April and May have been challenging months for the  Twinleaf Small Cap Value portfolio. In our opinion, the selling seems indiscriminate and part of a cyclical rotation away from small caps that will eventually run its course.

The recent underperformance is particularly disappointing given that we aim to avoid the high-multiple, momentum-type names that are vulnerable in market conditions like this.

We are long-term value investors, not traders. Our investment decisions are based on business fundamentals, industry trends and merger and acquisition possibilities. We continue to believe that every one of our portfolio companies is undervalued, well-positioned in its business segment and a very plausible candidate to be consolidated, though we have not yet had a company taken out in 2014.

One of the core Twinleaf investment focuses is digital video. In our view, consumers are consuming video content in vastly different ways than just a few years ago due to a confluence of factors including unaffordable pay TV bills, enhanced bandwidth, mobile connectivity and the explosion of professionally produced online content.

Digital video consumption is rising at a rate in the 40% range and digital video ad spending is rising at a 30%-plus clip. Many estimates have digital advertising (online and mobile) surpassing television advertising’s $60 billion in annual outlays in the U.S. by 2015 or 2016. Our portfolio is positioned to benefit from these trends in our opinion.

Disclaimer:All investments involve risk and various investment strategies will not always be profitable. Past performance does not guarantee future results.