Frank Value Fund Q4 2023 Letter to Shareholders

The Frank Value Fund Institutional Class returned 15.13% in 2023 compared to 13.44% for the Russell Midcap Value Index and 26.29% for the S&P 500 TR Index. For the two years ended 12/31/2023, Frank Value Institutional Returned 20.23%, Russell Midcap Value Index -0.11%, and S&P 500 TR Index 3.42%. In a two-year period with a bust and a boom, Frank Value’s catalyst-augmented strategy added value both in alpha and with lowered risk. Please see the end of this letter for more performance information.

Unlocking Value

You can walk by Fort Knox all you want, but until you can take the gold for yourself, all the value in the world is meaningless. In the past two years US stocks have behaved the same way. Most prices are flat since December 2021, yet value catalysts have boosted returns. Recall 2022 was the year of the special dividend for Frank Value Fund, with several of our energy companies paying post-Covid windfalls directly to shareholders. These payments contributed to a positive return for the fund while most stocks and bonds suffered losses. In 2023, our best performers again have been companies with mechanisms for unlocking value. Technology company Opera paid a 10% special dividend in January 2023, and in the second half of the year, current fund holding NRG Energy repurchased shares and paid dividends worth over 15% of its market cap. Unsurprisingly, both stocks materially outperformed our benchmarks in 2023. Thanks to volatility in September and October, we added new positions with more value-unlocking catalysts expected for 2024.

The Path Forward

Here is a look at two new positions with upcoming catalysts.

Construction and Materials

One of the largest construction and materials companies recently redomiciled its headquarters from Europe to the US. Vast sums of money from the Inflation Reduction Act and other onshoring mandates have yet to be spent, and our new holding will be a primary beneficiary. Because of its former life as a European company, this stock had zero ownership from the large passive companies. After a few months of trading, passive firms now own 27 million shares, or 3.6% of shares outstanding, but we believe a much larger buy-in will happen in 2024. Passive investors will be forced to buy roughly 150 million shares when this construction company becomes eligible for the S&P 500. This could happen any time after their annual report filing in April 2024. Typically, when a company is added to the S&P 500, it is doing so from another index, like the S&P 600 Mid Cap, and therefore passive firms already own about 20% of shares outstanding. Thus, a switch from index to index has less of an effect on the stock price because the passive firms merely transfer shares from one index fund to another instead of outright buying. With this new position, we expect all passive firms will buy at any price to increase their ownership from 3.6% to beyond 20%. This massive ownership shift is required because the stock is going from no index membership to the grandaddy of them all, the S&P 500. We have seen great success for this type of trade before, if you recall our position in PG&E. From May 2022, as PG&E went from no index to the S&P 500, we realized gains in Q4 2023 of about 46% while the Utilities ETF lost 16% and the S&P 500 gained 12% over the same period.


Frank Value Fund’s other major addition is a $12b generic pharmaceutical company which recently announced a deal to sell several of its non-core brands for nearly $6b in after-tax proceeds. Management expects the deal will close around the middle of 2024, and the company aims to significantly pay down its debt, continue a 5% annual dividend, and use the rest of the proceeds to repurchase shares. A vastly improved balance sheet and expected free cash flow of $2.3b after the deal closes should be enough to re-value the company to 7-9x EBITDA, which equates to potential upside 50-120%. This holding is the opposite of the construction and materials company because it is heavily (nearly 30%) owned by passive investors. Therefore, any share repurchases management conducts will have a magnified effect on the stock price because passive investors never sell. This lowered supply of “float,” or shares available in the market, decreases liquidity and increases volatility. In this case, we expect the volatility will be upwards when share repurchases commence.


Just like one year ago, uncertain economic conditions loom over the next twelve months. Thankfully, our enhanced research process is leading us to opportunities we believe are cushioned from macroeconomic shocks. Conversely, it appears investors in unprofitable technology companies learned nothing from 2022, as many of these stocks are back at the same dangerous levels as before they collapsed. As forward growth appears to be challenged, it would be unsurprising to see another major pullback in unprofitable tech. We would welcome further volatility as investors may flock towards our portfolio because it is highly profitable, highly defensive, and paying a high dividend yield of over 3%.


Brian Frank – Frank Value Fund Portfolio Manager

Performance as of 12/31/23Total ReturnAverage Annualized Total Returns
 202320223 Yr. %5 Yr. %10 Yr. %Since 7/21/04 %
Frank Value Fund15.134.438.*
Russell Midcap Value13.44-12.038.8911.488.389.25
S&P 500 Total Return26.29-18.1110.0015.6912.039.96

* Represents an estimate based on the performance of the Fund’s Investor share class, adjusted for fees.

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. You may obtain performance data current to the most recent month-end by calling the Fund at 1-888-217-5426 or visiting our website at Returns include reinvestment of any dividends and capital gain distributions.

Non-FDIC insured. May lose value. No bank guarantee. The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the Fund, and it may be obtained by calling 1-888-217-5426.   Please read it carefully before you invest or send money.

This publication does not constitute an offer or solicitation of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this publication has been obtained from sources we believe to be reliable, but cannot be guaranteed.

The information in this portfolio manager letter represents the opinions of the individual portfolio managers and is not intended to be a forecast of future events, a guarantee of future results or investment advice. Also, please note that any discussion of the Fund’s holdings, the Fund’s performance, and the portfolio managers’ views are as of January 2, 2024 and are subject to change without notice.