During the first quarter of 2025, the Patient Opportunity Equity Strategy generated a total return of -9.5% net of fees. In comparison, the portfolio’s unmanaged benchmark, the S&P 500 Index, returned -4.3%.
Using a three-factor performance attribution model, allocation and interaction effects contributed to the portfolio’s return which were offset by selection effects. Alibaba Group Holdings (BABA), CVS Health Corp. (CVS), Royalty Pharma PLC (RPRX), Precigen Inc. (PGEN), and Precigen Perpetual Preferreds were the largest contributors to performance, while Dave & Buster’s (PLAY), Seadrill Limited (SDRL), Illumina Inc. (ILMN), Alphabet Inc. (GOOGL), and Kosmos Energy Ltd (KOS) were the largest detractors.
Relative to the index, the portfolio was overweight the Consumer Discretionary, Communication Services, Financials, Energy, and Health Care sectors on average during the quarter. With zero allocation to Real Estate, Utilities, Materials, and Consumer Staples, the portfolio was underweight these sectors along with the Information Technology, and Industrials sectors.
The portfolio added five positions, Carvana Co. (CVNA), New Fortress Energy Inc. (NFE), JD.com Inc. (JD) and bought a Nvidia Corp. (NVDA) call spread (bought NVDA 9/19/25 C118; sold NVDA 9/19/25 C150) in the quarter. We eliminated three positions, Expand Energy Corporation (EXE), Green Thumb Industries Inc. (GTBIF), while closing the short-side of our option position in Nvidia (NVDA 9/19/25 C150) during the quarter.
The portfolio ended the quarter with 38 holdings where the top 10 stocks represented 50.5% of total assets compared to 33.6% for the index, highlighting the portfolio’s meaningful active share of around 97.4%.
Portfolio Review
2025 started strong with the market reaching all-time highs in mid-February before a sharp reversal sent the S&P 500 down 8.7%, ending the quarter down -4.3%. This downturn intensified into April, with losses reaching 18.9% peak-to-trough through April 8th, within spitting distance of bear market territory (drops of 20%+). Looking at market history, the S&P500 has entered bear market territory only 17 times over the past 85 years (occurring in 20% of years). Importantly, recessions have been even less frequent, with only 53% of bear markets coinciding with economic contractions.
The long-term outlook from here is compelling, even if markets continue to new lows. Following 20% drawdowns, historical returns have been positive in 82% of subsequent 1-year periods, 94% of 3-year periods, and an impressive 100% of 5-year periods. Attractive odds. The average annual returns following such corrections have been compelling: 21% over one year, 14% over three years, and 12% over five years.
While headlines and social media fixate on short-term noise, we focus on the long-term, working to compound capital above market returns over a 5-year period. Trump's tariff policies pose genuine risks with potential negative economic feedback loops, but there's substantial room for deal-making. The sooner these agreements materialize, the better for both the economy and markets.
Healthcare emerged as our top performer this quarter—not surprising given its defensive characteristics—followed by our Chinese investments. We benefited from strategically increasing exposure to both areas throughout last year's weakness.
We added to CVS Health Corp. (CVS) as it hit a decade low, believing that the problems in the Medicare Advantage business would be sorted out. So far this thesis has played out with 2026 rates showing strong improvement. Royalty Pharma plc (RPRX), a name we have written about extensively, announced the acquisition of its external manager at the beginning of January. This move not only simplifies the operating model but more closely aligns management and shareholders.
While our Chinese exposure remains selective, we built up a position in both Alibaba Group Holdings Ltd (BABA) and JD.com Inc. (JD). With the stocks trading at all-time lows last year, we felt that the risk/return skew was attractive given the Chinese government’s stated goal of reigniting growth. We continue to see green shoots in their local businesses supported by government stimulus. While recent tariff headlines have reversed much of the gains seen in the first quarter, these companies have limited revenue exposure outside of China. While trade tensions hurt broadly and could impact domestic demand, we believe both businesses are more insulated than their current market moves imply. We also believe recent challenges increase the pressure on the Chinese to do even more aggressive stimulus.
