect solely the personal views of Anthony Lombardi as of 3/31/20, and not any other individual or firm. Such views
are not a recommendation to buy or sell any security, fund or portfolio. Any investment decision should be made in consultation with a financial advisor.
MARCH 2020 INVESTMENT COMMENTARY1

Swan Lake: Ultimate Path to Profitability & The Most Significant Non-GAAP Exercise
Chapter 1, USA Series A Funding
Our story begins. A passionate entrepreneur walks into a venture capital meeting and makes the following pitch:
“I have what I believe to be a phenomenal investment opportunity and one for which to get in on the first round
of funding; THE absolute ground floor, some might say the basement! This is the story of an amazing company,
actually, think about it almost like a great country. It has truly incredible potential, but at the moment is
temporarily hemorrhaging cash due to negative operating leverage associated with a high amount of fixed and
variable costs, several segments which are quite capital intensive, possessing no revenues, huge headcount that
have been furloughed or instructed to work from home until further notice, and possibly some that may be let go
permanently; a customer base that, for the exception of a handful of total addressable market segments, is not
buying products, and in many situations products & services are currently not being manufactured, produced or
being provided. To be honest, there’s this deadly healthcare situation that is troubling a lot of people across the
spectrum right now, some who are just plain frightened, immobilized, others are confused and many are
uncertain as to what the future entails. In a nutshell there’s a lot of behavioral changes occurring as a result and
the question is whether it’s a temporary thing.” The passionate entrepreneur went on further: “As a result, I

believe the business should be capitalized on outward year revenues, earnings and EBITDA….oh, one very small
thing…the capital structure is subject to change at a moment’s notice if things don’t go too well, possibly would
include some significant dilution and/or bankruptcy risk owing to potential partisan government
actions/inactions that may not be in my, or the company’s control. You see, I have this uncle, Samuel, with very
deep pockets. He’s willing to invest but is a stickler on terms. It’s possible too that capital markets might not be
open, or as fluid as historically, which could create issues that complicate the valuation process a bit more. Profit
margins, which are currently at depressed levels owing to negative operating leverage, eventually are expected
to rise materially but there may be a significant shortfall relative to levels that might be assumed more normal
peaks in previous cycles. I am sure you have participated in funding many other situations with similar concerns
regarding “path to profitability” but given such a clear, and incredibly unequivocal, opportunity with respect to
this situation, I am sure you can visibly see the distinguishing characteristics. I know my time I have left is nearing,
and I can tell by your expression you seem as excited as I am to do this. So, how many shares should I put you
down for?!”
Chapter 2, Nightmare Land
On February 25th
, The Walt Disney Company announced it would hold a conference call after the market close,
to detail CEO Bob Iger’s decision to step down, and the immediate transition to new CEO Bob Chapek, previously
head of the company’s Park’s business. As Disney, and Iger, had always been quite transparent regarding the
fact there was a very analytical, logistic-based process regarding succession, the CEO change announcement was
a surprise in the context of its immediacy, and on the heels of its recently held conference call on February 4th
to discuss 1Q20 earnings. Last April, Disney held a long-anticipated investor day to detail its new streaming
offering, Disney+, which has been by all accounts a huge success to-date. Iger’s leadership and impact on the
transformation of Disney over the past 15 years is without question a storied success. What lies ahead for a
company founded by the most infamous Imangineer, possessing many global touch points, and perhaps serves
a parallel for the challenges faced currently by the broader global economy, is detailed in its recently filed 8-K.
The excerpts below highlight the severity of the virus’ contagion across its business, underscores the speed at
which it hit, as well as offering one prognostication regarding potential changes in consumer behavior:
“The impact of the novel coronavirus (“COVID-19”) and measures to prevent its spread are affecting our businesses in a number
of ways. We have closed our theme parks; suspended our cruises and theatrical shows; delayed theatrical distribution of films
both domestically and internationally; and experienced supply chain disruption and ad sales impacts. In addition there has been
a disruption in creation and availability of content we rely on for our various distribution paths, including most significantly the
cancellation of certain sports events and the shutting down of production of most film and television content.
We expect the ultimate significance of the impact of these disruptions, including the extent of their adverse impact on our financial
and operational results, will be dictated by the length of time that such disruptions continue which will, in turn, depend on the
currently unknowable duration of the COVID-19 pandemic and the impact of governmental regulations that might be imposed
in response to the pandemic. Our businesses could also be impacted should the disruptions from COVID-19 lead to changes in
consumer behavior. The COVID-19 impact on the capital markets could impact our cost of borrowing. There are certain
limitations on our ability to mitigate the adverse financial impact of these items, including the fixed costs of our theme park
business. COVID-19 also makes it more challenging for management to estimate future performance of our businesses,
particularly over the near to medium term.”—The Walt Disney Company, 8K, 3/19/20

Transfiguration from Odette to Odile
Having attained valuation levels for which we had grown increasingly concerned, the market’s underlying
fundamental drivers, notably revenue/profit growth & sustaining margins, had their work cut out entering 2020.
Forward P/E’s for S&P 500, Russell 1000 Growth and Value Indices had expanded to ~18x, ~23x & ~16x. A
negative event was likely to have a notable market impact, a “Swan-event” would prove more severe. By
curtain’s close to 1Q20, markets and economies had been exposed to an entire lake and 24x7 socially connected
societies went virally anti-social. Fortunate to attend Feb. 14 opening of Balanchine’s
masterpiece at NYC Ballet, and see a very special friend perform the lead, the
desolate loneliness felt by Prince Siegfried served an eerie parallel. Our long-standing
optimistic view was being deconstructed as our guard had increasingly been up
during past 1 ½ years. As highlighted in prior commentaries, not only had multiples
expanded but valuation disparities continued to materially diverge. Entering 2020
there was an 11-point multiple gap in trailing P/E, a greater-than 6-point gap in P/B
and a near 3-point gap in EV/EBITDA, disparities that are pinned on relatively high
aggregate multiples. While only one part of a broader mosaic, such data points have
increasingly served to drive our intense focus upon capital protection measures in our
portfolio actions during the past 1 ½ years. Despite such moves, we did not escape the wrath in 1Q20, and the
underperformance in our portfolio returns were magnified. While remaining near fully invested, meaningful
composition changes have been made as we continue actively desensitizing cyclicality where appropriate, been
laser-focused on cheapening portfolio and undeterred in utilizing process-permitted cash levels to solidify MOS.
Our process prism, for which we view dynamic mosaic to crystalize our vision and portfolio positioning, remains
unaltered. As we have for three decades we vigilantly listen--to the market, macro backdrop, sector & company
news flow, and corresponding swings in investor psychology. At the core, the market is a discounting mechanism,
and we remain vigilant as to where pendulum swings at any given point. As noted in past, cumulatively, such
swings serve as building blocks in our constant assault seeking out opportunities for entry into, and exit from,
investment positions. Most importantly, as inoculated value investors, we place a premium on staying true to
investment process with an unrelenting focus on MOS. With our typical investment horizon targeted at ~3-5
years, implicit in such a holding period is not simply low (cost) turnover, but a time-period integral to an
investment discipline undeterred by short-term events and emotions. Given our process is contrarian, high-
conviction, and concentrated, we need not scramble adjusting long-standing views, or portfolio positioning, due
to weekly, monthly or quarterly events. We do, however, view the global pandemic-related events of 1Q20 as
having material impacts on the 3-5year window, serving as an accelerant to underlying risks previously giving us
concern, and emboldening existing themes. As part of our disciplined implementation, we overlay longer-term
secular views pertaining to broader macroeconomic and market backdrop, resulting in active sector and stock
exposures. The foundation of our disciplined process and philosophy does not allow for it to be radically altered,
nor portfolio stock selection and sector allocation be impacted in same vein. Given investment backdrops do not
formulate overnight, portfolio construction, in our opinion, should be result of broader mosaic that does not
succumb to near-term emotions. Whether a function of near- or intermediate-term fundamentals, and/or
investor psychology, our focus remains on recognizing, assessing and seizing upon opportunistic valuations, be
they BUY or SELL. Inclusive of 1Q20, we like how our portfolio positioning has migrated over the past three years,
unwavering on process discipline, and always mindful of the ever-evolving mosaic.

