Voyager Q1 2025 Commentary - Built for Liquidity, Positioned for Opportunity

The Voyager strategy was down -5.03% during the first quarter. Unfortunately, the global tariff war is having serious ramifications in the short term on equities, credit, currencies, commodities, and geopolitics since the tariff guidance came in higher than expected from Washington. With that said, we will keep Voyager fully invested because it is unknown when and if the tariff rhetoric will be reversed. For investors who want a more defensive posture, we always recommend being balanced across our long/short credit and equity strategies, Amplus and Lionsbay.  

It is at times like this where I pull out my old “Bad Things Happen” slide and re-read my Buffet quotes. They help me reflect on all the lessons I have learned about running money during the many crises I have faced. No crisis is the same but the process underpinning Voyager follows the same strategies, disciplines and tactics.  

BAD THINGS HAPPEN
“UNCERTAINTY IS THE FRIEND OF THE BUYER OF LONG TERM VALUES” – WARREN BUFFET

From Voyager’s risk-management perspective, the number one item on our checklist below is liquidity. We do this because we want to be able to change our mind if we feel our original underwriting was incorrect and get your money back. As well, we always want to be able to give investors their money back if they need it.  I am proud to see that following this approach has meant that Wealhouse has never gated any of its funds.   

As you read our comments, it is important to understand that when I express top-down views on macro trends it is the result of all the company meetings we do with CEOs and CFOs. At times like this it is helpful to have contacts with management teams who are trying to navigate this changing environment. As you can see below, we are as busy as ever having firsthand conversations with business leaders from around the world. 

One of my favourite non-business books ever written is How Champions Think by sports psychologist Bob Rotella, which emphasizes that to become a champion, you must focus on executing your process as opposed to being fixated on the results. Hence, I remind everyone of the process disciplines that have served me well over my 30-year investment career and generated peer and benchmark-beating results. 

Psychologically speaking, as you can see from the charts below, investor “psychology” is very negative right now and when you look out more than a few days or weeks returns tend to be good following periods where there is so much fear in the market. If markets were all knowing and certain then there would be no inefficiencies for our research process to take advantage of. We will keep anchoring our portfolios with companies that are cheaper than the market, more profitable than their peers, growing faster and allocating capital in ways that they will dampen the volatility for their shareholders.  

INVESTMENT CHECKLIST

Q1 SCOTT’S IN-PERSON RESEARCH MEETINGS

Q1 DEVON’S IN-PERSON RESEARCH MEETINGS

U.S. INVESTOR BULL SENTIMENT – LOWEST SINCE 2022

AAII BULLS POINTING TO SOLID GAINS IN THE S&P 500 OVER THE NEXT 12 MONTHS

We are not afraid to rotate at times like these “more capital to” certain business models that will fare better under the changing economic, geopolitical, and financial conditions. Before founding Wealhouse, I far too often sat beside money managers who stubbornly did not want to sell certain investments because they owned such big positions that selling would decrease the value of the stocks. At Wealhouse, we always want to be in a position to admit our mistake(s) and move on in an expeditious manner. We simply wake up every day asking ourselves how to make the portfolio better for the short, medium, and long-term.  

Since the announcements around tariffs in February, we have added to companies in our portfolios with net cash on the balance sheet and eliminated or reduced certain businesses with net debt. I have never had a company go to zero in my career and will not risk this happening. I have learned from managing money during the Asian crisis in the 1990s and the global financial crisis in 2008 that companies with clean balance sheets can take advantage of these situations. They make their companies stronger by acquiring assets with talented teams in new territories, new verticals, proprietary technology, etc. For example, we woke up today to hear that our investment in Prada that had a net cash position of 600 Million Euros has opportunistically bought Versace from Capri, who had too much debt. Prada is using its great balance sheet and management platform to buy Versace at $1.4 billion versus the $2.1 billion Capri paid for it in 2018. 

