The Frank Value Fund Institutional class returned 3.58% in Q1 2026, compared to 3.68% for the Russell Midcap Value Index. Since fully integrating catalyst-unlocking value into the strategy in January 2022, Frank Value Institutional class produced a total return of 67.0%, outperforming the Russell Midcap Value ETF return of 28.0%, the S&P 500 ETF return of 45.2%, and the Nasdaq 100 ETF return of 49.1%. For the five years ended March 31, 2026, the Frank Value Fund Institutional class ranked in the top 5% of its Morningstar category, Mid-Cap Value. Please see the end of this letter for more performance information.
Why Do It the Hard Way Part 2
In our previous letter to shareholders we highlighted the high valuation in Microsoft. The stock subsequently declined over 20% YTD in 2026 while analyst estimates for Free Cash Flow (FCF) have also plummeted. Investors seem focused on P/E with Microsoft, but this metric ignores the exploding capital expenditures at all the hyper-scaler companies. Technology giants used to enjoy higher returns on capital, meaning they required small amounts of investment to generate the next dollar of revenue. Now, with expensive data centers and rising electricity costs, future growth comes at a high cost. FCF is a better indicator of earnings quality, as it considers capital expenditures. Since last quarter's writing, analyst estimates of FY 2028 Microsoft FCF have declined by more than 50% from $217 billion to $97 billion. That implies 3.5% FCF/Enterprise Value (EV) yield two years from today on a current market cap of $2.8 trillion.
Compare that to a recent Frank Value Fund purchase in the healthcare sector with an 8% FCF/EV yield today plus significant high return on capital growth opportunities thanks to AI-enabled drug discoveries. We are still finding attractive opportunities outside the popular indices. Ultimately, this lowers our correlation and volatility relative to the general market. This is partly due to management teams now manipulating the index system at the expense of passive investors. The boldest and most egregious example is the upcoming SpaceX IPO.
Stealing the Moon
Private company SpaceX has filed for an Initial Public Offering. News outlets report a $2 trillion target valuation and a record $75 billion capital raise. To secure the listing on NASDAQ, exchange executives are creating a "fast entry" rule that will make SpaceX eligible for inclusion in the Nasdaq 100 index within 15 trading days of the public offering. Typically, this process takes at least six months and is often far longer. This fast inclusion will allow SpaceX near-instant access to the 200 investment products and $600 billion in assets that track the Nasdaq 100. The S&P 500 is also reportedly considering early addition for SpaceX. What, if anything, do index holders get for changing their rules?
While SpaceX financials remain private at the time of writing, a few sources report $15.5 billion of revenue and $8 billion of profit in 2025. A $2 trillion valuation puts the Price/Sales ratio at 129x and the Price/Earnings at 250x. For comparison, markets currently value Amazon at $2.25 trillion yet the company has 46x more revenue and nearly 10x more profit than SpaceX. It is clear to us that Elon Musk is using his genius to manipulate index rule makers into paying over 10x a reasonable valuation for SpaceX. This exploitation exists because indices ignore valuation while the investment banks and stock exchanges are greedy for SpaceX business.
Just like Tesla's addition to the S&P 500 in December 2020, SpaceX will get access to an enviable war chest of cash. Both companies enjoy strong balance sheets with the luxury of investing in research and development without the need to raise additional capital. Index investors provide these companies with capital for nearly zero in return. In 2021, Tesla's earnings per share were $2.26, and analysts expect 2026 to be $2.07. The stock is essentially flat since 2021 while Frank Value Fund has returned over 11% per year in the past five years. We believe the galactic valuation in SpaceX is setting index investors up for the same mediocre returns over the next five years.
Finally, with the index rule changes and blockbuster IPOs like Anthropic and OpenAI on the horizon, the indices are looking more like exit liquidity for accredited investors' private capital than reasonable retirement wealth vehicles. Both major AI companies will target over $1 trillion valuations and presumably require greater than 10x P/S valuations to get there. With Tesla and SpaceX likely accounting for more than 5% of the S&P 500, increasing amounts of the world's most popular index are set up for disappointing long-term performance in our view. Companies choosing to IPO later in their lifecycles means the best returns accrue to the original private investors instead of "mom and pop" investing in stocks or the S&P 500. This exploit has become the standard blueprint for big tech CEOs to transfer wealth from public investors to themselves. Frank Value Fund seeks to avoid this trap.
What's Next
Investors are twisting themselves into knots trying to justify unattainable future growth stories for AI and SpaceX. Rather than try and predict an unpredictable future, investing in Frank Value's portfolio provides access to companies with cashflow now — no data centers in space or asteroid mining required. The fund's past performance shows valuation discipline matters. Our current portfolio continues this tradition of exploiting the indices' blind spots. The more capital flows into passive strategies, the more drastic and sustainable our competitive advantage becomes.
Sincerely,
Brian Frank
Frank Value Fund Portfolio Manager
| Performance as of 3/31/26 |
Total Return % | Average Annualized Total Returns % | ||||||
|---|---|---|---|---|---|---|---|---|
| 2026 | 2025 | 2024 | 2023 | 2022 | 3 Yr. | 5 Yr. | Since 7/21/04 | |
| Frank Value Fund Inst'l | 3.58 | 12.29 | 19.45 | 15.13 | 4.43 | 14.62 | 11.68 | 7.58* |
| Russell Midcap Value Index | 3.68 | 11.06 | 13.07 | 12.71 | -12.03 | 13.14 | 7.94 | 9.54 |
* Represents an estimate based on the performance of the Fund's Investor share class, adjusted for fees.
← Back to NewsPerformance 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 www.frankfunds.com. 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 April 5, 2026 and are subject to change without notice.