Portfolio Positioning & Review
As noted in our prior commentary, given aggregate market and valuation levels, our guard remained up entering
2020, with a continued bias for liquidity and intensive focus on solidifying MOS. Notably, our target Cash level
increased +50bps during 1Q20, with market value cash hitting an intra-quarter high of 6.1% during mid-March
(similar to ~7% in late Nov-’19) as process and our value conscience dictated our actions. By quarter-end,
juxtaposed against extreme volatility in the backdrop, out portfolio market value cash represented ~4%. Key
sector target weighting reductions in IND and FIN, were partnered with sector target weighting increases in HC,
CommSvc (Communication Services), TECH, UTE and ENE. As contrarians, entering 2020, our process and
convictions led to an active reduction (-800bps) in our TECH sector weighting since 3Q18. Conversely, in addition
to Cash build, we had been increasing targeted allocations to CommSvc and UTEs while patiently awaiting more
compelling valuation in HC. Not only did we find opportunity to add to all three sectors in 1Q20, but we also
reversed our long-standing bearish stance on ENE by moving to an overweight allocation. As noted in prior
commentaries, long before COVID-19 related crisis, we chose not to ignore the stronger long-term performance
experienced in our portfolio relative to benchmark, “…which coincided against broader equity market
appreciation, select underlying valuation multiple expansion, and potentially more challenging forward earnings
comparisons during the next two years (2020-21).” We continue to believe actions taken in the portfolio serve
to reinforce a protective mindset, having reduced our near-term optimism yet remaining near fully invested. By
prudently underscoring our focus on overall MOS, performance was served well during a volatile 2018 and,
following our actions during 2019 and an unprecedented 1Q20, we continue to believe the portfolio is positioned
well for 2020 and beyond. We are not concerned about relative underperformance during the past rolling one-
year, as our focus remains on consistently executing our investment process, a long-term horizon, and
risk/reward prism through which we are viewing. By consistently holding the hand of process, our contrarian
value conscience is linked to an unemotional counterpart which allows for active, high-conviction portfolio
decisions, which is continually remains a backdrop-agnostic exercise.
Our LCV portfolio exposure remained allocated to 10 of 11 sectors. Despite several allocation changes, we
remain emphasizing issues possessing compelling valuation, financial statement strength, and where near-term
psychology serves to compensate for risk, providing the inherent MOS we seek when investing over a 3- to 5-
year time horizon. Straying to own safety at any price has never been an acceptable paradigm as our value
conscience and investment process simply will not allow us to pay any multiple for quality. We have always been
hardwired, contrarian, value investors, conscious of risk factors, and continually viewing through a risk/reward
prism, in active pursuit of opportunities providing the right balance. We seek companies offering a combination
of cheapness, a contrarian view, possessing stable long-term balance sheets and attractive FCF characteristics.
That said, we are never married to one view as valuations, sentiment and process drive our decision-making. By
way of example, such patience paid dividends during 2H18 & 2019 as we felt the combination of our long-term
time horizon and valuation compression in certain defensive areas hit risk/reward levels that became appealing.
As opportunities present themselves, we have increasingly nibbled and reallocated our portfolio with a
contrarian mindset. Despite having increasingly raised our cash target during the past several quarters, we are
still finding, buying and remaining owners of cheapness, MOS and compelling free cash flow (FCF), while at the
same time we are sellers when valuation criteria or process constraints are breached. While underlying
performance suffered in 1Q20, patience and process rose to the surface as we the severity of the market decline
made for opportunity. Specifically, target allocation decisions provide for increasing our Healthcare,

Communication Services, Utilities, Technology and Energy weightings, while reducing Industrials and Financial
sectors via full position Sales and position weight reductions. In the aggregate, three new holdings were added
during the quarter where pendulum swing created compelling opportunity. Such actions served to underscore
our high-conviction, concentrated process and philosophy. Not only has deployment of investable capital in this
manner been more acceptable to our contrarian, value-based discipline, but also in recognition that forward
long-term returns are typically related to point-of-entry valuation multiples. When juxtaposed against our belief
favorable long-term opportunities exist in the economy, and amongst companies we target, we remain steadfast
in how we aim to position our LCV portfolio. Clearly, as evidenced by changes during the past two years, in
conjunction with the broader macro backdrop entering 2020, we had not found such opportunities to be as vast,
nor inexpensive as was the case 5-10 years ago. Dark clouds of 1Q20 served to reverse this trend and provide
for an enhanced shopping list.
Key Trades & Attribution
We seeded our concentrated LCV strategy during the first quarter 2016. Since inception, as opportunities have
been presented, we have made several active portfolio decisions, at both the stock and sector level. During
1Q20, notable actions included:
 Sector/Cash Target Weighting Changes:
o Industrials (-)
o Financials (-)
o Healthcare (+)
o Communication Services (+)
o Technology (+)
o Utilities (+)
o Energy (+)
o Cash (+)
 Position Target Weighting Changes & Rebalance Trades across several sectors:
o Industrials
o Technology
o Consumer Staples
o Consumer Discretionary
o Communication Services
o Energy
o Financials
o Healthcare
o Materials
o Utilities
Three FULL position BUYs & SALES, five sector target weight changes. Our trend in activity level continued,
underscored by the highest level of change since inception as the backdrop was altered in dramatic fashion. We
have always remained steadfast in executing our investment process, for which we view as the unemotional
adult in the room. During the quarter process forced sector changes and target position sales, however, we were

also presented with opportunities to accelerate actions we had previously been contemplating on our shopping
list as valuations, fundamentals and sentiment adjusted materially. While our investment discipline is generally
characterized by low turnover, when action is dictated by process, we execute accordingly—there is never
hesitation with a stated process. We have repeatedly stated that we neither marry, nor fall in love with any stock
or sector, nor attempt to justify going beyond embedded process constraints as reasons for portfolio exposures.
Our target sector weightings are influenced by top-down and bottom-up views, while fundamentals, valuation
and psychology drive stock level decisions. For the fifth consecutive quarter, we executed full position SALEs,
while correspondingly initiating new target position BUYs for only the second consecutive time in six quarters.
The “imbalance” in SALEs vs BUYs during the past several quarters has been due to a combination of higher Cash
utilization given concerns about valuation and forward earnings, as well as increased allocation to existing target
positions (given our conviction & sector views). The new BUYs and full SALEs in 1Q20 was amongst activity
including changes to seven (7) sector target weightings and numerous rebalance (up and down) trades,
cumulatively touching all ten (10) sectors for which the portfolio is exposed. Real Estate remained at 0%
allocation (allowed by process), having made an active decision to eliminate exposure a year-ago (1Q19).
Given previously stated views of the backdrop, we retained our bias for higher Cash and defensiveness (which
includes valuation). During 1Q20, we lowered our target weightings in the Industrial and Financial sectors, while
increasing Healthcare, Communication Services, Technology, Utilities and Energy exposures. Notably, the
reduction in Industrials was driven in part by the ongoing decline in process-permitted allocation, as a host of
large capitalization companies in the S&P 500 (led by Boeing) witnessed dramatic decreases in market value,
serving to shrink the sectors relative capitalization. A dramatic, severe and rapid decline in interest rates,
material degradation in slope of the yield curve combined with similar shrink in the sectors relative capitalization
caused us to reduce bank-related exposure as well as sector target weight. Conversely, our previous moves to
add target weight to Communications Services and Utilities sectors continued. Healthcare, for which we have
patiently awaited valuation compression, presented selective opportunity and allowed for expansion of target
sector weight. Within Technology we modestly increased exposure, reversing an 800bps reduction between
3Q18-4Q19. Lastly, and perhaps most notable, we reversed our long-standing negative position on Energy,
moving to an OVERWEIGHT from UNDERWEIGHT, but underscore this is far from an all clear given we view the
large cap opportunity set as relatively small in the context of the sector declining (intra-quarter) to the smallest
market capitalization weight in the S&P 500. We would note that our bias to have kept Cash readily available
during the past 12-18 months, in combination with a concentrated portfolio, were advantageous for executing
a remix during the quarter as opportunities presented.
Number of target positions held in our LCV portfolio remained 25, diversified across 10 of 11 sectors. Portfolio
actions taken during 2018-2019 had tracked a more measured level, as we engaged in a paced modification to
our long-standing optimistic stance. Decisions in the recent quarter, however, were accelerated due to dramatic
change in the backdrop owing to COVID19-related economic shutdown. Speed aside, these portfolio moves
remain founded upon our investment process for which we have long pre-telegraphed. Indicative of this
migration is the combined underweight allocation to Healthcare and Consumer Staples, which stood at ~ -215bps
at quarter-end, a vastly different level compared to nearly -1,200bps at the end of 3Q16; a shift that occurred
through a combination of valuation compression and active allocation decisions. Further indication is presented
by a -700bps reduction in our Technology sector weighting, from 22% to 15%, since 3Q18; a +500bps increase in

CommSvcs weighting, from 7% to 12%, since 4Q18; a +250bps increase in Utilities weighting, since 2Q19; current
quarter reduction of -300bps in Financials (during Feb) and a +350bps year-over-year increase in Cast target,
1.00% to 4.50%. On a weighted average basis, the market capitalization of our portfolio holdings was $98.0
billion, a decline of 14% and 48% compared to prior and year-ago quarters, respectively. The decrease in
capitalization reflects a combination of market declines, underperformance and portfolio allocation changes
made in sector and target holding weightings during the past year. These changes are inclusive of full position
sales and purchases, as well as our having had a bias to higher Cash levels. MOS remains our principal guide for
which we are compelled by process to follow. Quarter-end target and market value weights for our LCV portfolio
are detailed below, including comparisons to prior and year-ago periods for perspective on trends.

On market value basis, we ended 1Q20 with ~3.6% cash, up nearly 100bps vs 4Q19. Continuing a trend during
2019, our cash target weighting was raised to 4.5%, +50bps vs 4Q19 and +350bps vs 1Q19. Market value cash
hit an intra-period high of ~6% during mid-March, comparable to ~7% late November, actions dictated by our
process and value conscience. Recall, from a process perspective, our targeted cash range is designed to provide
flexibility, to allow for repositioning within a highly concentrated, yet diversified portfolio. As noted, our LCV
portfolio was comprised of 25 total equity positions at quarter-end. While we are long-term investors, we have
a stated preference to monetize winners, and/or sell-down positions based on discipline, in so doing avoid
placing capital at risk by simply holding investments as place-markers or allowing exposures to become excessive
when selective rebalance is more appropriate. MOS is paramount and is critical in limiting potential downside.
Holding a position that has attained valuation levels no longer representative of attractive risk/reward only
serves to create undo diversification risk and is simply an unacceptable practice. With protection of capital a
covenant we are unwilling to break, we firmly believe in utilizing process-permitted cash level when situations
dictate, to adhere to this core investment principle. Similarly, significant rebalancing trades we have executed
serve to protect capital in very much the same way. And, when process and valuation present opportunity, we
look to not only reallocate capital but deploy excess cash levels accordingly. Such discipline is among several key
distinguishing characteristics in our process. We simply have no penchant to manage a portfolio structured with
individual positions not representative of our high convictions, and firmly believe in a concentrated list of
holdings, yet one diversified across market sectors. As we have noted previously, with our sector band targets
set at 0.5x to 1.5x respective S&P 500 capitalization weights, should a sector’s size fall materially below certain
predefined thresholds our process further allows for optionality for a 0% sector target with redeployment of
available capital into other sectors, or Cash. Recall we utilized this 0% optionality with the Real Estate sector
during 1Q19, a lever which has been maintained. At quarter-end, the only sectors within this 0% optionality
range were Materials and recent newcomer, Energy, given its precipitous decline in market capitalization
representation. We have long been bearish on the Energy sector and end-markets, and actively maintained a
material underweight in the portfolio. As detailed below, however, while not calling an all clear, our contrarian
instincts led us to raise the Energy sector allocation of the portfolio to a process maximum overweight of 4.00%.