As we enter the second quarter earnings season, there will be many management teams unsure of how to guide expectations at their board meetings and on earnings calls with their shareholders. The worse a balance sheet is, the more likely that the company will be forced to be cautious and hesitant. Historically, it is at times like this where strong companies get to become stronger. This is why the number two item on our checklist is liquidity of the balance sheet. We own companies with fortress-like balance sheets that can seize the day. 

In order to manage earnings-guidance risks, we also reduced holdings in certain companies that we feel have deteriorating fundamentals. As the cost of debt increases, end-market demand deteriorates into what could become a global recession. The US 10-Year bond was 3.5% last fall when the US Fed started cutting interest rates. That versus 4.5% today. This increase in the cost of capital is not a good omen for end-market demand for businesses where customers need to borrow money to buy certain products. It also highlights an increasing risk of confidence in the US Currency and Bond market has a go to asset class in times of crises. Hence, we are seeing gold hitting all-time highs.  

To help better manage geographic and geopolitical risks we have boosted investments in our holdings that have domestic and/or non-manufacturing export-exposed orientated business models. Where we are invested in companies with cyclical or non-US manufacturing exposure, we have only allocated capital to best-of-breed clean balance sheets in case there is a deeper recession than anticipated. Our companies will emerge from this stronger and see less capitalized companies disappear in many cases. 

There are short, medium, and long-term implications to the “liberation day” earthquake that hit the global capital markets week before last. Many investors, including ourselves, were negatively surprised by the quantum of the tariff announcements and are left wondering if this will cause a global recession, and if so, how deep that recession will be. We found it interesting to listen to an interview with the founder, CEO, and largest shareholder of Restoration Hardware say: “Tariffs, while they were somewhat anticipated, were somewhat shocking at the levels that they were communicated.” That stock is off 58% year-to-date. We are not buyers of this business since they have a market cap of $3B with $3.8B in debt. This is not a clean balance sheet, and I was trained to take the balance sheet risk out of the equation. When in crisis, you don’t know what you don’t know. We want companies that can survive no matter what happens to the financial system. 

Many of the management teams we speak to are trying to figure out what these tariffs mean—especially since they came in worse than expected.  For example, I recently met the CEO and CFO of John Deere, who said that they were meeting the U.S. ambassador to Canada and then heading to Washington to try and gauge where tariffs are going to land. 50% of the sales from their 60 U.S. manufacturing sites go to Canada and their one plant in Germany exports to the U.S. They were going to lobby for lower tariffs as it will negatively impact their customers and profit margins. 

We met the CEO and CFO of the largest Caterpillar equipment distributor in Canada, called Toromont, and they were scrambling to itemize how much of their equipment has parts made Europe, Asia or North America. I have followed this $9 billion market cap company for 3 decades. It has net-cash on its balance sheet and owns 85% of the land for its distribution sites, which I estimate is worth over a $100 million. Unlike Restoration Hardware, this Caterpillar distributor has a clean balance sheet and may get to buy other territories as it has done in the past. Toromont also distributes refrigeration equipment throughout North America and told me that they are hunting for new manufacturing sites in the U.S. to move production to. Sadly, we must look to our own companies that have the balance sheet capacity to expand to the U.S. where needed.  

We found it interesting to note with the CFO of French electrical equipment maker, Legrand, that even with the proposed tariffs, Legrand cannot justify moving their labour-intensive manufacturing process to the U.S. and Canada, since labour costs will be too high even after a 25% tariff.  

Over and over again, our research interactions with companies continue to indicate to us that Canada is too high a cost jurisdiction.  You can see this trend illustrated in the chart below that shows U.S. investment outpacing that of Canada. As a result, I would suggest enjoying the Canadian dollar with a 7 handle on it while it lasts, since our research tells us that the Canadian dollar is in secular decline. Recall that during the 2008 crisis, when the Canadian dollar went to parity with the U.S. dollar, that oil prices were much higher, and our energy industry, which is our largest export industry, was allowed to expand much more liberally than today’s regulatory regime allows. There was no Bill C-69. This is also why we have seen unemployment go higher in Canada even before tariffs were enacted. Recall that Canada was too reliant on government spending and the subsidized housing market for growth before tariffs were announced. Whomever becomes Canada’s next Prime Minister will inherit a very, very troubled economic situation, due to so much economic mismanagement over the last 10 years. Canada has simply been weakened competitively and will suffer as a result for years to come. It is too simplistic to assume a new Prime Minister will be able to turn this on a dime.  

