Sold my whole position in Armada Hoffler Properties, Inc. (AHH), then purchased more Blue Owl Capital Inc. (OWL). I lost about (1-$6.14/$8.19) = 25% for an average holding period of one year excluding mid single digit percentage gain from dividends. It was about 4% of my net assets.
The newly announced "Bold New Strategic Direction" by AHH represents a complete departure from the core business model that originally attracted me to the company in the first place. This effectively breaks my foundational investment thesis. A more detailed write up is in my 2026/02/19 update here.
While I incurred a substantial loss in the investment, I was glad that I could use the proceeds to buy more shares of Blue Owl Capital Inc. (OWL), a company that I believe is at least 40% undervalued compared with my buy below price.
I have high confidence in Blue Owl. The recent post by High Yield Investor's trade alert and the referenced X's post by Kent Collier were encouraging as well. In Kent's opinion, the software book inside the funds managed by OWL has:
lots of cash flow
negligible risk of fraud
big equity cushions
Also, for OWL, according to High Yield Landlord:
The Blue Owl situation in particular has been misunderstood. The redemption halt at Blue Owl Capital Corp II was not a credit collapse; it was a liquidity structure mismatch. Blue Owl Capital Corp II's decision to gate exits from its fund is a completely normal practice for the private fund space. Blackstone (BX) did the same thing with its private REIT just a few years ago.
Non-accruals across leading public BDCs are elevated but nowhere near crisis levels; there is no broad bankruptcy wave, and certainly nothing even close to resembling a 2008-style credit event. The market is extrapolating isolated issues into systemic fragility, without the data to justify it. Blue Owl just sold $1.4 billion of private credit loans, including its recently heavily-maligned software loans, to institutional buyers at 99.7% to 99.8% of par, thus providing a substantial hard data point to help validate the marks that they are assigning to their private credit portfolios and showing that there remains significant sophisticated investor demand for this asset class. Large equity cushions are beneath senior secured debt, especially in the software sector.
And that AI narrative itself is exaggerated. The market is effectively pricing in something akin to an 80% impairment across software businesses. That assumes AI destroys incumbent revenue models wholesale. But AI may just as plausibly enhance productivity, improve margins, and expand enterprise spending. Even in disruption scenarios, lenders sit senior in the capital stack with significant equity beneath them.
With the recent negative market sentiment on private credits, the IRR difference between my portfolio and a hypothetical SPY-only portfolio narrowed to 174 basis points due to my portfolio's heavy weight on the alternative asset managers. It's been a painful period to see my portfolio drop in value in the last month, but I have a lot of faith in the alternative asset managers. I believe they will take advantage of the price turmoil by buying back shares while their business fundamentals stay strong.
P.S. My account has $68.30 from dividend distributions which I manually sweep to another account for earning a higher interest rate. I will transfer it back when I make new purchases for the portfolio.
Transactions
Recent and upcoming dividend distributions
Portfolio performance snapshot
Total return:
One-year return:
Portfolio IRR (calculation): 19.04%
Approximated IRR for an SPY-only portfolio: 17.3%
Individual holdings:
Breakdown by categories (real-time):
Total returns for individual holdings:
Last prices:
Portfolio holdings conviction
The convictions in the table below reflects my current opinions and will guide the future contribution of additional investment to existing holdings. Stocks not inside the table are stocks with subpar return on equity that will be very unlikely to receive more contributions from new money (there can be exceptions for very cheap stocks).
Conviction in long-term prospects means how much I believe a company would match or outperform the market (e.g. S&P 500) in the long run. Valuation matters so the conviction generally corresponds to the neutral rating of Valuation. It has the following ratings: weak, moderate, strong
Valuation: greatly overvalued, overvalued, slightly overvalued, neutral, slightly undervalued, undervalued, greatly undervalued