Investment Performance. For the March quarter, our LCV portfolio generated total return of -31.3% vs the
Russell 1000 Value (R1KV) return of -26.7%, and broader S&P 500 return of -19.6%. For the rolling 1-year, our
LCV portfolio generated total return of -25.6% vs R1KV return of -17.2% and broader S&P 500 return of -7.0%.
This was the weakest absolute and relative performance quarter since inception, and one where the degree of
hemorrhage was so great as to cause 3-year total returns of our LCV portfolio and the R1KV to fall below
breakeven. Prior to 1Q20, since inception, the absolute total return of -11.5% in 4Q18 represented the portfolio’s
weakest quarter, while the relative underperformance low was -3.0% in 2Q19. Compared to the R1KV, relative
performance in 1Q20 was driven by Security Selection (~-670bps), with Allocation providing an offset (~200bps).
Compared to the S&P 500, Security Selection detracted ~-1,095bps, while Allocation detracted another ~-80bps.
For the rolling 1-year, our portfolio’s relative underperformance of ~-840bps vs R1KV was driven by weak
Security Selection ~-1,180bps, offset by a contribution of ~+340 from Allocation. Compared to the S&P500,
rolling 1-year underperformance of ~-1,865bps was driven principally by Security Selection and a modest
incremental drag from Allocation. Despite materially weaker short-term relative performance, and a market
environment characterized by significant volatility, our portfolio’s returns on a rolling 3-year and 4-year basis
remained near parity with our primary style benchmark, the R1KV. However, as noted in prior commentaries,
long-term preservation of capital has much more to do with avoiding absolute loss of capital than upside return
participation. Most critical in our discipline has been a long-term historical ability to protect in downside market
environments through an unrelenting focus on MOS and process. We have repeatedly underscored our radar
having been up, amid growing concerns regarding valuation disparities and the forward earnings backdrop. Such
concerns were acted upon during the previous 1 ½ years with active changes in portfolio allocation and target
holdings. Despite such efforts, and adhering to our process, the magnitude and immediacy of events unfolding
in 1Q20 lead to abrupt, unprecedented shutdowns of economies across the globe. Importantly, as illustrated by
portfolio actions in 1Q20 we did not stand still, as we firmly followed our stated investment process. While
disappointed with both absolute and relative performance in 1Q20, we remain humbly confident our process
and execution will continue to prove beneficial over the long-term. Of note, since inception, in 11 of 16 quarters
the R1KV has posted quarterly total return below 5.00%, to include the most recent hemorrhage in 1Q20. Our
LCV portfolio’s cumulative underperformance for these sub-5.00% R1KV quarters totals ~-50bps, with the latest
quarter responsible for detracting ~460bps, nearly 2/3 which was driven by two target positions.
Our portfolio’s characteristics continue to reflect a disciplined, contrarian and value-oriented process. As
illustrated in the tables on page one, staying mindful of general market valuation levels, and more importantly
that of our LCV portfolio, has long remained paramount. Historically, the protection offered by the valuation
discount in our portfolio versus our primary benchmark and the broader market has served us well during
periods of market weakness, while also allowing for upside capture. Looking upon the investment backdrop
during the past two years, our radar was dialed-up to the prospect of material, incremental valuation multiple
migration in the broader market without corresponding fundamentals improving. As a result, we made
increasingly active moves in the portfolio during 2018 and 2019, to solidify cheapness, as well as desensitize
some cyclicality. As summarized above and detailed below, we made several changes in portfolio composition
during 1Q20. Despite such efforts, the severity of 1Q20’s decline meaningfully detracted not only from the rolling
1-year, but significantly reduced the prior longer-term outperformance. Such capital loss occurred despite our
LCV portfolio remaining materially cheaper across nearly every valuation metric, notably higher FCF & dividend
yields, lower P/E’s (trailing & forward) and EBITDA multiples, and lower P/S and P/B compared to the broader

S&P 500 and R1KV, the latter our primary benchmark. At period-end, meaningful valuation gaps between our
LCV portfolio and R1KV remained intact, with FCF yield and EV/EBITDA notable examples at ~+210bps premium
and ~16% discount (vs R1KV), respectively. Given the immediacy of the global economic shutdown and
subsequent negative impact on corporate and personal cash flows, our repeated concerns regarding certain
valuation indicators were brought to the forefront. Specifically, we noted: “In lieu of the interest rate backdrop,
and growing appetite by company managements to take on incremental financial leverage, we have continued
to keenly monitor balance sheet trends, as well as EBITDA multiples.” Having first eclipsed 9x during 3Q18, our
portfolio’s EV/EBITDA multiple hit a new high of 9.4x in 4Q19 and ended 1Q20 at 8.7x. Comparatively, however,
our portfolio remains at a discount to both the S&P 500 and R1KV EV/EBITDA multiples of ~11.2x and ~10.4x,
respectively at quarter-end. For several quarters prior to 2020 we had noted the continued valuation divergence
between Growth and Value was attaining material levels garnering our attention, underscoring there was a
valuation issue in the market BEFORE the COVID19 pandemic hit, economies were shut down, uncertainty and
fear rooted, and massive global monetary and fiscal stimulus unleashed.
From an attribution standpoint, 1Q20 underperformance was largely about Selection & Cash. Specifically,
versus the R1KV, Security Selection and Allocation during the March 2020 quarter amounted to ~-670bps and
~+200bps, respectively. Energy, Technology and Real Estate were the most significant contributors in total
attribution, while Consumer Discretionary, Industrials and Financials were the most significant detractors. By
Allocation, Energy, Technology and Financial sectors had the largest positive attribution, while Utilities and
Consumer Discretionary were the largest detractors. By Stock Selection, Health Care and Real Estate were the
largest contributors, while Consumer Discretionary, Financials and Industrials were the largest drags. On an
absolute basis, as was for the R1KV, all sectors in our portfolio posted negative returns quarter/quarter, led by
Consumer Discretionary, Energy and Materials. By comparison, the negative return in the R1KV was led by
Energy, Consumer Discretionary and Financials. Notably, nearly 85% of our underperformance vs R1KV was
driven by CD, of which ~3/4 was due to 2 holdings. Our targeted cash position of 4.50% was up 50bps at end of
1Q20 vs 4Q19, as our bias for liquidity remained a compelling proposition in the context of our underlying
concerns regarding valuations, the broader backdrop which was dramatically destabilized due to a global virus
pandemic and our continued desire to have flexibility and cushion available. Intra-quarter, portfolio market value
cash peaked at ~6%, the second highest since inception but within our permitted process range. Attribution due
to maintenance of high cash level was material. For the full quarter our cash contributed ~+85bps given severity
of the decline in our portfolio and the R1KV.
Industrials: DECREASE weighting -500bps; 2 FULL position sales; 3 rebalance trades: 13.0%-->8.0%
Along with TECH, CD and FIN, the IND sector has comprised a significant part of our portfolio’s cyclical bias.
Although not as aggressive in reducing sector weighting as has been the case in TECH, we have acted during the
past 12-18 months to reduce IND exposure through combination of target weightings and/or sales, serving to
desensitize cyclical risks, particularly when viewed in context of increases we made to HC, CS, Comm Svcs, UTES
and Cash targets. Notably, since inception, we have monetized several target holdings upon their attaining
valuation levels that we found no longer compelling against alternative opportunities elsewhere, to include
raising Cash levels. By way of example, position sales in IND in prior quarters include CSX (1Q17), EMR (3Q18)
and JCI (3Q19). We temporarily increased IND sector exposure in 4Q19 through the purchase of a newly
identified target holding that was a contrarian opportunity with compelling fundamental and valuation
attributes. Notably, funds utilized for this purchase were derived from a combination of a partial reduction in

