February 2026: Episode 8

James McFarland (00:00.354)
Hey everyone and welcome to another episode of The Long and The Short of it where we talk about the market happenings over the last month for the Oak Harvest Long Short Hedged Equity Fund, OHFGX. My name is James McFarland. I’m joined by Charles Scavone and Chris Parris. The three of us are representing the portfolio management team for OHFGX. And in these videos, we like to talk about what we were thinking heading into the prior month, what we did during the prior month for the fund and what happened during the prior month.

So let’s go ahead and jump into it. Chris, what were we thinking heading into February, 2026?

Chris Perras (00:35.022)
Thanks, James. So heading into February, we’re thinking, know, February is typically up a little bit on the month, except it’s kind of a coin flip. So it’s 50-50 whether it’s going to be an up month or not. Most people on TV and in the financial press, we’re talking about the economy running hot and inflation cooling. We kind of had a different view. We’ve been messaging for a little while that we thought inflation was running higher than expected and growth was slower. So that was kind of contrary to most, but we were just trying to stick to earnings and stick to our growth companies and not think too much about the macro.

James McFarland (01:11.51)
Right, not trying to jump back and forth between factors like growth value and. Yep.

Chris Perras (01:14.99)
And factors, value, growth, momentum, yeah, just trying to stick to our growth stocks and then the hedge.

James McFarland (01:22.638)
Okay, okay, very good. So headed into February kind of a coin flip between whether the market’s gonna go up or down historically Has it usually been up or does it kind of vacillate between being up and down?

Chris Perras (01:32.43)
It’s usually been up, but I guess out of the last 10 years, six times it’s been down.

James McFarland (01:36.416)
Okay, okay. So an interesting environment as we go into February. And then what did we end up doing for the fund during February?

Charles Scavone (01:42.856)
Yeah, well, we’re still at the tail end of earnings reporting season. So to Chris’s point, very much focused on corporate earnings. these companies have to step up to the plate and provide sort of a report card four times a year. And so we’re always interested in that and what they’re saying and what their outlooks are. So with that in mind, we paid careful attention to what some of our large AI infrastructure companies were saying to see if the level of capital expenditures that they had talked about, if they were continuing that, and if they were in fact accelerating that. And in many cases, they are, and they were. And so that helped support what we refer to as sort of our picks and shovel strategy regarding how we invest in AI. And quite simply put, we’re not interested in in who’s gonna necessarily winner have the best product we want to just be in the way who are the recipients of those hundreds of billions of dollars in capex and so it’s a much we’d we believe it’s a much less risky way to identify good opportunities there.

James McFarland (03:01.324)
Have these huge players in the market who have billions of dollars that they want to spend they want to invest into this whole AI area and so we’re looking for who’s going to receive those dollars and those represent the better opportunities than trying to pick the winners.

Charles Scavone (03:13.902)
Right, because these companies that are spending all this money, it is of some question, what level of profitability will they earn from those expenditures? But if you’re on the receiving end of those dollars, right, we’re providing the widgets, you know, it’s pretty easy to put a pencil and paper and figure out sort of what the, our three primary tenets, sales, margins, and then return on invested capital. So, yeah, we think that’s a much better framework to use, particularly within the sector.

But we also look for continuation of our longer term secular themes, obviously AI being one of them, but also robotics, power generation. And so we stuck in our lanes there. And just sort of to reiterate something or frame it up even better, if you think about all these corporate earnings coming out, all these companies, that’s when we overlay our quantum mental process right it we have a five-person team but we’re very adequately more than i really staff to handle a tremendous amount of data because we break the process up into two pieces in the first part of that is a quantitative approach where we look to identify those companies generating accelerating sales margins in return on this is the number one just a number and then we can you know we can we can screen thousands we do thousands and thousands of companies and then we put our fundamental hats on and say okay is this sustainable right is it you know how long might it last and what’s you know what’s the price of it what’s the street asking for it to determine our investments that we make in the fund so that was pretty much it on the long side

James McFarland (04:57.07)
How about over on the short side of things?

Charles Scavone (05:02.09)
Yeah, so how do you sort of flip that on its head a little bit? Yeah, there was not a lot of new things in terms of themes running through the portfolios, but with all of the single stock volatility that we saw in the quarter or in the month, I’m sorry, February, that provides opportunity to really trade around, actively trade around those positions to take advantage of the weakness in some of these stock prices and then that also helps offset some of the overall portfolio volatility and hedges on the downside

James McFarland (05:39.592)
Sometimes there are a lot of new opportunities that we can come across, but other times it’s more just tactical. See, here’s an opportunity to add to this position or trim that position and just make a little money or save a little money here and there as we can.

Charles Scavone (05:51.032)
That’s a great way to put it and typical coming from the head of trading, right? It’s a tactical decision. That’s exactly right. So yeah, that’s exactly what we did. And we felt as though we were pretty effective in doing

James McFarland (06:02.868)
The third prong of our strategy, the hedging program.

Charles Scavone (06:05.842)
Yeah, so of course, know, we’re where our edge is picking stocks. That’s what we believe our edge is. So we try and then hedge out as much of that residual market risk as possible through our very disciplined systematic market hedging program. And it was very efficient in February and it helped.

James McFarland (06:24.778)
Efficient means good, by the way.

Charles Scavone (06:28.982)
We use it to help reduce overall portfolio volatility, right? Even though we own these very volatile stocks individually, there’s some of these techniques that we use to lower that overall volatility and are with our objective of being to deliver a higher risk adjusted return. So in that light, what I would point out is that we do remain very disciplined in that process and we didn’t get whip sawed around. We didn’t try and chase everything. Cause as Chris mentioned, there’s a whole ton of different factors, styles and things blowing through, but we stuck to our knitting that worked out well and we also had a very productive of call writing strategy where we tell so take advantage of the stocks when they spike up to sell calls against them and that we collect the premium and it helps offset some of the cost of our hedging right and that that work very well okay this month also.

James McFarland (07:16.596)
Very good, thank you Charles. Alright so then let’s close this out with how the month of February ended up going.

Chris Perras (07:22.2)
So it started off great, I guess, for the overall market. The market almost got to 7,000 a couple of times. Then it tended to sell off there into the end of the month. think it ended, the SP ended down about 90 basis points, a little less than percent. And that was largely due because a lot of the large cap growth stocks in the AI area sold off on some higher bond markets and concerns about higher inflation that started to ramp up through the month.

If you had looked at the factors that worked out during the month, you would have thought we had a lot of headwinds against the fund. There were a lot of things in the value space that worked, a lot of things internationally, a lot of low PE utilities and staples and things that aren’t really growthy. It’s a growth fund. Right, right, the hedge and shorting. We were able to over and carefully navigate the environment.

Particularly given it was a month that was anti-growth for a growth fund. So just to put in perspective, value outperform growth by something like over five percentage points on the month, which would be a headwind for us generally.

James McFarland (08:43.405)
All right, well very good. And if you’re interested in finding out more about the performance of OHFGX, we can direct you to Morningstar, www.morningstar.com for performance figures and more information about the fund. You can also look at www.oakharvestfunds.com to find out more information about OHFGX and investing with us. So as always, we continue to focus on being able to move quickly and effectively on executing our highest conviction ideas. Thank you, Charles. Thank you, Chris. and thank you for watching.

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