Q2 2025 Investor Letter
Fellow Investors,
After opening the quarter with tariff-driven volatility, most major indices recovered to near all-time highs. KCA, however, continued to navigate the inherent volatility of microcap investing, where wider outcome dispersions can drive periods of underperformance.
Kingdom Capital Advisors (KCA Value Composite) returned -3.61% (net of fees) in the second quarter, vs. 8.5% for the Russell 2000 TR, 10.94% for the S&P 500 TR, and 17.96% for the NASDAQ 100 TR. Returns vary by account due to rounding, account size, and timing of deposits or withdrawals.
Our top Q2 contributors were Starz Entertainment (STRZ) and Colombier Acquisition Corporation (CLBR). Our largest detractors were Superior Industries (SUP) and Magnera Corporation (MAGN).
Double-Edged Sword of Microcap Investing
Microcap investing offers extraordinary opportunity precisely because of its large outcome dispersion — something rarely found in established firms. These companies can collapse overnight (our recent SUP experience), or triple in value just as quickly (our RGS experience). When these dramatic moves compound over time, they generate returns largely uncorrelated with broader indices. We remain convinced that investing in these small companies provides the greatest opportunity to significantly outperform expected market returns.
While this year has started poorly, it’s worth remembering our track record through previous volatile periods:
Apr ’22 to Sep ’22: KCA declined 11%, recovering to new performance highs by Jan ‘23
Jan ’23 to May ’23: KCA again declined 11%, reaching new performance highs by Jul ‘23
Nov ’24 to Jun ‘25: KCA has declined 15%
Our concentrated portfolio magnifies individual stock impacts. We accept heightened volatility in pursuit of exceptional returns. This strategy proved successful through our first 3.5 years, and even at the bottom of our largest peak to trough decline since inception, our annualized returns continue exceeding major indices. As highlighted in the chart above, our annual return since inception is 16.37% (net of fees) vs. 1.46% for the Russell 2000 TR, 9.84% for the S&P 500 TR, and 11.71% for the NASDAQ 100 TR.
We can’t avoid losses, but we can mitigate them, learn from them, and move forward confidently knowing that strong returns exist in all environments.
Q2 Performance Deep Dive
Q2 was nevertheless disappointing. We’ve written extensively about Superior Industries (SUP) since our initial investment years ago, expecting 2025 would finally reward their business as auto production moved closer to home. Those hopes were crushed when both Ford and General Motors pulled their wheel manufacturing from SUP just days before Q1 earnings in May. We quickly exited to avoid total loss, but SUP created a 4.5% headwind to our overall Q2 results. I’m still awaiting information as to why SUP lost these key customers.
Our most “tariff sensitive” investment, a.k.a. Brands (AKA), historically sourced most products from China. With 145% tariffs on China briefly enacted, their business faced tremendous uncertainty. However, management continued their pattern of strong execution, diversifying sourcing throughout the year to soften future tariff impacts. Their outlook remained largely unaffected, with sales growing and consumer demand staying robust across product lines via new U.S. retail locations and their wholesale deal with Nordstrom. We believe AKA will leverage their scale to achieve double-digit EBITDA margins, generate cash, and ultimately validate management’s incentive awards (earned at 10-20x the current stock price). Despite stellar execution, AKA finished down for the quarter, adding roughly a 1% headwind to returns.
In early June, United Natural Foods (UNFI) hit a significant speedbump when a cyber-attack shut down most company systems. The outage lasted approximately ten days, but the impact was contained, and systems have resumed activity. The stock remains depressed despite the company confirming their cyber insurance should effectively mitigate event costs. Furthermore, the company accelerated their long-term guidance, showing their business transformation is exceeding plan. We’re perplexed that the stock remains at $22 despite the cleared air, after trading above $32 right before the event. This created another ~1% Q2 headwind, but we view the June earnings release and management commentary as the best evidence yet that their turnaround is gaining momentum, not losing it. UNFI will provide a financial update in July to further quantify the cyber attack’s financial impact. We expect them to guide well above the $600M EBTIDA the street currently expects for FY26, while further reducing cyber-attack concerns.
Magnera Corporation (MAGN) created roughly a 3% headwind to our aggregate Q2 returns. The company reduced production expectations during the quarter due to tariff uncertainty, but their market-leading position, termed-out debt, and continued insider buying remain unchanged. We successfully used put options to mitigate nearly half of MAGN’s downside during the quarter, as discussed in our Q1 letter. We still believe MAGN trades at a trough multiple on trough earnings, with significant room to grow their earnings power.