an existing IND target holding, as well as funds from the full sale of AAPL in 4Q19. During 1Q20 we returned to
path of reducing cyclicality and abiding investment process, executing full position sales of Eaton Corporation
(ETN) and Nielsen Holdings (NLSN), further cutting target IND exposure by -500bps. The transactions book-ended
the quarter with the sale of ETN executed earlier in the period (Jan), while NLSN was sold later (Mar). While the
change in sector weighting was significant, the reduction was driven by a combination of valuation, compelling
alternatives (to include cash), investment process and related constraints. As we have previously noted our
investment process provides for sector bands of -0.5x to +1.5x corresponding S&P 500 sector weightings. At
year-end 2013, IND represented ~13% of S&P 500 market capitalization which subsequently declined to slightly
more than 9% by year-end 2018. Over the course of 2019 and early 2020, the pace of IND’s decline in
representation took on increasing severity, ultimately leading to a more precipitous decline during 1Q20. In prior
commentaries we have called out this ongoing decline by underscoring compression in market value and events
impacting some of the most significant companies in the sector. Such was the case in 1Q19: “…quarter was
complete with a reopened, yet viciously bipartisan Capital, several weak global economic reports including a
light (yet distorted) February US jobs report, churning yet unfinalized US-China trade negotiations, conclusion of
a 2-year old Mueller investigation into 2016 elections, full-fledged Brexit chaos overseas, yield curve inversion
across parts of the US term structure, black swan events impacting the largest industrial company in the S&P
(Boeing) and, as the time clock on the first quarter was expiring, administration calls for Fed to execute a 50bp
cut…”.
ETN shares had materially underperformed on an absolute and relative basis during the 2-year period leading
into our initial purchase. Specifically, compared to +10%, +7% and +4% for the S&P500, S&P IND Sector and
Russell 1000 Value, ETN posted a negative total return of -20%. In terms of valuation, at time of purchase, ETN’s
strong (BBB+ Fitch) balance sheet was joined by compelling multiples: 12.7x P/E, 13.4x P/Est, 1.3x P/S, 1.7x P/B,
4.2% Dividend Yield, 7.1% FCF Yield, 10.5x EV/EBITDA, low cap ex intensity (~3%) and long-term debt/cap < 35%.
Sentiment on ETN was unfavorable, with 60% HOLD/SELL vs 37% BUYs and a 12-month price target ~15% above
then current levels. At the time, we felt this global parts player, with good management, balance sheet quality,
low capital intensity, favorable capital management, attractive FCF and margin profile was a compelling
contrarian idea offering a neat fit with our desire for cyclicality, and our underweight in Energy. Since initial
purchase, ETN outperformed the broader market, the IND sector and our primary Value benchmark. Specifically,
ETN posted an annualized total return of 18.5% compared to 16.5%, 13.9% and 12.9% for the S&P 500, S&P
Industrial Sector and R1KV, respectively. At time of sale, the shares reflected ~52% BUY vs 48% HOLD/SELL, a 12-
month price target nearly double the level at time of purchase, 16.8x P/E, 17.6x P/Est, 1.9x P/S, 2.5x P/B, 2.9%
Dividend Yield, 6.7% FCF Yield, 12.7x EV/EBITDA, cap ex intensity (~3%), long-term debt/cap ~ 33%, Net Cash $8
billion and a BBB+ credit rating. While ETN’s management had proven consistent, its valuation had not gone to
extreme levels, nor was its balance sheet stretched in any manner, our broader concerns regarding economic
and earnings deceleration in the forward outlook, combined with process driven constraints for the IND sector
led to our fulling selling the position in late January; a transaction which proved fortuitous in hindsight.
Like ETN, the shares of NLSN had underperformed on an absolute and relative basis during the 2-year period
leading into our initial purchase. Specifically, compared to +19%, +21% and +17% for the S&P500, S&P IND Sector
and Russell 1000 Value, NLSN posted a negative total return of -1%. We would also note NLSN meaningfully
underperformed the S&P Media & Entertainment sub-Industry group’s 19% total return during the same

timeframe. In terms of valuation, at time of purchase, NLSN’s balance sheet was sub-investment grade (BB+),
had 5-yr CDS spread of ~60bps, long-term debt/cap ~65% and net debt/EBITDA ~4x. Key valuation multiples
were: 27.0x P/E, 15.5x P/Est, 2.3x P/S, 3.6x P/B, 3.0% Dividend Yield, 7.0% FCF Yield, 12.6x EV/EBITDA, and low
cap ex intensity (~7%) due to nature of its business model. Sentiment on NLSN was moderately favorable, with
37% HOLD/SELL vs 63% BUYs and a 12-month price target ~20% above then current levels. At the time, we had
recently sold a full position in CSX and, given the nature of its consumer measurement (Watch & Buy segments)
and demand analysis business, we felt NLSN offered a unique diversification opportunity within the IND sector
as it was better represented by classification amongst Media peers. Additionally, Media/Communication
companies tended to operate at leverage ratios more comparable to NLSN’s vs those companies in the IND
sector, as well as provide potential for relative MOS in the event of broader cyclical weakness. With assumption
that management would be able to execute improvement in growth, margins and cash flow, combined with the
previously noted diversification aspects, we found NSLN a compelling contrarian opportunity that could serve as
a stealth offset to traditional cyclicality within IND. We were wrong, as NLSN failed to provide any meaningful
turnaround traction, nor downside protection, despite the entry of new management, an activist investor and
announced split of the company subsequent to an internal review (which included the option of a potential
outright sale of the entire company). The final catalyst for executing the full SALE of NLSN was process
constraints. The decline in NLSN share price during 1Q20 put its market capitalization below $5 billion, a level
for which our LCV process seeks to be above. Given execution and MOS issues noted previously, our bias toward
higher Cash levels, desire to maintain compliance of process at sector level, combined with market cap violation
in concert with pending separation into two entities, we were compelled to exit NLSN at a material loss vs original
point of entry.
In addition to the above SALES, two other IND positions were rebalanced UP to target weights, one of which was
done twice. Cumulatively, actions we took within the IND sector during 1Q20 comprised ~655bps of aggregate
portfolio market value, the largest component of this allocation driven by the two full SALES. Compared to the
S&P 500 and R1KV, our newly reduced 8% target weight allocation for IND at quarter-end represented an
underweight of ~-20bps and ~-140bps, respectively.
Financials: DECREASE weighting -300bps; 3 Target position reductions; 4 rebalance trades: 19.0%-->16.0%
The FIN sector, along with TECH, CD, and IND has comprised a significant part of our portfolio’s cyclical bias.
Unlike TECH where our actions to reduce exposure resulting in a sector weight well below the process maximum,
our targets for FIN, IND and CD were at or near upper constraints. As to FIN specifically, our conviction level
remained high entering 2020 as we viewed valuations compelling against healthy balance sheets and contrarian
aspects for companies targeted for position holdings. By mid-1Q20, due to the voracity and speed of declines in
levels and slope of yield curve, our level of concerned increased, more than previously, regarding interest rates
and the potential macroeconomic signal they were sending. Additionally, a pronounced increase in Gold of 10%
by late Feb, on top of its 22% climb in 2019 provided yet another data point in the mosaic. Given our experience,
the two most pronounced risks for financial companies historically tends to be comprised of credit and interest
rates. As to the latter, it is not so much the trajectory but the speed and volatility of sudden changes that present
more severe risk management issues. With our radar already dialed up heading into 2020, combined with more
recent experience of the GFC in 2008, we opted to execute an across-the-board reduction in our bank exposure
within Financials during the final week of Feb, resulting in a decrease in our targeted FIN sector exposure of -

300bps. Given the balance sheet strength, capital management and Federal Reserve/Fiscal policy actions, we
did not view the need to take incremental exposure reducing action. We were also mindful of process constraints
in sector weight given FIN declined below 11% during 1Q20. Notably, prior to quarter end, a couple positions in
FIN were rounded UP to target weightings. In total, we made 4 rebalance trades during the quarter, 1 DOWN
and 3 UP. Cumulatively our actions in the quarter comprised ~510bps of aggregate portfolio market value.
Compared to the S&P 500 and R1KV, our portfolio’s target weight allocation for FIN at quarter-end was an
overweight of ~+505bps and an underweight of ~-525bps, respectively. Our newly lowered FIN target weighting
of 16.0% was also process compliant to our maximum limit of 16.4%.
Health Care: INCREASE weighting +300bps; 1 new BUY; 3 rebalance trades: 10.0%-->13.0%
As we have reiterated for some time, we had viewed the HC sector as fundamentally unattractive in the context
of our long-standing bullish view of macroeconomic and corporate profit trends. The issue has been more about
valuation, and patiently awaiting opportunity to present itself. Underscoring this point was that entering 2020
it had been more than a year (3Q18) since we raised our HC sector weighting (+100bps to 10.0%). We noted, at
the time, we were wading not diving into HC. That said, we always remain cognizant of all parts of our process.
With the broad market hemorrhage in 1Q20, and our Cash level high, we moved decisively to seize upon
opportunity with a new position BUY in HC. In doing so, we actively raised our HC target +300bps, utilizing funds
made available from reductions in two cyclical sectors, FIN and IND. Given a new variable in the backdrop, the
valuation, fundamentals and sentiment of our new HC target position fit neatly into key secular themes which
we now believe to be compelling. At purchase, our new target holding had the following characteristics that are
expected to provide downside risk mitigation: 11x P/E, 8x P/Est, 0.1x P/S, ~12% FCF Yield, ~7x EV/EBITDA est,
long-term debt/cap > 70%, and a BBB-rated balance sheet. Sentiment on the shares was negative, with ~15%
BUYs vs 85% HOLD/SELL, vs 70%/30% Buy/Hold-Sell 5-years ago. Estimated 12-month price target had also
declined nearly ~35% during the past 5 years. While the B/S is more levered than we would typically prefer and
the business model generates low operating margins, we believe potential changes in the backdrop could set
the stage for material operating leverage during the next 3-5 years. In addition to our new target holding, we
also rebalanced two HC positions to target weights, one UP and the other DOWN twice. Cumulatively, actions in
HC represented ~520bps of aggregate portfolio market value. Compared to the S&P 500 and R1KV, our
portfolio’s HC allocation remains underweight vs both benchmarks, ~-240bps and ~-250bps, respectively. Should
additional opportunities present, ample headroom remains given our process would permit a maximum
weighting in HC of 23.1%, vs our newly increased 13.0% target.
Communication Services: INCREASE weighting +100bps; 2 rebalance trades: 11.0%-->12.0%
Having raised our CommSvcs sector weighting in 1Q19, 3Q19 and 4Q19, we added further exposure by an
additional +100bps in 1Q20. The latest increase puts our portfolio at a more material overweight vs process
benchmark weight. The increased allocation to CommSvcs was funded through a combination of available Cash,
and reductions in IND and FIN target weightings. As has been the case with previous increases, we believe the
most recent target allocation serves to cheapen the portfolio, sustain defensiveness and MOS, while also
underscoring our conviction by deploying all the increase to an existing target position. During the previous 12-
18 months, we have preferred to deploy increased capital toward the CommSvcs sector as compared to the
Staples sector given the available opportunity set vs a more limited universe in Staples. Prior to the outbreak of
the global pandemic, and subsequent economic impact, each of the three business models owned within

