2024 Annual Report

Garrison Fathom’s Fund I delivers returns 2.5x that of the S&P; net growth is over 122% since 2022

Garrison Fathom
13 min readJan 15, 2025

Garrison portfolio performance

This year marked another milestone in the success of our investment strategy. After finishing 2023 with a remarkable 42% net gain, GFI closed 2024 with an impressive 58% net return. This performance was more than double the gains of the S&P 500 and NASDAQ, and over 4.5 times the gains of the Dow. Notably, GFI’s beta versus the S&P 500 continues to decrease, reflecting reduced correlation with broader market volatility. GFI, which began with a beta of approximately 0.98, now stands at 0.90.

2024 also marked the third consecutive year of GFI outperforming the S&P 500 — an unbroken streak since the fund’s inception. This track record includes 2022, a year when markets took a significant downturn. While the S&P 500 closed 2022 in the red, GFI finished the year in the green. Over the past three years, GFI has consistently delivered more than double the gains of the S&P 500, demonstrating the robustness of our strategy even amidst challenging market conditions.

The performance of GFI continues to outshine. Since January 2023, we have consistently pulled away from the market indices every single month, and some of our investments (such as Rocket Lab, Palantir, and GE Vernova, discussed later in this report) have been key drivers in this outperformance. Since 2023, we have maintained an average compound monthly growth rate of 1.81% (1.45% since inception) and a Sharpe ratio that has consistently outpaced the broader market (on average, our Sharpe ratio has consistently been approximately twice that of the S&P since the inception of GFI). This validates our approach of maximizing return per unit risk.

We concluded 2024 with a Sortino ratio exceeding 4, approximately twice that of the S&P 500. Additionally, our downside deviation outperformed the broader market, further underscoring the strength of our low-risk strategy. This performance highlights that the portfolio’s volatility is heavily skewed toward upside risk. In our view, this approach represents the only correct way to manage investments, ensuring both reduced downside exposure and maximized opportunities for growth.

Our risk measures since inception continue to outperform the broader market, and our Sharpe and Sortino ratios have remained approximately twice that of the S&P since the inception of GFI. The following benchmark comparison further verifies that our outperformance has been due to consistency, not outsized positions, leverage, or other approaches. The long-term focus of our investment strategy continues to hold.

The monthly return comparisons for Garrison and the S&P are shown below.

Changes to portfolio allocations

Some minor portfolio allocations were made during Q4 based on macroeconomic and geopolitical concerns. The rationale for these decisions is detailed in this blog post and summarized below.

Closed out positions in $CVX, $HSY, $KHC, $ODFL, $TSM

Chevron

We remain bullish on the energy sector; however, Chevron’s performance has not met our expectations. Following a comprehensive review, we have decided to close our position in Chevron, securing a modest net gain, in order to redeploy capital into opportunities with higher growth potential.

Hershey & Kraft Heinz

Prevailing macroeconomic conditions (such as the Fed’s continued mismanagement of interest rates: see previous articles on the subject here, here, here, and here) have given us reason to believe that the performance of these two companies will be adversely impacted in 2025, including ongoing supply chain disruptions (including the threat of yet another port strike), rising cost of goods, eroding margins, and shifting consumer behavior.

ODFL

Old Dominion Freight Line ($ODFL) has been a standout performer in our portfolio, driven primarily by its industry-leading operating ratio, but industry-wide the annual change from 2022 to 2023 in shipment count and per-shipment revenue has decreased substantially in both the truckload and less-than-truckload (LTL) segments, and we do not foresee this abating in 2025.

TSMC

We cannot overlook the persistent geopolitical risks facing Taiwan Semiconductor Manufacturing Company, which we believe will remain as long as the Chinese Communist Party holds power. While the “Silicon Shield” offers some degree of protection to Taiwan, its effectiveness has limitations, and the Chinese threat will continue regardless of the outcome of next month’s election.

