First Quarter 2021 Letter

Summary

• GreenWood Investors is a mostly-long, deep value investment firm focused on areas of extreme pessimism, structural inefficiencies and low competition.
• Our Global Micro Fund delivered returns of 23.3%, while the euro-denominated Luxembourg fund returned 24.6%. Our Global Micro separate accounts returned 18.5% while our long-only Traditional accounts returned 15.6%, highlighting the value generated from our short book. The coinvestment fund returned 36.6%.
• We have re-allocated capital from behavioral graduates to those which we believe have a higher likelihood of more material improvements in the year ahead.
• There has rarely been a better time in my career to allocate capital to Mediterranean countries, and we have continued to lean into re-opening investments in these countries, almost exclusively in companies we have known for a while and have built long relationships with.
• We briefly discuss the profound transformations we see happening at our largest positions, and preview some research that we’ll be making available in the coming weeks and months to both investors and friends.

Dear GreenWood Investor:

We are pleased with the first quarter's returns. However, we remain very far from being satisfied and are working harder than ever to maintain this momentum, while also protecting ourselves from the circus behavior in the market. Net of fees and expenses, the Global Micro Fund delivered returns of 23.3%, while the euro-denominated Luxembourg fund returned 24.6%. Our Global Micro separate accounts returned 18.5%, while our long-only Traditional accounts returned 15.6%, highlighting the value generated from our short book. This compares to benchmark MSCI ACWI returns of 5.2%. Importantly, our Coinvestment fund delivered returns of 36.6%. After having waited over a year for our constructivist progress to materialize, this is really just beginning.

As I detailed in the last quarter's letter, we believe CTT (OTCPK:CTTOF, OTCPK:CTTPY) has a long way to go to returning to a more normal valuation, and the work that has been put in by the new management team since mid-2019 is only just starting to bear fruit. As Jeff Bezos famously retorts to any analyst congratulating him on the quarter, what the market sees being reported right now was the result of work put in over the past few years. We, the board, and most of all, the management team have put a significant amount of work into the strategic agenda that we believe will allow CTT to transcend the behavioral narrative categories - possibly all of them. This, along with increasing profits, will drive the high performance we demand for ourselves and our partner companies. A lot of work has already been put in, but is only starting to bear fruit. The compounded actions taken in the past years give us confidence for the year ahead.

Living through 2020 has often reminded me of 2012. At that time, my family gathered in temporary housing in Houston to be with my father as he fought for his life. He only had a 2-3% chance of surviving, but we all relocated and came together to help him fight through with the best doctors and treatments in the world. We had no idea where we would be for Thanksgiving, for Christmas. We took each day as we went. We couldn't plan. GreenWood's portfolio was sucking wind, heavily exposed to peripheral Europe during the Grexit crisis. My favorite position, Fiat, was touted as a high-conviction short at Ira Sohn London. It was the worst of times. But it was the best of times. We were together. We all overcame severe difficulty. With Fiat facing few friends, I was able to meet with Sergio Marchionne for the first time. Most importantly, my father overcame the stiffest odds and is thriving today as a result.

Overcoming difficulty is one of the most time-tested ways to grow. It's not the most fun way, but is indeed the fastest way to accelerate growth. Oddly enough, my family remembers 2012 fondly. For most of our companies, 2020 didn't lead to excellent near-term performance, but they used the adversity to their benefit. CTT is starting to credibly become the e-commerce back-end of Portugal. TripAdvisor (TRIP), MicroStrategy (MSTR), Twitter (TWTR), Bolloré (OTCPK:BOIVF), Leonardo (OTCPK:FINMF), UK#4, and Italy #4 all started exploring significant transformational changes to their business models.