CommSvcs contributed secularly to our overall portfolio in various ways, combined with favorable balance sheet
and cash flow attributes. Additionally, we believe our sector allocation provides defensive attributes, as well as
leverage to participate in potential upside in the economy and markets. We are also mindful of the constitution
of CommSvcs, which has in its formulation legacy Telecom, Media and Technology. Thus, our decrease in
Technology sector weight must be juxtaposed against increased allocation in CommSvcs. In addition to the target
weighting increase, we also executed two rebalance trades on the same holding during the quarter.
Cumulatively, actions taken in the quarter comprised ~215bps of aggregate portfolio market value. At quarter-
end, our target weighting in CommSvcs represented an overweight of ~+125bps and ~+340bps, compared to the
S&P 500 and R1KV, respectively. Given our process maximum weight of 16.1%, there remains untapped
headroom should opportunity present.
Technology: INCREASE weighting +100bps; 1 new BUY; 3 rebalance trades: 14.0%-->15.0%
For an extended period, we had been cyclically biased, with TECH amongst the most significant sector allocations
providing related exposure in our LCV portfolio. During latter part of 2017 and much of 2018 we were active in
reallocations and rebalances given material appreciation in position holdings, all which occurred in the shadow
of the broader market’s growth-oriented rally. Beginning in 3Q18 through year-end 2019, we began a
methodical, process-driven reduction in Technology (from 22% to 14%), executed via full SALEs of CA (3Q18, -
500bps), CSCO (2Q19, -300bps) and AAPL (4Q19, -300bps), offset by one new full position BUY (3Q18, +300bps).
During 1Q20 we made further changes to our target TECH weighting that resulted in a net increase of +100bps,
to 15.0%. Specifically, we reduced one existing target holding -100bps, while also seizing an opportunity to add
a new position BUY, representing initial target position weight of +200bps. As was the case with our new target
purchase in HC, this new TECH position was funded from existing Cash, which had been kept high to provide for
increased flexibility and MOS. Available liquidity was the result of the aforementioned reduction to an existing
TECH target holding, as well as reductions in two cyclical sectors, FIN and IND. Given a new variable in the
backdrop, the valuation, fundamentals and sentiment of our new TECH target position fit neatly into key secular
themes we believe will take on increased importance. At purchase, our new target holding had the following
characteristics that are expected to provide downside risk mitigation: 12x P/E, 11x P/Est, 3x P/S, 4x P/B, ~4% Div
Yield, ~9% FCF Yield, ~7x EV/EBITDA est, long-term debt/cap < 30%, and a AA-rated balance sheet. Sentiment on
the shares was relatively neutral, with ~55% BUYs vs 45% HOLD/SELL, vs 60%/40% Buy/Hold-Sell 5-years ago.
Estimated 12-month price target declined nearly ~15% during the past year and was 30% above current share
price. Balance sheet and cash flow characteristics, capital management, prospects for EBITDA margin expansion
combined with valuation give us comfort relative to the current backdrop, and during the next 3-5 years.
In addition to the new position BUY and reduction of existing holding target weight, we executed three rebalance
trades, rounding one DOWN to target twice and another UP. Cumulatively, our activity in 1Q20 represented
~405bps of aggregate portfolio market value. Compared to the S&P 500, our portfolio’s target weight allocation
for TECH at the end of 1Q20 represented an underweighting of ~-1,050bps, although still a material
overweighting of ~820bps versus R1KV. Our process compliant maximum weight for TECH was ~38% at quarter-
end, increasingly highlights the valuation expansion that has occurred in the sector for which we remain quite
mindful. Clearly, there is ample headroom in portfolio exposure, as well as cash on hand, should compelling
opportunities present. As noted last quarter, we highlighted high multiple concentration issue within the sector.
Updated for quarter-end, ~42% of the S&P 500 Tech sector market capitalization is comprised of 2 stocks, AAPL

& MSFT. An incremental ~9% of sector capitalization is represented by V & MA, which are not only high multiple
stocks, but Financial-oriented business models classified within the TECH sector. Both experienced 30-40%
declines in share price, intra-quarter peak-to-trough. Applying a 50% discount to the quarter-end weighting of
the TECH sector (25.6%) results in an effective opportunity set much closer to our current target weight of 15%.
Our radar has been dialed up for some time, well before the most recent COVID-19 related issues, the result of
increasing concerns regarding broader market valuation. The duration of the global pandemic, and associated
aftershocks, is likely determine the extent of impacts on business models across the broader market and
economy. While TECH is viewed as “safe haven” we would not be so cavalier to assume mass disruption to
customer end-markets, enterprise and consumer-alike, will not reverberate back through the food chain with
some degree of negative consequence, as well as consideration for change in historical go-to market approach.
Utilities: INCREASE weighting +150bps; 1 rebalance trade: 2.50%-->4.00%
As noted in our December 2018 commentary, we believed our targeted holdings in Healthcare, Staples,
CommSvcs, along with our Cash allocation, provided defensive attributes against our cyclical exposures in the
portfolio. As previously noted, including 1Q20, we have raised our CommSvcs sector weight in four of the last
five quarters. During 1Q20 we also raised our HC sector weight, and further increased our target Cash position.
As to UTES, our process led us to make an active decision to increase sector exposure during 3Q19, and again in
the most recent 1Q20 by an additional +150bps to 4.00%. As was the case in 3Q19, we again fully allocated the
increased sector weight to our existing target position in UTEs. Given the UTE sector in the S&P 500 has
continued to expand, ~3.60% at quarter-end, our implied process sector minimum has also risen, to ~1.80%.
Although we had previously held a negative bias to UTEs exposure due to concerns regarding valuation, long
term prospect for rising interest rates and more compelling opportunities elsewhere, our investment and
thought process have driven changes in our upward allocation during past few quarters. Notably, the S&P 500
UTE sector has not only widened its spread over Real Estate in market capitalization, but also eclipsed Energy
during 1Q20, to represent the 8th
largest of 11 sectors. In addition to increasing our target position weight during
the quarter, we also executing an additional rebalance trade UP on the same holding. Cumulatively our actions
in 1Q20 represented ~130bps of aggregate portfolio market value. Combined with HC, CommSvcs, Staples and
Cash, our combined “defensive” allocation comprised ~41.5% at quarter-end, which should serve to solidify
aggregate MOS. At 4.00% target weight, our UTEs exposure represents an overweight of ~45bps and an
underweight of ~-375bps compared to S&P 500 and R1KV, respectively. Relative to the S&P 500, the overweight
is the first since portfolio inception.
Energy: INCREASE weighting +100bps; 1 FULL position sale & 1 new BUY; 5 rebalance trades: 3.00%-->4.00%
Amongst several actions, perhaps the most significant change in 1Q20 was the reversal in our long-standing
bearish posture pertaining to Energy. While only an increase of +100bp in sector target weighting, the allocation
was a notable decision, and builds upon rebalances UP during the prior quarter. Far from an all clear, in the face
of fundamentals, sentiment, end-markets and psychology having attained levels more attuned to our long-
standing bearish view, our action in 1Q20 not only removed our ENE sector underweight, but moved it to a
process maximum overweight. Intra-quarter, ENE declined to the smallest S&P 500 sector as it was eclipsed by
Utilities, Real Estate and Materials, and ended the period at ~2.7%. With the front-end WTI contract ticking
briefly below $20, and the receding tide exposing the hemorrhage, the large cap opportunity set is defined by a
handful of selective strength, for which we seized opportunity to upgrade to quality and an overweight stance.

To put our prior long-standing, high-conviction bearish view into context, we find the following set of facts a
harsh reminder that investment process is key: In 2014, the peak for the front-end contract was ~$108/bbl. Peak
2014 market capitalization for HAL, BKR & OXY was $63 bil, $33 bil & $83 bil, respectively. That same year, HAL
announced the failed $34 bil acquisition of BKR, in which a $3.5 bil breakup fee was paid to BKR. In 2019, OXY
closed its $57 bil acquisition of APC, which was in a short bidding contest with CVX with the latter ultimately
backing out. OXY loaded its balance sheet with debt to complete the APC acquisition, required additional costly
financial backing from Berkshire Hathaway to avoid shareholder revolt, became locked in a battle with activists
and subsequently has disrupted its C-suite. As of 1Q20, the front-end contract for WTI was nearly 82% below its
2014 peak, and the cumulative market capitalization of HAL, BKR and OXY was ~$27 bil. Lastly, BKR’s market
capitalization was greater than HAL's by a factor of nearly 2x, with HAL's market capitalization declining intra-
quarter to an amount equal to the break-up fee it paid BKR to exit its planned acquisition.
As noted in the prologue of “Security Analysis”: “Many shall be restored that now are fallen, and many shall fall
that now are in honor”. In a sector that has now shrunk to less than 3% and having been bearish for an extended
period, we remain of the belief we don’t have to be heroes. As contrarians, however, we also believe a peak in
pessimism might now be at hand. The hemorrhage has exposed weakness, as well as a finite set of high-quality
large capitalization ENE opportunities, the latter a group of survivors who will likely be able to take advantage
of the landscape even in a worst-case scenario. As we have for several years leading to this moment, our level
of concern was based upon fundamentals and backdrop viewed over an ensuing forward 3-5 year investment
horizon, with particular concern regarding negative balance sheet and cash flow dynamics, subsequent
anticipated write-downs/impairments, and secular change all juxtaposed against a legacy oligopolistic market
component that, while in decline, still has an impact. As we look forward over the next 3-5 years, with many of
our concerns having played out, sentiment negative and market values depleted to a handful of higher quality
large capitalization companies, we believe a more constructive stance is warranted. With a good amount of
certainty, we would not expect survivors of the most recent hemorrhage, those now in “honor”, to fall into the
trap of misguided capital deployment noted above. In contrast, they should manage to avoid and/or escape the
“quintessential value trap” for which we have previously, and repeatedly detailed.
In line with the above, we raised the target weighting of an existing ENE holding +100bps to 2.50%, while
remixing a separate position through a full SALE and corresponding new BUY at a target weighting of 1.50%,
equating to a 4.00% sector target. Despite having been correct with respect to our previous bearish stance on
ENE, it did not come without pain given combination of process-mandated portfolio exposure and poor stock
selection. As part of a barbell approach in an underweight ENE allocation, we purchased Apache Corp (APA) at
inception with an initial target weight of 3.00%, a level which was twice-reduced during the course of inclusion
in our LCV Portfolio given our bearish macro stance and process guardrails. At initial purchase, APA represented
the higher beta part of our barbell strategy, possessing a BBB-rated balance sheet. APA was a $14.6 bil market
cap E&P company, and was viewed as a compelling, contrarian opportunity. Among other attributes, APA was
operating near free cash flow breakeven, had light debt maturities over the ensuing 2 years, possessed a unique
business model and exposure versus the group, and was assumed to provide more attractive MOS & potential
upside should capital projects result in favorable operating leverage. Production was mixed geographically: US
(47%), Egypt (27%), North Sea (13%) and Canada (13%). APA shares had materially underperformed on an
absolute and relative basis during the 2-year period leading into our initial purchase. Specifically, compared to

