Registered Investment Advisory Firm
Pinyon Pine Capital (PPC) is a registered investment advisory firm that began managing client accounts in March of 2011. The firm has three investment strategies: long-only, highly concentrated long-only (HCLO), and hedged. The primary focus and goal of the long-only and HCLO products is to deliver for its clients, over the long term, superior returns versus the equal-weighted total average return (including reinvestment of dividends) of the S&P 500 and Russell 2000 indices. We contrast our returns with the total average return of the S&P 500 and Russell 2000 indices because the portfolio has consistently contained a relatively even mix of large, mid, and small capitalization stocks. We employ a concentrated investment approach that seeks to be highly tax efficient. The purpose of our hedged strategy is to offer our long-only product some downside protection or portfolio “insurance” from market risk.
PPC is a fundamental research organization whose method to selecting stocks on the long side involves looking for companies that have:
- high free cash flow yields
- the ability to grow their cash flow consistently over time
- the talent to reinvest their cash flow to maximize returns on invested capital
PPC’s research approach is a funneling process that utilizes proprietary screens to isolate companies with specific characteristics that work for the portfolio. Financial statement analysis further refines the universe of companies. Finally, a more exhaustive process is undertaken that involves reading 10K’s and 10Q’s, speaking to and/or meeting with management and, in certain cases, doing independent channel-based research on the company and their products.
Valuation is a major determinant in choosing long positions, and sustainable free cash flow yields in excess of 10% are a valuation guideline. PPC seeks to identify businesses that it believes have little long-term downside risk.
This is a specialized strategy targeted for institutional and sophisticated individual investors. This product contains a subset of the positions within our long-only product. The subset of securities contains the positions from our long-only product that we believe offer the most significant upside potential over an approximate three-year period. Given the highly concentrated nature of this product, we expect it to be more volatile than our long-only strategy. However, we believe it will produce impressive long-term performance for those who can tolerate elevated levels of volatility.
PPC’s hedged product offers our long-only product some downside protection or portfolio “insurance” from market risk by shorting equity exchange traded funds (ETFs) to hedge a portion of our long exposure. Our hedged strategy contains the same long positions, in the same relative sizes to one another, as our long-only product. We expect our hedged strategy to encompass the following exposure guidelines:
- Gross exposure (long equity exposure plus short equity exposure) to range from 120% to 180%, and
- Net exposure (long equity exposure minus short equity exposure) to run from 20% to 80%.
PPC’s strategies contain performance-based fees. The fees for each product include an asset-based management fee plus a performance-based fee.
Separately Managed Accounts
At PPC, clients’ money will not be aggregated and will be managed as separate accounts. This allows investors to maintain control of their funds and have visibility into their portfolio.
Jason Williams is the founder, principal, and portfolio manager of PPC. For a more complete introduction to PPC, please see the documents below. In addition, the firm’s due diligence questionnaire (DDQ) and our supplemental DDQs, which are dedicated to our hedged and HCLO products, are available upon request.