Key Takeaways
- • Kernow Asset Management reported a 0.1% decline for the month ended September 30, 2026, per its September letter.
- • The firm says it has underperformed its "Hindsight Portfolio," a hypothetical flawless portfolio it benchmarks against instead of the index, and that lower-quality companies have recently driven the gap.
- • Kernow argues the market is rewarding the correction of failure more generously than the continuation of success, with investors pricing in turnarounds before they occur.
- • The letter cites an unusually high ratio of takeovers to IPOs, which it says gives brokers an incentive to push turnaround and takeover candidates, and draws private equity into poorly managed businesses.
- • Kernow defines quality by asking how easily a business could be copied, using a local coffee shop as an illustration.
Summary
Kernow Asset Management's commentary for the month ended September 30, 2026 reported a down month of 0.1%. The letter's central theme is the definition of quality. Kernow measures its portfolio monthly against the Hindsight Portfolio, a hypothetical flawless portfolio the firm could theoretically have constructed, rather than against a market index. According to the letter, Kernow loses to this benchmark every time, and recently the cause has been lower-quality companies continuing to outperform.
The firm attributes this to market behavior. In Kernow's view, the market is rewarding the correction of failure more generously than the continuation of success. Investors are anticipating successful turnarounds before they have been achieved, and this is placing pressure on complacent boards at low-quality companies, which face the prospect of being taken over if they fail to act.
The letter also points to the ratio of takeovers to IPOs, which it describes as unusually high. With fewer new listings to promote, brokers have an incentive to push turnaround and takeover candidates, and poorly managed businesses are attracting private equity buyers. Kernow cites easyJet as an example, arguing that the airline's aircraft and landing slots may be worth more than the takeover offer.
To frame its own definition of quality, Kernow asks how a business would be copied. The firm suggests that some businesses could be replicated in a fortnight while others would take a lifetime. The full letter is available only after free account registration on the Hedge Fund Alpha platform.
The firm attributes this to market behavior. In Kernow's view, the market is rewarding the correction of failure more generously than the continuation of success. Investors are anticipating successful turnarounds before they have been achieved, and this is placing pressure on complacent boards at low-quality companies, which face the prospect of being taken over if they fail to act.
The letter also points to the ratio of takeovers to IPOs, which it describes as unusually high. With fewer new listings to promote, brokers have an incentive to push turnaround and takeover candidates, and poorly managed businesses are attracting private equity buyers. Kernow cites easyJet as an example, arguing that the airline's aircraft and landing slots may be worth more than the takeover offer.
To frame its own definition of quality, Kernow asks how a business would be copied. The firm suggests that some businesses could be replicated in a fortnight while others would take a lifetime. The full letter is available only after free account registration on the Hedge Fund Alpha platform.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.