+10%, -29% and +4% for the S&P500, S&P ENE Sector and Russell 1000 Value, APA posted a negative total return
of -49%. From a valuation standpoint APA possessed the following characteristics: trailing and 1-yr fwd P/E: NA,
2.6x P/S, 6.6x P/B, ~2.2% Div Yield, ~9x EV/EBITDA est, long-term debt/cap ~68%, and net debt/EBITDA ~5.5x.
Sentiment on the shares was negative, with ~35%/65% BUYs/HOLD-SELL. Estimated 12-month price target
declined ~35% during the preceding year and was a parity with the current share price.
APA shares meaningfully outperformed the broader market and sector during 2016, the first partial year of
ownership, generating a total return of +63% vs +17% and +32% for the S&P 500, Energy sector and R1KV
respectively. During the ensuing 3-years ending 2019, APA shares materially underperformed as end-markets
remained volatile and weak, and major capital projects failed to produce as anticipated leaving billions of dollars
“in the ground” and subsequent impairment charges. Specifically, the shares generated a negative annualized
total return of -24% versus +25%, -3% and 10% for the S&P 500, sector and R1KV, respectively. After an early
2020 rally of ~+30% in the shares, we rebalanced our APA position DOWN to its 1.50% target weighting in mid-
January. This move was far from adequate in lieu of the near ~70% decline during the first two weeks of March,
as the combination of global pandemic and Saudi-Russian spigot decisions crushed end-markets with excessive
supply. The weak performance left the shares well below $5 billion market capitalization with a weakened
balance sheet that drove cuts in capital expenditures and elimination of the dividend. The combination of a
severe change in fundamentals and market capitalization that violated our process constraints led to our
decision to exit APA.
As discussed, the ongoing weakness in ENE was dramatically accelerated during 1Q20 due to impact of global
pandemic’s effects on broader global demand, and breakdown of production negotiations between Saudi Arabia
and Russia which resulted in a material supply flush. The swirl of events drove end-markets below $20, numerous
operational and capital management pronouncements, and caused ENE sector market capitalization to plummet
toward bottom of 11 S&P sectors. At this point, we seized the opportunity to remove our prior barbell, upgrade
to quality and position portfolio’s sector exposure to a process overweight. During the 2-year period leading into
purchase, our targeted new position underperformed broader market measures while outperforming relative
to Energy sector. Specifically, compared to -4%, -55% and -16% for the S&P500, S&P ENE Sector and Russell 1000
Value, it posted a negative total return of -34%. At purchase, our new target holding had the following
characteristics that are expected to provide downside risk mitigation: 10x P/E, 12x P/Est, 0.7x P/S, 0.7x P/B, ~8%
Div Yield, ~10% FCF Yield, ~6x EV/EBITDA est, long-term debt/cap < 20%, 0.8x net debt/EBITDA and a AA-rated
balance sheet. Sentiment on the shares was favorable, with ~73% BUYs vs 27% HOLD/SELL, vs 33%/67%
Buy/Hold-Sell 5-years earlier. Estimated 12-month price target declined nearly ~20% during the past year and
was 50% above current share price, although in a very fluid backdrop. Balance sheet strength, capital and
operational management, cash flow characteristics, geographical and business segment mix, combined with
valuation and sentiment gave us comfort relative to the current backdrop, and during the next 3-5 years.
In addition to the full SALE and new BUY, we executed five rebalance trades across two position holdings, four
UP and one DOWN to target. Cumulatively, actions taken in 1Q20 comprised ~580bps of aggregate portfolio
market value. At quarter-end, our target weighting in ENE represented an overweight of ~+135bps and an
underweight of ~-140bps, compared to the S&P 500 and R1KV, respectively.

Consumer Staples: No Sector weighting change; 3 Rebalance trades to target: 8.0%
Following two consecutive quarters in which we reduced our target in CS, we held the weighting unchanged in
1Q20. Recall we utilized previous reductions to fund allocated increase to Communication Services. These prior
two quarterly moves reflect continued recognition we will seek the most compelling value in the context of our
fundamental views and investment process. Our current Staples sector target weighting of 8.00% remains below
the maximum weighting of ~12% allowed per process, reflective of discipline and our belief, prior to the global
pandemic impacts, that more valuation compression, and/or business model stress was possible. As we have
noted in prior commentaries, CS has been among the most bruised defensive sectors given its representation in
the S&P 500 was cut in half during the past decade, falling from 14% to less than 7% in 3Q18, before climbing
back to 7.2% at 4Q19 and 7.8% at 1Q20. It’s this same degradation which began presenting some contrarian
opportunity, for which we have continued to remain disciplined, patient and appropriately nibbled. In the wake
of the global pandemic and related economic shutdown, consumer behavioral changes drove shifts from
discretionary to staples categories, which was clearly visible in relative price performance. Specifically, during the
month of March, the S&P 500 and Consumer Discretionary sector generated negative total returns of -12% and
-13%, respectively, while Staples generated negative total return of -5%. During the quarter, we allowed process
to dictate 3 rebalance trades DOWN to target weight, all on the same holding, a process which permitted funds
to reallocated to Cash and other sectors where we were making active changes. Cumulatively, actions taken in
the quarter comprised ~115bps of aggregate portfolio market value. Compared to the S&P 500 and R1KV, our
portfolio’s target weight allocation for CS at quarter-end was an overweight of ~+20bps and underweight of ~-
255bps, respectively.
Cons. Discretionary: No Sector weighting change; 2 Rebalance trades to target: 12.5%
Along with TECH, IND, and FIN, the CD sector has comprised a significant part of our portfolio’s cyclical bias.
During prior quarters, we have relied upon compelling valuation and contrarian instincts, seizing opportunity
presented to execute rebalance trades in CD. We restrained our activity in CD during 1Q20 given concerns
regarding immediacy of the global economic shut down tied to the global pandemic, and a preference to
prioritize action in several other sectors such as HC, Comm Svcs, IND, FIN, ENE & UTEs. As the quarter closed, we
were closely monitoring the backdrop and investment process constraints pertaining to CD, for which action
would be likely during the ensuing quarter(s). As noted in prior commentary, holdings in the CD sector have been
a significant source of attribution drag during the past year for which we are cognizant of the fundamental
reasons. We also take comfort in our CD rebalances given we have peeled off select cyclical exposure elsewhere
in the portfolio, as well as having raised target weights in defensive sectors and Cash. Of note, CD was the sole
cyclical sector (TECH, IND & FIN) that did not have a weighting or position change in 1Q20. Cumulatively, our
action in the quarter included rebalance trades on two positions, one UP and one DOWN to target weighting,
comprising ~80bps. At quarter-end, our sector target allocation represented an overweight of ~+270bps versus
the S&P 500 and ~+735bps versus R1KV. As with TECH, our process compliant maximum weight for CD at quarter-
end had headroom for additional portfolio exposure given an upside limit of ~15%. We also remain quite mindful
that AMZN comprises nearly 40% of the ~10% aggregate market capitalization weighting in the S&P 500 CD
sector. Thus, our CD target weight is quite full adjusting for this one name. Furthermore, risk level for several
consumer facing business models most likely increased with a degree of permanency during 1Q20, for which
determining what type of environment will ultimately constitute “a new normal” will likely take more than a
couple quarters to assess. Behavioral and financial aspects are in play for both consumers and businesses alike.

