On May 17, 2024, Otter Creek Advisors launched the Otter Creek Focus Strategy ETF (OCFS). In doing so, they are providing an existing separately managed account strategy which launched on May 29, 2020, as an ETF. Otter Creek was founded in 1991 to manage a long/short hedge fund and, in 2013, launched a long/short mutual fund. That four-star fund remains their only other public offering.
OCFS is an actively managed ETF led by Corey Reed and Tyler Walling. Messrs. Reed and Walling are principals of the firm and are also responsible for the four-star Otter Creek Long/Short Opportunity Fund. The duo manages $2.6 billion across 13 accounts.
What the fund does: the strategy targets 20-25 high-quality small- to midcap US stocks. In particular, they target firms with “higher profitability, more attractive growth profiles, and high levels of free cash flow” than the average firm in the Russell Midcap Index benchmark. They’re looking for aggregate growth rates and profitability each 400-500 bps above the benchmark. The managers note, “We focus on investing in strong businesses with competitive advantages run by competent management teams. We are opportunistic from time to time, investing in corporate transformation and special situations.” They describe a three-step portfolio process:
First, companies across the small and midcap space get screened on competitive advantage, secular growth, a proven management team, and an above-average financial profile.
Second, remaining securities get thinned out to prioritize long-term earnings growth, cash flow, and return on capital, among other factors. That shortlist is typically 30-50 names.
Finally, the shortlist is narrowed based on growth outlook and internal rates of return to 20-23 names.
The most recent statistics for their Midcap Focus strategy bear out their success at reaching that goal. Somewhat smaller stocks with substantially higher quality and lower valuations than the index.
| Otter Creek | Russell Midcap | |
| Average market cap | $19B | $25B |
| P/E ratio | 18X | 20X |
| Operating earnings | 16% | 9% |
| Long-term earnings growth | 16% | 9% |
| Return on equity | 18% | 12% |
The strategy has an Active Share of about 95, indicating a very high degree of independence from its benchmark. They anticipate a turnover rate of 25%.
Why it might be interesting: At least on a total return basis, the strategy has been pretty consistently successful.
Comparison of Lifetime Performance (06/2020-06/2024)
| Focus Strategy | Russell Midcap Index | |
| 2024, through 6/30 | 13.92% | 4.96% |
| 1 Year Annualized | 23.18% | 12.85% |
| 3 Year Annualized | 5.93% | 2.35% |
| Since inception Annualized | 17.72% | 12.89% |
We’re pursuing the volatility metrics now.
Administrative details: the fund charges 0.85% on assets of just over $5 million. We do not have reports on personal investments in the new ETF but both managers and four of the five members of the board of trustees have personal investments in the Long/Short Opportunities fund.
The Otter Creek Advisors homepage and, separately, the Otter Creek Focus Strategy ETF page.