The Hickory Fund returned -13.15% in the first quarter of 2022, compared to -5.68% for the Russell Midcap Index. For the fiscal year ended March 31, 2022, the Fund returned -3.87% compared to +6.92% for the index.

Portfolio returns for the quarter and fiscal year were disappointing on both a relative and absolute basis. Entering January, the investment backdrop was already challenging. Accelerating inflation coupled with a hawkish turn at the Federal Reserve forced investors to recalibrate their expectations. The uncertainty was further compounded by the outbreak of war in Europe. Already elevated energy prices spiked as importers of Russian oil and natural gas looked for alternative suppliers, pouring more fuel on the inflation fire as supply chains not yet healed from the pandemic came under further stress. By quarter-end, the indexes had recouped some of their intra-quarter declines, suggesting some market participants believed risks had begun to abate. In our opinion, however, the near-term (at least) investment landscape remains fluid.

Our investment philosophy is centered on identifying high-quality businesses that we believe are growing in value and purchasing their shares at what we estimate are discounted prices. This approach necessitates a long-term perspective, measured over multiple years. Despite our long-term focus, we acknowledge our quarterly results were unsatisfactory and weighed down the fiscal year. Yet, despite these declines, we remain optimistic about our portfolio holdings, and we believe the underlying businesses are healthier than recent stock price action may appear. As several of our holdings became more attractively priced in our estimation, we’ve stepped in to buy. Most notably, this includes our new Gartner (IT) position as well as additions to CoStar Group (CSGP) and Dolby (DLB). At the end of the quarter, our portfolio traded at an estimated price-to-value ratio in the high 70s, suggesting a healthier outlook for forward returns compared to the low-to-mid 90s at the start of the fiscal year. The drawdown of stock prices and our trim and add actions both played a role in the more favorable forward-looking price-to-value ratio.

Our largest holding, Liberty Broadband (LBRDK, 26% shareholder of Charter Communications, CHTR), was a considerable detractor in both the quarter and fiscal year. The pandemic accelerated adoption of Charter’s broadband service as Americans sheltered at home, but as the country reopens, customer additions have naturally slowed. At the same time, competitors have announced lofty, multi-year targets for competitive wireless broadband offerings and expansions of fiber-optic service. Nevertheless, we think Charter still has a strong hand, including a network that’s already in place and can be affordably upgraded to remain competitive with fiber and its own fast-growing mobile offering that is taking share from incumbents in their core wireless business. Another silver lining: share repurchases at these lower prices can also accelerate growth in Charter’s per-share value.

CarMax (KMX) was also a two-time offender, proving to be a detractor in both the quarter and fiscal year. In the first year of the pandemic, shares more than doubled as supply chain disruptions limited the ability of automakers to deliver new vehicles to the market, pushing prospective buyers into the secondary market and sending the prices of used vehicles soaring. As we close the second year of the pandemic, demand for used vehicles remains high, but dealers’ inventories remain tight. And as inflation’s reach has broadened (importantly to include gasoline), investors are concerned with consumers’ ability to pay ever-higher prices for used vehicles. In the short term, unit volumes may be volatile, but it’s important to note that CarMax’s business model of targeting a consistent level of cash profit per vehicle sold helps insulate earnings from a decline in prices. Looking longer term, we remain optimistic that CarMax’s investments in its omnichannel (in-store, online or hybrid) buying experience, combined with national scale, positions them for success in the future.

The remaining top-five detractors for the quarter were Axalta (AXTA), LKQ (LKQ) and Black Knight (BKI), while Liberty Latin America (LILAK), Qurate Retail (QRTEA) and MarketAxess (MKTX) finish off the fiscal year’s top-five detractors.

Markel (MKL) was the lone standout performer for the quarter. Insurers typically benefit from a strong economy, as pricing tends to improve and the volume of risk to be insured grows. We also expect higher interest rates to translate into higher investment income as insurers recycle premium “float” into higher-yielding securities. The Fund’s new position in Gartner also provided a modest lift. Gartner is a leading provider of subscription- based research services to IT and business professionals (i.e., C-suite executives). Gartner’s business model is enviable: expert analysts create research reports that are then syndicated to subscribing clients. Analysts are also made available to clients for consultations. This one-to-many model allows clients to gain access to what otherwise may be cost-prohibitive research and critical business intelligence. Meanwhile, Gartner can invest back into additional research capabilities and still earn a very healthy margin.

AutoZone (AZO) was the Fund’s top fiscal year contributor. The market forces of higher prices and scarce supply of new or used vehicles led owners to invest more in the maintenance of their vehicles. LKQ’s recycled auto parts business similarly benefited, making it a contributor for the fiscal year. Markel’s strong quarter propelled it to be the second-greatest contributor for the fiscal year, while telecom services firm LICT (OTCPK:LICT) and aggregates supplier Martin Marietta (MLM) round out the top contributors.

Top Relative Contributors and Detractors

For the QUARTER ending 03/31/2022

TOP CONTRIBUTORS
	Return (%)	Average Weight (%)	Contribution (%)	% of Net Assets
Markel Corporation (MKL)	19.68	4.57	0.80	4.8
Gartner, Inc. (IT)	5.38	1.15	0.10	1.7
Liberty Braves Group-Series A & C (BATRA/BATRK)	-0.60	1.50	0.03	1.7

TOP DETRACTORS
	Return (%)	Average Weight (%)	Contribution (%)	% of Net Assets
Liberty Broadband Corp. – Class A&C (LBDRA/K)	-16.52	8.18	-1.36	7.9
CarMax,Inc. (KMX)	-25.89	4.46	-1.21	4.3
Axalta Coating Systems Ltd (AXTA)	-25.79	3.54	-1.06	3.3
LKQ Corporation (LKQ)	-24.18	3.44	-0.84	3.4
Black Knight, Inc. (BKI)	-30.04	2.21	-0.74	2.0

Holdings are subject to change and may not be representative of the Fund’s current or future investments. Contributions to performance are based on actual daily holdings. Returns shown are the actual returns for the specified period of the security. Additional securities referenced herein as a percent of the Fund’s net assets as of 03/31/2022: AutoZone, Inc. (AZO) 2.3%, CoStar Group, Inc. (CSGP) 5.2%, Dolby Laboratories, Inc. (DLB) 3.3%, LICT Corporation (OTCPK:LICT) 5.7%, Laboratory Corporation of America Holdings (LH) 4.4%, Liberty Latin America Ltd. – Class C (LILAK) 2.6%, MarketAxess Holdings, Inc. (MKTX) 3.2%, Martin Marietta Materials, Inc. (MLM) 3.3%, Qurate Retail, Inc. – Class A (QRTEA) 0.7%, Qurate Retail, Inc. – Preferred (QRTEP) 1.6%.

Average Annual Total Returns(%)
AS OF 03/31/2022
	YTD	1 YR	3 YR	5 YR	10 YR	Since Fund Inception	Inception Date	Net Expense	Gross Expense
Hickory Fund	-13.15	-3.87	8.87	6.16	7.27	9.21	04/01/1993	1.09%	1.14%
Russell Midcap®	-5.68	6.92	14.88	12.61	12.85	11.18	–	–	–

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.