New and Eliminated
This quarter we entered five new positions, while exiting three. We began building a position in Carvana Co. (CVNA) in the quarter. Carvana is the world’s largest online-only used car retailer. The company has spent the last decade plus building a vertically integrated platform that has captured 1% of a massive $1T total addressable market (TAM). Even with a focus on growth, the company has achieved industry leading EBITDA margins by leveraging their fixed cost base as they scale. Despite innovation in other industries, the used car market is still antiquated. Supply is fragmented, pricing lacks transparency, and the customer experience is generally poor. Carvana addresses these pain points through no-negotiation pricing and rapid delivery, eliminating geographical constraints for consumers. As the company continues enhancing the customer experience, we believe they are set to continue to win market share. Given the enormous TAM, even small incremental share gains can make a big difference. Following their financing issues in 2022-2023, the company has emerged with greater cost discipline and margin improvement. We believe this strengthened operational approach will continue serving them well, supporting both top and bottom-line growth going forward.
We initiated a position in New Fortress Energy (NFE), a vertically integrated LNG infrastructure company with strategic import terminals across high-growth markets including Jamaica, Puerto Rico, Mexico, Nicaragua, and Brazil. As these countries increasingly adopt LNG as a transition fuel, replacing more expensive oil and coal, New Fortress is well-positioned to benefit. The stock has been highly pressured by an overleveraged balance sheet and continued investment to complete projects. CEO, Wes Edens, who serves as co-CEO of Fortress Investment Group, is the company's largest shareholder, creating strong alignment with shareholders. Given management’s private equity background, debt refinancings and asset sales, we expect the company to deleverage over the coming years. We think the stock has the potential to be a multi-bagger from current levels if they execute well.
We entered JD.com Inc. (JD), a leading e-commerce company in China. Unlike competitors in the space, JD focuses on consumer electronics and home appliances supporting strong differentiation and defendable margins. The company has been on a year-long organizational restructuring following its ill-advised venture into the low-cost competitive space where it lacked an advantage. Not only will the company benefit from returning to their roots, but the government has rolled out a trade-in rebate policy for home appliances and consumer electronics further supporting demand. At the same time, the company has been disciplined in terms of spending, creating a margin expansion story as the topline demand improves. With the Chinese government increasing their focus on reigniting consumer consumption, we believe JD is well positioned to benefit from increased demand and improving margins. At the same time, the company is returning cash to shareholders via a dividend yield of 3.0%, and a buyback program that has seen 8.1% repurchased in 2024. While the risk of a trade war with China is an overhang on the stock, the company generates the majority of their revenues domestically.
We initiated a call spread in Nvidia Corp. (NVDA) on the DeepSeek selloff because we thought the reaction was overdone. We exited most of the trade profitably on the subsequent rally.
We exited several positions early in the quarter as we took leverage down and consolidated positions into names we thought had the most attractive risk-reward. We sold our positions in Expand Energy Corporation (EXE), and Green Thumb Industries Inc. (GTBIF) to fund new ideas. We closed the short leg of our call spread in Nvidia Inc. (NVDA 9/29/2025 C150).
Top Contributors and Top Detractors
| Top Contributors | Ticker | Net Contribution (bps) |
| Alibaba Group Holdings Ltd | BABA | 166 |
| CVS Health Corp. | CVS | 146 |
| Royalty Pharma plc | RPRX | 75 |
| Precigen Inc. | PGEN | 46 |
| Precigen Perpetual Preferred | PGEN | 29 |
| Top Detractors | Ticker | Net Contribution (bps) |
| Dave & Buster’s Entertainment | PLAY | -114 |
| Seadrill Ltd | SDRL | -113 |
| Illumina Inc. | ILMN | -108 |
| Alphabet Inc. | GOOGL | -102 |
| Kosmos Energy Ltd | KOS | -96 |
*Contribution illustrated above are provided net of fees and includes cash.