Took position in $D

The thirst of data centers shows no signs of abating (and, it must be noted, the entire country needs more energy as well), and we remain bullish on energy. In line with this outlook, we have initiated a position in Dominion Energy ($D), a key provider of electricity in Virginia, home to the renowned Data Center Alley. The increasing wait time for data center power hookups — rising from four years to as much as seven — creates a steady income stream for Dominion, further solidifying the natural monopoly that utility companies typically enjoy. Dominion also operates four active nuclear facilities and has plans for additional investments in the nuclear space (it is, after all, the only viable option for the country’s long-term energy needs). Soon after our opened position in Dominion Energy, the company announced a partnership with Amazon on a major investment in the development of Small Modular Reactor (SMR) nuclear development in Virginia.

That said, the US is still very much a natural gas economy, which makes our position in GE Vernova (which has seen demand for its turbines surge in recent years) all the more important and vital to the long-term success of our investment strategy.

Took position in Treasury short ($PST, $TBF)

We have taken our first short position via inverse ETF (not direct short-selling), specifically the ProShares UltraShort 7–10 Year Treasury ($PST) and the ProShares Short 20+ Year Treasury ($TBF). We subsequently sold our $TBF position during Q4. The remaining $PST position only constitutes approximately 1.5% of our portfolio, but reflects our concerns regarding the uncertainty surrounding Federal Reserve rate policy and the overall condition of the U.S. economy. Jobless claims have risen steadily, jobs numbers have consistently been adjusted downward (and have trended downward for the past 2.5 years) and other labor market metrics (such as the number who have remained unemployed for at least 27 weeks) indicate underlying weaknesses in the labor market that cannot be ignored. This is exacerbated by the Fed’s three poorly-timed and ill-advised rate cuts, which have sent Treasury yields soaring (especially the ten-year); in fact, the ten-year yield has increased by about as much as the Fed has cut rates, suggesting that despite the rosy picture painted by Powell the markets are uncertain about the Fed’s ability to tame inflation. This is exacerbated by the fact that all three inflation indices have steadily risen in the wake of these rate cuts.

Source: data from FRED, image by authors.

Rebalance on macroeconomic and geopolitical concerns

We have reduced our exposure in Apple, Google, and Microsoft due to concerns over political hostility toward the tech industry (including Google’s current antitrust woes) and the retirement of one of Apple’s key executives, Dan Riccio, who has been instrumental in the company’s ambitious push into mixed and augmented reality. In addition to these factors, we believe that the valuations of these tech giants are becoming increasingly inflated, mirroring the trends we see in the broader S&P 500. As such, we felt it prudent to recalibrate our positions in light of these developments.

We have decided to reduce our position in Service Corporation International ($SCI) due to its recent performance. Although this investment has yielded a modest net gain of 2% and we continue to recognize the potential upside associated with the Silver Tsunami demographic trend, we believe that this capital can be more effectively allocated to other opportunities with higher growth potential.

NVIDIA’s dominant lead in the AI space shows no signs of wavering, prompting us to slightly increase our position in the company. While overall AI spending is expected to persist, we anticipate a shift toward more strategic investments as “AI” transitions from a buzzword to a demand for tangible returns on capital expenditures. In the coming years, corporate AI spending will likely become increasingly targeted, and few competitors can match NVIDIA’s capabilities and market position in this arena.

The geopolitical concerns previously mentioned warrant an increase in our position in Itochu ($8001.T), given the company’s low price volatility, consistent performance, and extensive diversification across multiple industries. Not to mention, Japan is mostly neutral in the looming threats geopolitically. Additionally, these same concerns have led us to slightly bolster our stakes in Northrop Grumman ($NOC) and L3 Harris ($LHX), both of which are well-positioned to navigate the complexities of the current geopolitical landscape.

We have reduced our position in JPMorgan Chase ($JPM) due to growing concerns within the financial industry, especially risks associated with capital requirements for banks; this is highlighted by the rate environment that prevailed throughout the year, and its impact on capital adequacy measures necessary to mitigate CET1 exposure relative to Held-to-Maturity (HTM) and Available-for-Sale (AFS) assets. Approximately 1,000 banks nationwide exhibit high potential unrealized losses, with these losses representing roughly 20% of HTM and AFS assets as a percentage of CET1, many of which are left-skewed. The potential HTM and AFS losses at several institutions could exceed 100% of their CET1 capital. Moreover, the exposure to commercial real estate (CRE) adds another layer of risk, with over 100 banks reporting CRE exposure exceeding 100% of their core equity.

