Branzan Advisors Commentary | March, 2023

Some people get lucky (and are interviewed on CNBC) and some don’t get lucky (and are still interviewed on CNBC). Such is our industry.

After over 20 years in business, Branzan continues to focus on what we view to be the most important ways to manage the constant uncertainty in the investment landscape:

·        Diversify across asset classes: have exposure to different asset classes as some will invariably perform better than others overtime.

·        Focus on value and capital preservation: While value investments are often seen as boring and won’t impress people at cocktail parties, they are a lot less likely to flame out and permanently impair your portfolio. Over the past year, we have seen investors lose significant amounts in cryptocurrencies, NFTs and speculative tech stocks. It’s hard for a portfolio to recover from losses like those. We believe it’s prudent to focus on investments where the downside risk is limited.

·        Concentrate on opportunities in private markets: it’s important for investors to have some exposure to private investments. Private asset values do not traditionally move in lockstep with public markets. When creating a diversified portfolio, private investments play a key role in that diversification. In Branzan’s view, investors often focus too much on the importance of liquidity and, as a result, miss out on more attractive returns(and more manageable risk) in private investments.

Where does that leave Branzan?

 ·        We continue to identify private and obscure public investments that provide needed diversification to most investors’ traditional portfolios. We will not put all our eggs in one basket.

·        Our focus remains on capital preservation and earning a reasonable return on that capital without taking undue risk.

·        We will never invest in anything we don't understand.  That nearly always includes "the next best thing".  

·        We eschew debt at the fund level to avoid losses that may exceed our investment.  While debt is often unavoidable at the investment level, as in real estate, we will not make an investment where the risk of loss exceeds our investment.

·        We do our own research.  While we read widely, we do not trust others to do our own due diligence.  

·        Our personal interests and the interests of our investors are aligned.  We put our investors first when presented with an investment opportunity.  Branzan employees and their families are collectively the largest single investor in each of our funds.

·        We concentrate on investing in things that people need and that are in limited supply: quality real estate, oil and natural gas, other natural resources and commodities.

Commodities can sometimes have extreme price volatility, as we’ve seen in natural gas in the past 12 months.  The war in Ukraine effectively cut off natural gas supplies from Russia to Europe. Prices for natural gas spiked in Europe and many feared that a cold winter could be disastrous.  Luckily, the European winter was warmer than expected and not surprisingly, natural gas prices tanked globally.  At Branzan, we’re used to commodity volatility and work hard to find bargains when prices are depressed.  We continue to keep our eye on prices for core mineral properties in the major U.S. natural gas basins.  We’re bullish on natural gas long term, it’s a reliable fuel that will be part of the electrical generation mix for a long time.    

We believe there is still significant uncertainty in the economy and the markets, primarily driven by interest rates. The cost of money (or credit) is the most important determinant of asset prices. There is a lot of speculation and hope that the Federal Reserve and other central banks will start to cut rates later this year. We are doubtful. We believe inflation is more entrenched, as we’ve seen recently, and will not go away that easily. While the pace of interest rate hikes is likely to slow, we don’t see rate cuts anytime soon. That said, it’s just our best educated guess. As such, we are proceeding cautiously and carefully to try to avoid missteps.

We appreciate your continued confidence in our firm and our investment strategies.

Branzan Investment Advisors

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