Materials: No Sector weighting change; 2 Rebalance trades to target: 3.0%
Given its market capitalization representation in the S&P 500, we have had one position holding in Materials
(MAT) sector since inception. Compared to the S&P 500 and R1KV, our portfolio’s target weight allocation for
MAT at quarter-end was an overweight of ~+55bps and an underweight of ~-115bps, respectively. At less than
3.0% weighting in the S&P 500, the MAT sector presents optionality in our process to have 0% exposure, for
which we have not exercised since inception. During 1Q20, we executed two rebalance trades UP to target
weighting on the one MAT holding. Cumulatively, our actions taken in 1Q20 comprised ~65bps of aggregate
portfolio market value.
Two sectors now with target allocations at 3.00% or lower as Energy & Utility weightings were increased
Given targeting weighting increases to Energy and Utilities sectors during the quarter, our portfolio has just two
of eleven sectors retaining target weightings of 3.00% or less: Materials (3.00%) and Real Estate (0.00%).
Weightings in all sectors remain in alignment with our broader investment views, expected backdrop, and,
process discipline and constraints. Our portfolio actions have been in line with our commentary from 2Q19:
“with our radar remained dialed up, our inclination remains one which is more likely to result in further
moderation in our cyclical exposure should contrarian opportunities continue to present in traditionally more
defensive sectors, implying that most of these sectors, ex-UTEs, are unlikely to be targeted for increased
weighting. Cash allocation could also continue to play a part in such moderation.” We subsequently noted last
quarter that in addition to Utilities, another member of the 3% club might well be a candidate for increased
allocation: “…the ongoing multi-year hemorrhage in ENE has played out in line with our expectations, to the point
our contrarian instincts have been piqued on a selective basis.” During 1Q20, we executed upon these contrarian
instincts, and remained within our process guidelines.
Cash target: INCREASE +50bps; in line with bias to MOS and flexibility: 4.0%-->4.5%
As noted in our June 2018 commentary, we believed building cash an appealing position heading into 3Q18.
During 4Q17, 1Q18 and 2Q18, our actions led to consecutively higher portfolio liquidity at the end of each period
but in the context of no target weight change to cash. In 3Q18, however, we started down a path of active
decisions to increase our portfolio’s cash target, +100bps to 2.50% from 1.50%. During 4Q18 we maintained our
target at 2.50% but brought it down in 1Q19 given the late December sell off. With the strong 1H19 market rally
and corresponding expansion in valuation multiples, we again took the opportunity in 2Q19 to solidify aggregate
MOS in our portfolio with an increase in Cash target to 3.00% from 1.00%. During 4Q19, we further raised our
Cash target +100bps, to 4.00%, funded in part by a -300bps full SALE in APPL and corresponding reduction in our
TECH sector target weight. In the most recent quarter, we made further changes to overall portfolio composition
that netted a reduction to cyclicality and increase in our Cash target to 4.50% from 4.00%. From a market value
perspective, our Cash level was 3.6% at quarter-end, versus 2.8% at the end of December. We believe our actions
and targeted Cash level continue to provide MOS and flexibility, in the context of a concentrated, 25-position
LCV equity portfolio.
We have exited several positions during the past four years. As we have detailed above and through past
commentaries, process drove numerous changes in our portfolio. Detailed below is a summary detailing
quarterly history of target positions which were exited since 1Q16:

LCV Portfolio Target Position Sales
1Q20: APA, ETN, NLSN
4Q19: AAPL
3Q19: JCI
2Q19: CSCO, DOW, CTVA
1Q19: CBRE
4Q18: none
3Q18: CA, EMR
2Q18: none
1Q18: none
4Q17: TROW
3Q17: none
2Q17: none
1Q17: CSX
4Q16: TWX
Market and Economic Backdrop
Since inception, we have repeatedly underscored our belief that a good amount of operating leverage existed
that could be readily monetized for the benefit of shareholders/consumers should top-line revenue (& GDP)
growth move sustainably higher; a dynamic that clearly played out and became consensus over the previous
four years. However, our vigilance works both ways and, as indicated in our commentaries during 2018-2019,
our radar had been increasingly dialed up: “should macro-related conditions deteriorate, or it become(s)
increasingly difficult to discover new compelling opportunities; valuation characteristics, balance sheet and/or
cash flow attributes become more challenging, we will change course per process discipline.” Process,
opportunities and MOS will always be our guide, which our ongoing allocation and rebalance actions reflect.
In the context of a global pandemic caused by a rapidly spreading, and deadly, respiratory virus, an
unprecedented shutdown of global economies and equally unprecedented monetary and fiscal response, we
believe it important to underscore the level of our concern regarding fundamentals and valuation prior to
unleashing of these black swan events. We could not have been more transparent in our December 2019
commentary:
“At current valuations, we remain biased to be more protective. We had a long-held bullish view on
corporate fundamentals but have been more actively pulling in our horns during past 18 months. While
aggregate profit margins implied in current forecasts, and overall condition of balance sheets continue
to be factors helping to reinforce a relatively positive stance, we have clearly been mindful of offsets to
tailwinds in the broader earnings picture, juxtaposed against valuation multiple expansion.
“With our typical investment horizon of 3-5 years, we continue to believe we are looking squarely into a
period that will have data points and fundamental developments serving to impact the underlying
mosaic, requiring higher levels of emphasis on MOS for which we believe we remain prudently positioning
our LCV portfolio.”

Despite executing numerous actions in our portfolio to reflect our concerns, including a material Cash build, the
pandemic panic crystalized into a crushing blow across markets, economies, healthcare systems, businesses,
consumers and families alike, stretched across the globe. Our portfolio simply did not hold up against this storm,
which is a massive medical phenomena and live lab case study in human behavior at all levels. While we remain
unsurprised by the pendulum action in the market, particularly in lieu of pandemic-related health issues,
monetary and fiscal backdrop, geopolitical events, increased volatility and underlying emotional swings, we did
not jump ship. More important was remaining at the helm of our investment process, acting in accordance with
related philosophy and constraints. As noted in our March 2018 commentary, we expected the style-shifting
dynamic (Growth to Value) to have the potential to remain an underlying pillar during 2018, which would also
align well against our investment process. We further stated in our December 2018 commentary, given the
unraveling and unnerving that occurred in 4Q18, we expected this trend would continue in 2019-2020. While
the market rebound witnessed during 1H19 fit neatly into these expectations, we maintained our focus upon
our process discipline. Whipsaw action in 3Q19, subsequent record close to the year and unprecedented
volatility in 1Q20 has only sought to affirm staying true to process and convictions is key.
S&P 500 hemorrhage follows prior quarter record close; Growth crushes Value but does not escape loss. As
the market turns. It has been quite a rollercoaster during past five quarters, ending in a record crushing 1Q20
blow. Recall 4Q18’s broad, aggressive market sell-off, made a violent swing back towards beta in 2019, led by
one of the strongest quarters in a decade in 1Q19, with hockey stick strength-building during the remainder of
year. Specifically, the broader market’s +13.7% 1Q19 total return was followed by a +4.3% in 2Q19, +1.7% in
3Q19, +9.1% surge in 4Q19 and -19.6% hemorrhage in 1Q20. For the quarter, the 1Q20 market decline was
paced by Energy, Financials, Industrials and Materials which posted negative total returns of -50.5%, -32%, -
27.1% and -26.1% respectively. Not one sector in the S&P 500 was able to escape decline, with Technology
posting the best relative performance, posting a -12.0% total return. Large Cap Growth (as measured by Russell
1000 Growth Index—R1KG) posted a negative -14.1% total return in 1Q20, generating better relative
performance over Large Cap Value (Russell 1000 Value—R1KV) by ~+1,265bps. Emerging Markets (as measured
by MSCI EM index) were not immune to the severity, posting a -23.6% total return on the heels of +9.9%, +0.7%,
-4.2% and +11.8% in 1Q19, 2Q19, 3Q19 and 4Q19, respectively. As a result, EM’s rolling 3-year annualized total
return slipped into a modest deficit, ending at -1.3%.
Global markets (total returns $USD) were decimated across all geographic theaters: China -4.9% vs (+10.9%
4Q19), Swiss -10.8% (vs +8.6% 4Q19), Hong Kong -15.7% (vs +9.1% 4Q19), Japan -18.5% (vs +8.1% 4Q19),
Germany -26.6% (vs +9.6% 4Q19), France -27.9% (vs +7.1% 4Q19), UK -29.0% (vs +10.8% 4Q19), India -32.3% (vs
+6.0% 4Q19), Australia -33.6% (vs +5.1% 4Q19), Mexico -36.1% (vs +6.5% 4Q19) and Brazil -51.2% (vs +14.5%
4Q19). On the heels of the prior quarter’s +8.5% the S&P 500 posted a -20.0% price decline, underperforming
the R1KG at -14.4% and but well ahead of the R1KV at -27.2%. With respect to domestic markets, Technology,
Consumer Discretionary, Financials, Energy and Communication Services drove a large part of the positive
attribution of Growth over Value. Staples and Utilities were the most significant detractors for Growth vs Value.
As we noted in our prior commentaries, when comparing Growth vs Value, any performance differential will
likely be driven, principally, by four sectors. Specifically, the most significant positive weighting differentials
between Growth and Value at quarter-end remained Technology and Consumer Discretionary, while the most
significant underweights were Financials and Utilities. Between Growth and Value, we have prefaced for some

