Source Capital, Inc.

The webcast did not report revenue, EPS, or gross margin because this was a fund strategy update rather than an operating company earnings call. Reported performance figures included the Fund down 9% in 2022, versus about 15% for the Russell 2000 Value and over 20% for the Russell 2000 broad small-cap index. Management also noted the strategy’s AUM was about $500 million as of December 31, and cash was just under 10% after starting last year with over 15%. Forward-looking commentary was qualitative rather than formal guidance. Management said the opportunity set in small caps is more attractive now than last year, but not yet at “screaming bargain” levels, and they expect higher-quality small-cap names to benefit if valuations stay favorable and if a recession eventually gives way to a recovery. They also said they are slowly adding to IAC and remain comfortable with the portfolio’s positioning.

Steve Scruggs framed the fund’s objective as outperforming the Russell 2000 Value over full market cycles while taking less risk. His tone was steady and defensive in style: he repeatedly stressed discipline, patience, and a long-term horizon rather than trying to predict near-term macro events. He also argued that markets remain inefficient because of shortsightedness, which creates opportunities for patient value investors.

There was no CFO speaking on this webcast. The financial discussion came from the portfolio manager, who cited the Fund’s 2022 return of down 9% versus about 15% for the Russell 2000 Value and over 20% for the Russell 2000. He also pointed to cash moving from over 15% to just under 10%, and discussed position-level valuation work, including IAC’s public holdings, its $5 billion market cap, and Dotdash Meredith’s expected about $250 million in EBITDA this year.

In Q&A, the main analyst/investor concern was what needs to happen for small-cap stocks to outperform large caps over a sustained period. Steve answered that small caps are starting from better relative valuations, that rising rates have historically favored small caps versus large caps, and that small-cap value has often led the market out of recessions. He also addressed the broader recession question by saying a recession seems possible and many worries may already be priced in, but he refused to try to forecast its depth or duration.