PRIVATE INVESTMENT HAS LAGGED SIGNIFICANTLY IN CANADA OVER THE PAST QUARTERS

CANADA HAS SEEN ONE OF THE LARGEST INCREASES IN THE UNEMPLOYMENT RATE ACROSS THE G10

CONSTRUCTION AND FIRE/FINANCIAL ACTIVITIES EMPLOYMENT

It is not all bad in Canada as we have been rebuilding a position in a company that will benefit from the tariffs. It has legacy pipeline assets across Alberta and British Columbia that allow for the sale of propane into Asia. We are always looking for companies with competitive advantages and the geographic reality is that it is far faster to ship propane to Asia from Alberta through BC than from the U.S. Gulf Coast through the much-discussed Panama Canal. As LNG Canada comes online this summer, there will be a significant growth in propane production as a by-product of more gas drilling. Even the NDP government of BC has shown an inclination to make it easier of late for resource projects to expand in Prince Rupert. I am not saying that we are returning to the early 2000s approach to fossil fuel expansion in Canada, but the tune is incrementally improving. We like to own investments where conditions are going from bad to less bad.   

Overall, it will be difficult to predict the aftershocks of retaliatory tariffs, potential currency devaluation(s), legal cases, protests, boycott campaigns, growing nationalism, and the patriotism of countries like Canada, Mexico, Asia, Latin America, Europe, etc.  For example, we are being very cautious around U.S. companies with global brands where they do not have leading market share positions and there are domestic substitution choices. As a result, we have increased our investments in dominant companies from Europe and Asia that can take share from their American peers. How long the anti-American sentiment will last is a big question mark.  

One example of this is a company from France called, Groupe Dassault Aviation, which makes business and fighter jets and supplies the commercial aerospace sector. After how Zelensky and his visit to the Oval Office in February did not go so well, our investment in Groupe Dassault rallied hard as it became clear to European members of NATO that they were going to have to be in a position to better defend themselves. Obviously, companies like Dassault, which happens to own a 25% stake in France’s largest defence company, Thales, will benefit from all the government spending in years ahead which was clearly illustrated in the biggest bond market sell-off in Germany since the Berlin wall came down in 1989. I doubt American companies will be invited to go forward Requests for Proposals.  

LONG INVESTMENT: DASSAULT AVIATION (AM)

CHINA’S DEFENSE BUDGET

U.S. – DEFENSE SPENDING AS A % OF GDP
CAN IT INCREASE? IF SO, WHAT DOES THAT MEAN FOR DEFICITS AND GOVERNMENT SPENDING?

RUSSIA DEFENSE BUDGET (RUB BN)

UKRAINE MILITARY AND NON-MILITARY AID (€ BN)

NATO MEMBERS – DEFENSE EXPENDITURE AS A % OF GDP (2019 – 2023)

As you can see below, the current level of uncertainty in the world is at record levels and uncertainty continues to go from a higher high to an even higher high in each subsequent crisis. Uncertainty leads to businesses and consumers reining in spending.  Sadly, we have started to build a new slide that will track job-loss announcements that will result from lower spending patterns. Our sincere thoughts go out to those families most negatively impacted.  

GLOBAL ECONOMIC POLICY UNCERTAINTY INDEX

From a high level let me remind everyone of the one big reason why we launched Voyager over a several years ago. I am still bullish to invest in public equities for the long-term. Simply put, there are fewer and fewer publicly-traded equities today than when I started my career, and a lot more money invested in the public markets. According to Forbes, the number of public companies in 1996 peaked at 8,800 and had declined to 3,950 by the end of 2024 in the U.S.  I love investing in assets where supply is down, and demand is up. Demand has increased as more and more investors can access the public markets through professional and self-directed investment toolsets.  