time the continued decline in the weighting gap differential between Energy and Utilities. This quarter witnessed
the complete evisceration of this gap, as the continued decline in Energy market capitalization and
corresponding strength in Utilities resulted in a ~760bps positive differential in Value vs Growth, vs ~580bps
differential for Energy.
Yield curve slope was sending correct signal, and the pandemic served to accelerate underlying risks. As we
have noted in prior commentaries, we were mindful of curve inversion, but our primary focus remained upon
aggregate interest rate levels, cash flow, balance sheet dynamics, capital allocation and margin trends. We were
not Pollyanna as to the signal of the yield curve, as our radar had been dialed up for several quarters, highlighting
ongoing adjustments we were continually making in our portfolio positioning, many of which have had an
increasingly defensive tilt. We have long stated “should a sustained inversion pan out and be a function of, or
related to, a deterioration in fundamentals, it would cause us to make further adjustments in our thinking and
positioning.” In our 1Q19 commentary, we provided a detailed review of longer-term historical term-structure
spreads, highlighting the average slope in the 2yr-10yr has been ~93bps (updated to include 1Q20) during the
prior 40+ years, and ended 1Q20 at +43bps. As the updated chart below depicts, there have been 4 notable
inversion periods in this term structure, with each followed by a recession and each with successively lower
absolute levels in the 10yr yield. Of the four inversion periods, the most severe occurred in the late ‘70’s-early
‘80’s, owing to the massive swings in volatility, the absolute level of interest rates (inflation, oil prices, etc.), the
extraordinary duration of the inversion and the duration and deepness of the subsequent recession(s), which
stretched from 1980-1982. It’s a time period we personally remember living through quite vividly.
Yield Curve Inversions vs Absolute Level of 10-Yr (1976-2020)
What had provided us comfort regarding the current time period, was the low absolute level of interest rates,
low level of inflation, high levels of employment & aggregate growth trends, strong cash/balance sheet positions
of companies in the aggregate, strong capital and liquidity position of banks, credit spreads that had not bubbled
up to any of the extremes in prior cycles, ongoing expense/margin focus of management teams, the US’s more
favorable position relative to other countries/markets (Developed & Emerging) and a Fed that hit the pause
button and executed policy easing under “Pivot 2.0” to alleviate interim macro concerns. As noted in prior
commentary: “It’s these fundamentals that we will continue to monitor for any degradation, as well as any
sustainable impacts from ongoing trade-related policies and negotiations, or any disruption caused by

geopolitical fallout. While we believe emotional and psychological forces are contributing to the backdrop, our
radar remains dialed up, as does our more intense focus upon aggregate MOS.” The immediacy of the global
pandemic was not only characterized by rapid and deadly viral spread, but it served as an accelerant bringing
forward underlying risks and negatively impacting key variables in the economic and market backdrop noted
above. A forced, near-complete economic shut-down, among other things, created immediate degradation by
unleashing changes to the employment picture, growth trends, strong corporate and consumer/small business
balance sheets, capital and liquidity, credit spreads, expense/margin focus while putting extreme pressure on
the Fed Reserve and Government to act with monetary and fiscal policy. Given the additional variable of an
extremely contagious and deadly virus, significant stress is added due to administrative burdens, and medical
tasks associated with identification, control, treatment, care, cure and communication. The combination of
issues spanning economic, monetary, fiscal and healthcare policy changing with such voracity, further introduces
behavioral changes across multiple continuums to be assessed for permanency over time. As to the slope of the
curve noted above, we believe actions of the Fed/Treasury/Congress limited a potential inversion to a degree
materially less than the previous four. However, due to the magnitude and cost of such actions, which are still
fluid, the severity of an inversion that could have unfolded is masked. Underneath the surface, exclusive of the
pandemic, the trajectory and slope of rates and the curve were likely confirming (at a slower pace) concerns that
were building and which we shared, namely valuation levels, profit margin compression and earnings growth
deceleration. As a result, the new (accelerant) variable in the equation has caused us to move at a more rapid
pace than our prior track in reassessing our portfolio, the opportunities previously targeted and changes made
to underlying positions and sector allocations. Our investment process and philosophy remain unchanged, and
we find our concentrated portfolio (currently 25 positions) with target Cash flexibility, to be an even more
distinguishing, and advantageous characteristic in the current environment.
S&P 500 P/E vs Rates
While a number of periods exist from which to make potential downside risk comparisons to the current
backdrop, we believe the time frame above is notable for several reasons. The 15+ years detailed, comprised
the US withdrawal from Vietnam War in which over 3 million died including nearly 60,000 US troops; 4 significant

recessions; interest rate whipsaws and curve inversions including a Volker-led Federal Reserve assault on spiking
interest rates; a major oil crisis that witnessed forced widespread change in consumer behaviors to include
rationing at the gas pump; Mideast conflicts to include Iranian hostage crisis; height of Cold War with Soviet
Union; and ballooning Federal deficits as massive spending was unleashed. The period includes the following
market facts:
 20-50% declines from market peak to trough; ensuing recoveries of 50%-100% off bottom
 Trailing P/E trough ~7-8x; from peak, P/E cut ~50%-65%; P/E recover to mid-teens at top post trough
 Jobless claims increase severe wtih quick increase (170K375K, ‘69-‘70), (215K575K, ‘73-‘75),
(300K650K, ‘78-‘80), (390K700K, ‘81-‘82)
 Unemployment rates, on average, doubled, with two highest % in ‘75 & ‘82, at 9% and 11%, respectively
Utilizing the above, assuming S&P 500 earnings of $150 are cut 30% & 60% and applying 7.5x and 13x to each:
$150 * .70 = $105 * 7.5x = $787, * 13x = $1,365
$150 * .40 = $ 90 * 7.5x = $675, * 13x = $1,170
So, essentially a rough worst case would be to take out nearly all the gains the S&P has generated since 2008-09
lows. Using $1,000 as singular estimate to the above, back-of-the-envelope analysis, would imply ~65%
downside. Clearly, this is a very rough analysis, and compared to the 15-year timeframe depicted above, the
current period offsets are notable: Policy makers acting with more speed, better knowledge and experience, and
more timely data; dramatically different mix of businesses, consumers, and investable assets and vehicles;
historically low rates; more global coordination; oil independence and less concentrated power of OPEC; less
and/or shorter wars and conflicts; materially better technology and healthcare system.
10-yr floor falls out in 1Q20, to new all-time low as Swan Lake pirouettes to “Pandemic Pivot”. Having become
more intensely challenged during 2019 due to a multitude of events including spread compression, “Pivot-to-
Patience” and “Pivot 2.0” by the Fed, subsequent policy easing, corresponding action in long rates, an extended
trade war and polarized political climate, our secular view on the path of interest rates was hanging closely in
the balance entering 2020. Specifically, we had long maintained that an extended path lower in interest rates
ended several quarters ago—a view, at the time, founded upon broad expectations for improved economic
growth, higher (but not runaway) inflation, and changes in monetary (tighter) and fiscal (expansionary) policy.
We had also not shared the market’s concerns regarding short-end curve (upward) pressure and/or potential
inversion. The ~125bps decline in 1-yr Treasury yield from its November 2018 peak through end of 2019 seemed
to affirm short-end pressure was serving as relief to a more significant inversion that was present during 3Q19
given a decline in the 10-year below 1.50%. Increased uncertainty related to the ultimate outcome of
Trade/Tariff negotiations, weaker economic data and a polarized political backdrop served as key drivers of the
declining rate backdrop. With trade-related achievements on Phase-1 and USMCA, resolution of impeachment
process and a strong 2019 finish across several broader benchmarks, it appeared some of the uncertainty had
cleared by early 2020. Importantly, at the time, the dramatic decline in the 10-yr to an intra-quarter low in 3Q19
did not breach the previous 5-year low of 1.36%, and there was not continuation of pressure during 4Q19. It did

not take long for the backdrop to turn violently negative, and by mid-late January 2020 the floor began to fallout
from underneath the rate backdrop and inversion risk was back. A deadly global health crisis spread rapidly.
Healthcare systems and economies were falling like dominos, ultimately leading to an unprecedented
macroeconomic shut-down, and massive global monetary and fiscal stimulus. As if the cocktail was not strong
enough, another shot was added to the mix as oil prices sank precipitously to $20/bbl. Policy and administrative
actions were a “Pandemic Pivot”, that placed our secular view on the path of rates humbly corrected. Notably,
from its November 2018 peak of 3.24%, the 10-yr yield declined to an all-time low of 0.54% on March 9th
, a
massive and violent -270bps drop; with 50% of the decline having occurred in less than 90 days. Similarly, over
the same period, the 1-yr Treasury declined -240bps, from 2.74% to 0.35%, before falling to an intra-quarter low
of 0.10%. The slope of the curve represented by the 2yr-10yr spread, which had climbed from a 5bps inversion
in late August 2019, and had climbed to ~35bps at year-end, lost ~2/3 of its value by late Feb 2020. As Pandemic-
related monetary and fiscal policymakers reacted, there was a sharp and volatile move that saw the spread jump
to ~70bps before finishing the quarter at ~42bps. As the time frame is still early, and situation still fluid, we
would expect yields to continue responding dynamically to various health, macroeconomic, monetary, fiscal and
geopolitical factors—we believe such action will continue, particularly in lieu of the “Pandemic Pivot”, albeit not
in perfect linear fashion. In a $22 trillion US Economy, a complete shutdown would need to replace ~$6
trillion/quarter. However, parts of the economy still operate even during a “complete” lockdown (i.e. gov’t, food-
related, farming-related, health-related, personal care, logistics-related, online-related, public safety, utilities,
subscription-based models, etc.). As March closed-out, 3.3 million filed for unemployment, not ~160 million.
Possibly a rough, representative worst-case figure would be ~2/3 of GDP is severely hit, leaving a $3.5-$4.0
trillion quarterly hole to fill, assuming no offsets or restarts.
Unyielding: Rates, Slope & Oil; 2015-2020
M&A and IPOs. As pandemic-related impacts became clearer, deal appetite spanning sectors and geographies
reflected a reigning in of confidence by management and boards to take on risk and allocate capital, including a
large hostile offer being pulled. Share buybacks, capital expenditures and dividends were being reduced across
various industries. The IPO market reflected similar concerns as well as investor indigestion form weak post-IPO
performance of new issues from 2019 and withdraws by certain issuers reflecting renewed focus by investors
upon the importance of profitability. Perhaps the lone standout in the quarter was the ability of Tesla to timely

March 2020 Investment Commentary

March 2020 Investment Commentary

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March 2020 Investment Commentary