Second Quarter 2024 Commentary

The manager sold Kelly Services during the quarter because, despite its strong balance sheet and record margins, the company announced a major acquisition without sharing profitability details of the target. The manager believed the deal could have a material adverse impact and increase the firm's financial risk, and with Kelly trading near the manager's valuation, the position was sold on the news.

“During the quarter, we sold Kelly Services (ticker: KELYA). Kelly is a staffing company that has been bucking industry trends recently, with margins expanding to record highs. This is due to internal efforts to raise profitability as well as the company's leading position in educational staffing, including substitute teachers. Although Kelly has long maintained an excellent balance sheet, in early May the company announced a major acquisition and did not, at the time, share details about the profitability of the target. As a result, we were unable to determine how the deal would affect our valuation, but we believed it could have a material adverse impact and would increase the firm's financial risk. Since Kelly was trading near our valuation, we sold on the news. This was our second time owning Kelly since the Fund's launch.”

The manager holds ManpowerGroup as one of three staffing businesses, viewing the current temporary employment downturn as a cyclical distortion from the pandemic rather than a structural change. The manager believes the staffing holdings are trading at attractive valuations based on normalized results and have the financial strength to endure a period of challenged profitability.

“The Fund currently owns three staffing businesses: Resources Connection (RGP), TrueBlue, and ManpowerGroup (ticker: MAN). The temporary employment industry is contracting, with U.S. revenues for several public firms down 15% to 25% from two years ago despite higher bill rates. In certain cases, profitability is at a historical trough. The pandemic thrust the labor market into disarray, with many companies struggling to find employees. To avoid reliving that experience, employers have held onto their workforces and have reduced their utilization of temporary staff. Commented ManpowerGroup's CEO: "We feel this is a cyclical downturn distorted by anomalies created by the pandemic, and eventually, this will sort of flatten out." Never before has overall employment remained robust with temporary staffing sliding. We're wagering this is not a structural change, and if we're correct, then we think the staffing companies in the Fund are trading at attractive valuations based on normalized results. In each case, we believe our holdings have the financial strength to endure a period of challenged profitability.”

Sprott Physical Silver Trust was the Fund's single material contributor to quarterly performance, with silver gaining 17% during the quarter. The manager prefers this vehicle for silver exposure because all 170+ million ounces are fully allocated and held at the Royal Canadian Mint, and intends to retain it among the Fund's top holdings while expecting the Federal Reserve to return to easy money policies.

“The Fund had one material contributor (>10 basis points impact) to its quarterly performance: Sprott Physical Silver Trust (ticker: PSLV). Despite retreating from its 11-year high of $32 per ounce in May, silver gained 17% during the quarter, outperforming gold's 4% increase. The Sprott Trust is not a perfect facsimile for silver, the underlying metal, since it incurs management fees and can trade at a premium or discount to NAV. The Trust began the quarter at a 5% discount to NAV and ended it at a 2.5% discount. The Sprott Physical Silver Trust is our preferred vehicle for maintaining silver exposure because all 170+ million ounces are fully allocated and held at the Royal Canadian Mint. While we expect to tweak our weightings in precious metals based on performance, Sprott Physical Silver and Physical Gold Trusts remain among the Fund's top holdings because it seems wise to own precious metals as long as we expect the Federal Reserve to return to easy money policies.”