The fact is that the global public markets are shrinking because companies and their shares are being removed from public markets through share buybacks and by way of merger and/or privatization. Once we get through this current market volatility, I believe that we will see more and more of this secular trend unfold. During the quarter, we received a takeover offer for our holding in ENN Energy to be privatized. Since the end of the quarter, we have seen a Dutch auction process to buy back shares in Secure Waste Infrastructure and a takeover negotiation process commenced on our UK holding Alphawave by Arm holdings. We were very pleased to see semiconductor powerhouse Applied Materials validate our investment in Dutch Semi Equipment company BE Semiconductor (Besi) when they announced this week that they have taken a 9% strategic stake in Besi, which we only started buying during this recent pullback. Market sell-offs like this are giving us opportunities to buy companies that are best of breed at much more reasonable valuations.   

We are also pleased to hear repeatedly from our many company research interviews that they will use excess free cash flow from their businesses to buy back stock or buy other businesses. We truly believe, based on our research, that public companies will have a major advantage over private companies to grow through acquisitions in the years ahead, as access to capital becomes increasingly difficult.  

PUBLIC EQUITY WORLD IS SHRINKING WHILE PRIVATE WORLD HAS GROWN – BETTER VALUE IN PUBLIC MARKETS

GLOBAL EQUITY SUPPLY IN SECULAR DECLINE – GOOD OMEN FOR GO-FORWARD RETURNS

CORPORATE BUYBACKS ARE KEEPING DEMAND HIGH AND SHRINKING SUPPLY OF PUBLIC SHARES FOR REST OF US TO BUY

Long-term, I am highly confident that the world will need more and more of the products and services that our core companies are investing in. We are anchoring the portfolio in business that have secular tailwinds. This short-term sell-off is presenting us with opportunities to invest in these liquid public superior companies below with rock-solid balance sheets and free cash flow (FCF) generation. As a result of their disciplined balance sheets, these companies have the capacity to buy back stocks in this sell-off.  

I am grateful that for my family, I have allocated our capital equally across our three strategies and say a sincere thanks to the Wealhouse team that runs the long/short credit and long/short equity strategies of Amplus and Lions Bay. Being balanced across these strategies allows me to stay the course in the long-focused strategy of Voyager because as you can see below, there are low correlations across our three strategies.  

WEALHOUSE STRATEGY UPDATES*

CORRELATION MATRIX OF OUR STRATEGIES

100K GROWTH OF WEALHOUSE STRATEGIES VS. TRADITIONAL 60/40 PORTFOLIO

For three decades, I have travelled the world and met many great companies. I never loved the jet lag, plane delays, or airline food, but I have always been so intellectually stimulated getting to dialogue with and meet with awesome companies over my career. It is in volatile times like these that I get to take advantage of all those hard-working journeys and sit back and allocate capital to some of the best businesses in the world that are presently on sale.  I have typed out below a list that shows how the fund is diversified globally and by different industries in some of the world’s best up-and-coming businesses that have NET CASH on the balance sheet and therefore ZERO NET DEBT.  

BE Semiconductors (7B Euro market cap with net cash of €100M and €300M of free cash flow) They are a Netherlands-based semiconductor assembly equipment for hybrid bonding and photonics that will be needed for future secular growth in computing.  

Cellebrite ($4.2B U.S. market cap with $470M in net cash and $170M in free cash flow) is a leading software company headquartered in Israel that has a digital platform to help collect, review, and analyse digital evidence data for criminal investigations by major public service agencies and also helps enterprises chase down improper use of proprietary data.  

Disco (2,995B Yen market cap with ¥263M in cash and ¥100M in free cash flow) from Japan sells grinding tools for the semiconductor industry to make products with significant tail winds from the growth in demand for storage and power chips.  