Top Contributors
Alibaba Group Holdings (BABA) rebounded strongly in the first quarter following DeepSeek’s surprise AI product launch in early January that caught markets off guard. The development boosted expectations of improving competitiveness in a market largely considered “un-investable”. We’ve long appreciated Alibaba as it continued trading at a significant discount to its sum-of-the-parts valuation. With most investors writing off Chinese companies while our assessment of the odds of Chinese stimulus grew, we saw an opportunity to invest in a high-quality business at rock bottom prices. During this period, the company initiated both a dividend (1.0% Yield) and buyback program, repurchasing 7% of shares outstanding over the last twelve months. Unfortunately, much of the gains achieved in the first quarter have been reversed following escalating tariff tensions between the US and China. While the ultimate impact of tariffs remains uncertain, Alibaba has limited exposure to international markets with only 12% of revenue currently coming from outside of China. Though a tariff war broadly hurts economic activity and can create negative feedback loops into domestic demand, we believe Alibaba stands as one of the more insulated Chinese companies in this environment.
CVS Health Corp. (CVS) went from a top detractor in the fourth quarter to the top contributor in the first quarter. The company faced significant pressure last year from disappointing Medicare Advantage results—an industry-wide challenge. We felt the issues were well understood and expected improvements in pricing for 2026. We took the opportunity to add to the position. Since then, CMS (Center for Medicare & Medicaid Services) has announced 2026 rates at the high end of expectations, supporting a significant earnings power recovery. On a longer-term basis, we continue to think CVS has an attractive combination of assets owning a healthcare benefits business (Aetna), a pharmacy-benefits manager (Caremark), an in-home evaluation business (Signify Health) and in-home primary care business (Oak Street Health) supporting the industry transition to a value-based care model. With new leadership in place, a 4% dividend yield and trough earnings behind us, we see continued attractive prospects ahead.
Royalty Pharma PLC (RPRX) was up nicely in the first quarter following the announced acquisition of its external manager. The market responded positively, pushing the stock up +23% as the new structure simplifies the business model and more closely aligns management with shareholders. We remain strong believers in the business and the high-quality management team running it. We view this as just another step in the company’s journey toward maximizing shareholder value. The company has an impressive track record, running the business for over 20 years as a private fund before bringing it public. The market opportunity for external royalty funding has only expanded as early-stage start-ups need capital and established players look to reduce debt levels. Royalty Pharma is ideally positioned as the partner of choice. The company maintains strong discipline, consistently achieving deal internal rate of returns (IRRs) in the low teens (unlevered). As they continue delivering results as a public company, we expect the market will increasingly take notice.
Top Detractors
Dave & Buster’s Entertainment Inc. (PLAY) trended lower over the first quarter as the market continued to worry about revenue visibility. The company had a disappointing 2024, culminating in the abrupt departure of then-CEO Chris Morris. Founded in 1982 in Dallas, Texas, the company has expanded to over 200 venues in North America across two brands (Dave & Busters, and Main Event). The company is in the middle of a multi-year transformation focused on reinvigorating growth through store remodels, store expansions, and technology upgrades while enhancing margins through cost optimizations and synergies. Despite the efforts, the results haven’t yet materialized in the numbers as the challenging macro environment continues to weigh on consumer expenditures. In the meantime, an activist, Hill Path Capital, has built up a position in the company and taken two board seats. With the Chairman of the Board stepping in as CEO, we are already starting to see improved results with the focus on a back-to-basics strategy delivering better than expected results in March and April. While the timing of business model inflection remains uncertain, what’s clear is the stock is trading at an all-time low valuation of 6.8x forward earnings. As the company works to improve its operations, they’ve been actively returning cash to shareholders through buybacks, repurchasing 12% of shares outstanding over the last 12 months.
Seadrill Limited (SDRL) is the fourth largest pure play deepwater drilling specialist. The company emerged from bankruptcy in February 2022 with a net cash position and is positioned to benefit from limited supply and increasing demand in the deepwater drilling rig market. Nearly half of all deepwater drilling rigs worldwide were scrapped during the last decade, while industry consolidation has created a more rational competitive landscape than we’ve seen historically. Although oil demand has remained reasonably healthy, surprisingly strong onshore production from the USA, Canada and Russia has helped keep a lid on prices. While this has negatively impacted contract rates near-term, we believe that long-term future shale supply growth will be limited, and more offshore supply will be required benefitting offshore drillers. Given its highly specialized rig fleet and minimal debt, we believe the company is well positioned to benefit from improving prices when demand rebounds. We believe Seadrill could either lead industry consolidation or become an acquisition target.
