The team running the Firetrail Absolute Return Fund didn't mince its words in its latest memo to clients.
"The past twelve months have been a challenging period for portfolio performance," the analysts stated.
"We have not met investors' or our own expectations."
The honest assessment doesn't mean the team is admitting failure though.
"We have high conviction that the strategy will deliver for our investors as it did in 2020 and 2021," read the memo.
"Our long-term investors will know that some of our strongest periods of outperformance are following challenging performance periods."
Firetrail analysts believe the market is now set up for "a period of strong outperformance for bottom-up stock pickers".
So what are their highest conviction ideas right now?
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Gold and energy best placed to withstand turbulence
The memo stated that the Firetrail team currently sees "attractive opportunities in gold and energy names".
The uncertainty around the trajectory of interest rates and the re-opening of the Chinese economy dominated the stock market in January, according to the Firetrail team.
"The exception was energy, where we have long exposure, which sold off despite increased demand for oil as China re-opens," read the memo.
"Gold also retraced its earlier gains as rate expectations eased, despite historically having an inverse correlation to rates — when rates fall the gold price typically rises."
The team is putting its money where its mouth is.
The Firetrail Absolute Return team revealed gold miner Newcrest Mining Ltd (ASX: NCM) plus oil and gas producer Santos Ltd (ASX: STO) are its biggest current holdings.
"We believe the market is underappreciating the quality of both companies' assets and their future earnings potential," read the memo.
"Both Newcrest and Santos are trading at material discounts to our DCF valuations and global peers."
The Newcrest share price is off to a great start in 2023, rising 15% since new year's day.
Santos hasn't done as well, currently trading 1.2% lower than where it started the year.
"Both the Santos share price and the US dollar oil price were flat in January, trailing the 6.2% performance of the S&P/ASX 200 Index (ASX: XJO)," read the Firetrail memo.
"Santos reported a largely in-line quarterly production report. Another quarter of strong cash flow reduced gearing to 18.7% as at 31 December, below the midpoint of Santos' 15% to 25% target range."