Fielman (3.4B Euro market cap with €400M in cash, €937M in real estate leases and over €200M in free cash flow) This company that I first visited in Hamburg, Germany back in 2003 is over 75% owned by the Fielman family and is a leading eye-ware and hearing aid seller across Europe and has been making acquisitions in the U.S. to further grow its platform that will benefit from major demographic tailwinds. 

Houlihan Lokey ($10.2B U.S. market cap company with net cash of $350M and FCF of $530M) is an investment bank from the U.S. that has merger and acquisition advisory teams that also are capable of advising business that need strategic advice for restructurings during tough times like the world is currently seeing.  

Imax China ($339M U.S. market cap and net cash of $80M and free cash flow of $30M) is headquartered in Hong Kong but 70% controlled by Imax from the North America and benefitting from secular trend for more movie leisure activities in China. 

Kinaxis ($3.2B Canadian market cap company with $250M of net cash and a $100M in FCF) is a Ottawa-based supply chain management software company that is helping companies organize their software chains’ data inputs to improve efficiencies and re-organize supply chains in a post Covid and volatile Tariff regime.  

Lynas ($6.8B Aussie Dollar market cap with net cash of $100M and free cash flow of $264M) is an Australian-based rare earth minerals producer that will benefit from the increasing strategic importance for increased trends towards humanoid robots, defense spending, electrification, etc.  

Major Drilling ($564M Canadian market cap company with net cash of $20 Million and FCF of $30M) that is a Canadian based drilling contractor and manufacturer to support the discovery and production of key minerals around the world that more and more countries need to strategic access to for security reasons. 

Otsuka (4,197B Yen with a market cap of ¥100M and free cash flow of ¥400M) is headquartered in Tokyo is a leading tech product distributor of hardware and software products to Japanese enterprises that are needing to find productivity tools to help with an aging workforce. The Otsuka family still owns over 10% of the company and I will always remember that they own a beautiful office building over a busy subway stop in downtown Tokyo that is carried on their books at 1990 valuations.  

Rightmove (5.2B pound market cap with net cash of £40M and £241M in free cash flow) operates the leading real estate listing web site in the UK and has proprietary data that can sell recurring revenue services to those who participate in the real estate market that is structurally undersupplied. 

Square Enix (854B Yen market cap with net cash of ¥225B and ¥20B of FCF generation) from Tokyo that sells popular online gaming software and related character goods that I will always remember seeing adults buying in a store at the base of their head office and the popular annual E3 video game conference in LA. Yes, stuffies for adults.  

Rotork (2.4B pound market cap company £125M in net cash and £115M in free cash flow) sells specialty valves and actuators from its head office in Bath England to Water Utility, Oil and Gas and Semiconductor Industries that are seeing new greenfield projects for better infrastructure. 

Sabre Insurance (352M pounds market cap and net cash of £31M before a free cash flow yield of over 10%) is a leading UK motor insurance provider for taxis, private cars, and commercial vehicles and have a strong track record of underwriting discipline that generates industry leading profits.

Sentinel One ($5.5B U.S. market cap with $720M in net cash and $70M in free cash flow) that is growing north of 20% from its security software to help companies fight against attacks from malware that continue to increase from bad actors. 

Varonis ($4.3B U.S. market cap with $500M in net cash and FCF of $120M) is an identity software security company that helps companies track who is accessing internal systems that will become increasingly important as more and more companies adopt AI strategies to harness their internal data repositories.  

Winpak ($1.7B Canadian market company with net cash of $465M and FCF of $50M) is a Winnipeg-headquartered company that sells packaging products to protect perishable foods, beverages and dairy products and has certain pharmaceutical companies too. 

Zeta ($2.8B U.S. market cap with $100M in net cash and $130M in FCF) is a marketing automation software company from the New York that helps companies better leverage proprietary data to run more effective advertising campaigns through the use of AI capabilities.

Disclaimer

This Commentary expresses the views of the author as of the date indicated and such views are subject to change without notice. Wealhouse has no duty or obligation to update the information contained herein. This Commentary is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Wealhouse believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.