Illumina Inc. (ILMN) faced several headwinds that pushed the stock down throughout the quarter related to government policy changes. In early February, the company was blacklisted by China, further NIH funding cuts put incremental demand at risk and a new competitive entrant from Roche raised questions about long-term market share. However, we believe these headlines are fully discounted at the current price. The company has already lowered guidance to account for the 7% revenue loss from China while initiating a $100M cost savings program to cover the shortfall. NIH funding constraints have been an industry-wide challenge for well over a year, and while the company continues to face new competition, they have been able to maintain their market share at ~80%. While there are certainly headwinds, we believe Illumina is a market leader well positioned to continue to grow over the long-term as genome sequencing and AI play larger roles in scientific advancement and drug discovery. With the stock now trading at just 16x forward earnings, we see an opportunity to own a high-quality asset with significant future growth potential at a discount to the broader market.
Market Proxy is S&P 500. Returns greater than 1 year are annualized. Source: Bloomberg and Patient Capital Management
The data provided is from APX and Patient Capital Management, LLC and is believed to be reliable, but is not guaranteed as to its timeliness or accuracy. Percentages and returns may not sum to 100% due to rounding effects. A three-factor attribution consists of the allocation effect, selection effect, and the interaction effect, which sum to the portfolio's performance relative to the benchmark.
• Allocation. The allocation effect represents the portion of the portfolio's excess return attributable to differences in sector weights between the portfolio and the benchmark index.
• Selection. The selection effect represents the portion of the portfolio's excess return attributable to differences in the weights of individual securities within each sector between the portfolio and the benchmark index.
• Interaction. Most complex and sometimes counterintuitive, the interaction effect represents the portion of the portfolio’s excess return attributable to combining sector allocation decisions with security selection decisions, and is often thought of as measuring the accuracy of manager’s convictions.
Please note that the methodology used by our independent third-party attribution software vendor will at times present sector allocation effects that are counterintuitive. For example, the software may calculate a negative sector effect even when the portfolio, on a weighted average basis for the period, was overweight an outperforming sector. Under the vendor's methodology, allocation effects in recent months may overwhelm the allocation effects from earlier in the period, particularly over longer time frames.
Returns illustrated above are provided net of fees and include cash. Total portfolio return figures provided above reflect the sum of the returns of the holdings in the representative account portfolio due to price movements and dividend payments or other sources of income.
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The S&P 500 Index is a market capitalization-weighted index of 500 widely held common stocks. Investors cannot invest directly in an index and unmanaged index returns do not reflect any fees, expenses or sales charges.
This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities and sectors listed. All investments are subject to risk, including the possible loss of principal. There is no guarantee investment objectives will be met. Neither Patient Capital Management, LLC, nor its information providers are responsible for any damages or losses arising from any use of this information.
The Opportunity Equity composite performance figures reflected above include the deduction of a model investment management fee of 1% (the highest fee for separate accounts under our fee schedule), paid quarterly and certain other expenses. For important information about Opportunity Equity Strategy performance, please click on the Opportunity Equity Strategy Composite Performance Disclosure. Past performance is no guarantee of future results.
All holdings and portfolio data are reflective of a representative Opportunity Equity account.
Performance in attribution table is not official strategy returns. The return is sourced from APX and is net of fees based on the strategy’s representative account.
Contributors detailed above represent the top five securities that contributed positively to performance during the quarter. Detractors detailed above represent the top five securities that detracted from performance during the quarter. Information detailed above is provided net of fees, includes cash, and is based on a representative Opportunity Equity account. Contribution listed above represents the period when the security was held during the quarter. For additional information on how Top Contributors and Top Detractors were determined and/or to obtain a list showing every holding’s contribution to the representative Opportunity Equity account performance contact us.
The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice.
The views expressed in this commentary reflect those of Patient Capital Management analyst(s) as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Patient Capital Management disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results.
Click for the Opportunity Equity Strategy Composite Performance Disclosure.
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