There has rarely been a better time in my career to allocate capital to Mediterranean countries. A more rational government in Italy, led by Mario Draghi, is creating a more favorable environment for capital, while vaccinated populations will start coming in droves starting this summer and fall to all of Club Med. Stock market indices of all countries remain near multi-decade lows. At the same time, an unprecedented amount of European recovery funds will be hitting these countries in a few months, making these economies transform from famine to feast seemingly overnight. We have continued to lean into re-opening investments in these countries, almost exclusively in companies we have known for a while and have built long relationships with. This has led us to recycle capital away from narrative graduates back into those which we believe have a higher likelihood of graduating into a more favorable framework.

In contrast to most US companies that have priced in good news for many years to come, especially in the "re-opening" stocks, international companies have largely been left out of this euphoric trading atmosphere. This sets us up very well for the year ahead, as the fundamentals can be allowed to speak for themselves, hopefully rising above the noise from the markets.

That's all we have always wanted. In the past, I personally focused less time on limiting our macro exposures, sometimes to our detriment. I appreciate my colleague Chris taking the initiative to more deeply understand our portfolio companies' correlations to key economics themes that keep us awake at night. Over the past year, we've worked hard to reduce our net exposure to Nasdaq, ARKK, and crowded hedge fund longs, and on a correlated basis, are net short these categories. We remain conservatively positioned, while we also remain very optimistic about the long runway for growth for our companies, particularly those overcoming the great adversity Covid brought.

While we have published 16 research notes or videos in the quarter detailing the ongoing transformations at most of our portfolio, I'll briefly summarize just a couple of those notes and preview the next one. We've invested in Leonardo off and on since 2014 and Bolloré since 2016. We believe both companies are the most attractively priced they have been relative to the fundamentals since knowing both.

Bolloré has initiated a spin-off of Universal Music Group ("UMG") (OTCPK:UMGP) at Vivendi, while simultaneously increasing its position in its own shares and Vivendi shares, both of which give zero value to the large non-UMG businesses. The spin-off of UMG is only the beginning of the considerable transformation we see happening in the years ahead. Leonardo started the process to IPO its US unit and take a leadership role in needed consolidation in the industry. While the IPO has been postponed, we believe there will be dramatic transformations at this company, which continues to trade worse than a civil aviation stock despite having <10% exposure to this segment and posting resilient 2020 performance.

Along with CTT and Twitter, these four are some of our favorite investments as we look ahead to 2021, and we've re-allocated capital away from companies we believe have a lower likelihood of graduating to a new fundamental and behavioral category to these, which we believe to have a very high likelihood. We remain convinced that these evolutions will be driving a large portion of our alpha, as it has in the past. Encouragingly, our portfolio's risk-reward is more attractive today than when we entered the year.

And while we have written quite a bit of research these last few months, we believe actions speak louder than words. We have continued to spend considerable time in our constructivist efforts to help most of these portfolio companies seize the moment. Further, our collaboration has deepened and widened in the quarter, and we appreciate all of you who have added your insights to the portfolio and strategy. In that vein, we also hosted three further direct connects with the chairmen, founders and managers of our portfolio companies. Our investors are helping to hone the strategies being pursued by some of these companies. The meeting of these two worlds is a healthy combination of countless hours of thought being merged into countless hours of execution.

We remain committed to helping our companies deliver at the top end of their range of possibilities, while also protecting ourselves from the likely difficult few years ahead for high-valued new-economy companies. Our portfolio has many of the same tailwinds that these new economy leaders have, but do not have the perception nor valuations of those companies. Importantly, they also don't have high correlations to these frothy themes, and most are negatively correlated to them. We believe this will allow us to generate satisfactory returns while the market transitions its thematic preferences. Through completely transitioning our short book in the past few months, we believe we are well protected against those changing fancies.

While a lot of the performance continues to be driven by perceptions changing on the underlying reality of these companies, those changes would not be sustainable without substantial work done by the management teams of our portfolio companies. We are incredibly grateful to the management teams of our investments for driving compelling business results and being willing to embrace transformational thinking. And with that, it's time to get back to work. We appreciate you joining us on this journey to build, and we look forward to further delivering in the quarters to come.

Committed to deliver,
Steven Wood, CFA

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