For all investments, we develop a thesis and assess risk/reward. We work through due diligence attempting to validate as many thesis assumptions as possible. Even with sound processes, we must accept certain levels of unknown risk. If you had told me the first half of 2025 would feature a CRSXF bankruptcy, SUP functional insolvency, UNFI cyber-attack, and tariff uncertainty, I would be content seeing we were only down 10%. Several theses were broken, and we managed through them without significantly impairing our capital. What’s more, the execution from NLOP, UNFI and AKA has been fantastic and should manifest in stock prices in coming quarters. We remain optimistic about our abilities to find opportunities that outpace the broader market.
Other Positioning Updates
We traded actively in Q2, attempting to mitigate tariff impacts, cut losses on some large positions, and rotate between ideas with similar profiles as their returns diverged. We made quick gains on the US Steel (X) merger and quickly exited positions with worsening outlooks. We profited from hedging some core positions while losing money hedging broader market exposure through tariff uncertainty. The total impact of positions not specifically detailed in this section or the prior section was approximately a 1% portfolio decline for the quarter.
We held sizable positions in pre-deal Special Purpose Acquisition Companies (“SPACs”) which were added and exited in Q2. Colombier (CLBR) and Columbus Circle (CCCM) both provided profitable returns, with smaller gains from Berto (TACO) and Oaktree (OACC). We’ve redeployed these gains into new SPACs where we hope to achieve similar success. Our largest current SPAC position is Ares Acquisition Corporation (AACT), set to merge with Kodiak Robotics later this year. In aggregate, pre-deal SPACs provided roughly a 3% boost to Q2 returns.
We entered and exited Starz Entertainment (STRZ) in Q2, quickly achieving our desired outcome after they reported their first quarter since separating from Lionsgate Studios (LION). The initial spin created a trading dynamic very similar to Net Lease Office Properties (NLOP) from eighteen months ago, and the stock quickly rerated after reiterating earnings commentary they had shared at conferences in the months prior. STRZ provided a 2.5% boost to Q2 returns, and we continue tracking similar emerging special situations which have proven fertile hunting grounds at KCA.
NLOP boosted the portfolio by about 1.5% in Q2. The company recently sold their vacant Woodlands, TX property and appears close to selling their Google, JPM Dallas, and PPD buildings. Combined sales should generate more than $100M for shareholders. I expect NLOP will trade near a 20% aggregate cap rate after these sales complete, with many valuable properties left to sell. During Q2, we delivered a letter to the NLOP board sharing rationale for adopting a share repurchase program in lieu of dividends, if the stock trades at an observable discount to their assets’ fair value. Regardless, we expect a buyback or dividend to catalyze more investors to calculate the fair value of these assets.
Thank you for trusting us to steward your funds wisely. As always, reach out with any questions.
Sincerely,
David Bastian
Chief Investment Officer
DISCLOSURES
This document is not an offer to invest with Kingdom Capital Advisors, LLC (“KCA” or the “firm”).
The statements of the investment objectives are statements of objectives only. They are not projections of expected performance nor guarantees of anticipated investment results. Actual performance and results may vary substantially from the stated objectives. Performance returns are calculated by Morningstar.
An investment with the firm involves a high degree of risk and is suitable only for sophisticated investors. Investors should be prepared to suffer losses of their entire investments.
Certain information contained in this document constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “intend,” “continue” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the firm described herein may differ materially from those reflected or contemplated in such forward-looking statements.
This document and information contained herein reflects various assumptions, opinions, and projections of Kingdom Capital Advisors, LLC (“Kingdom Capital Advisors” or “KCA”) which is subject to change at any time. KCA does not represent that any opinion or projection will be realized.
The analyses, conclusions, and opinions presented in this document are the views of KCA and not those of any third party. The analyses and conclusions of KCA contained in this document are based on publicly available information. KCA recognizes there may be public or non-public information available that could lead others, including the companies discussed herein, to disagree with KCA’s analyses, conclusions, and opinions.
Upon request, KCA will furnish a list of all prior securities discussed in our publications within the past twelve months to include the name of each security discussed, the date and nature of each discussion, the market price at that time, the price at which the KCA acted upon the discussion (if at all), and the most recently available market price of each security.
Funds managed by KCA may have an investment in the companies discussed in this document. It is possible that KCA may change its opinion regarding the companies at any time for any or no reason. KCA may buy, sell, sell short, cover, change the form of its investment, or completely exit from its investment in the companies at any time for any or no reason. KCA hereby disclaims any duty to provide updates or changes to the analyses contained herein including, without limitation, the manner or type of any KCA investment.
Positions reflected in this letter do not represent all of the positions held, purchased, and/or sold, and may represent a small percentage of holdings and/or activity.
The S&P 500 TR, Russell 2000 TR, and NASDAQ 100 TR are indices of US equities. They are included for information purposes only and may not be representative of the type of investments made by the firm. The firm’s investments differ materially from these indices. The firm is concentrated in a small number of positions while the indices are diversified. The firm return data provided is unaudited and subject to revision.
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