We have slightly increased our position in Rocket Lab ($RKLB), partially driven by its recent NASA contract for the ambitious mission of retrieving rock samples from Mars. This endeavor would not only mark the company’s first interplanetary mission but, if successful, would elevate Rocket Lab’s status to the “grown-ups’ table” in the launch services industry, positioning it alongside industry giants like SpaceX and United Launch Alliance. Rocket Lab also closed out 2024 with 14 orbital launches (flights 43–58, all successful) and two suborbital flights of the HASTE testbed. This year promises to be bright for the company, with ten upcoming missions already in the works (some of which will require multiple launches. 2025 should also see the first flight of the medium-lift Neutron rocket, which has already signed customers and which will feature a payload capacity 43x greater than that of Electron (13,000 kg to low earth orbit for Neutron, versus 300 kg for Electron). The company is predicted to hit revenues of over $594 million in 2025: an incredible 63% increase in revenue over twelve months. The company is also growing significantly faster than the broader industry: aggregate estimates place revenue growth for Rocket Lab in line with its 46% LFY annual revenue growth, compared to the industry expectation of 4.4%.

We increased our positions in GE Vernova ($GEV) and Valero Energy ($VLO) in response to the growing energy demands not only from data centers but across the nation as a whole. GE Vernova’s focus on nuclear energy technologies will play a crucial role in facilitating the transition away from fossil fuels (although the company still dominates the natural gas turbine market), positioning the company as a key player in the future energy landscape. Meanwhile, Valero Energy stands to benefit from strong and steady profitability through its natural gas and co-generation plants. In addition to its robust current operations, Valero also offers significant upside potential through its investments in “green fuel” applications. Together, these companies represent a strategic alignment with the evolving energy needs of the market.

Closing thoughts and future outlook

We have previously published our strategic insights for 2025 and beyond, and they are summarized here.

Investors face the paradoxical environment of economic resilience despite looming risks. First and foremost, we see 10-year Treasury yields hitting 6%, a correction on the order of 10–15% in the stock market, and the U.S. economy entering into stagflation that will drag the rest of the global economy along with it. Much of this will likely be driven by the consequences of the Fed’s rate policy. Since 2020, price levels across all major inflation indices (CPI, PPI, PCEPI, core, and supercore) have increased well above where they would be had the Fed aggressively hiked rates to adhere to the 2% inflation target. We’ve called attention to this faulty approach to rate policy as far back as August 2022. Our concerns were confirmed by the Fed’s super-sized rate cut in September 2024, which sent both inflation and Treasury yields skyward. Yields (especially the ten-year) have risen by more than Powell has cut rates, erasing whatever “progress” Powell had hoped to achieve and signaling that the markets expect inflation to return.

Source: data from FRED, image by authors.
Source: data from FRED, image by authors.
Source: data from FRED, image by authors.
Source: data from FRED, image by authors.

Maintaining positions in the technology and AI sectors appears prudent, but we would urge caution in housing-related investments and commercial real estate, where weakness is evident and rising yields may pose challenges to equity valuations and borrowing costs. Additionally, despite a possible surge in M&A activity that will be good for the financial sector, we urge caution as banks are going to be vulnerable in an economic downturn with numerous debt concerns with corporations and governments, not just consumers.

NVIDIA in particular has dominated the world of AI, and the reasons why are hardly surprising: while the power requirement for data centers is well-known, the chipmaker has plenty of characteristics that prove it can back up analysts’ lofty expectations. For starters, the company dominates the GPU world and the software that controls them, and the company’s Blackwell chip promises 30x+ faster LLM performance than its previous superstar, the blistering H100 (a chip so powerful that it gave the company a staggering 98% market share in AI data center chips in 2023). This will benefit both conventional large-language model applications (e.g. generative AI) as well as often-overlooked applications such as translation, localization, market research, education, and classification (including AI-powered fraud detection). This is especially important given that data centers are expected to invest $1 trillion over the next four years to upgrade their infrastructure, much of which will likely go toward shipments of Blackwell chips.

We see a high likelihood of inflationary resurgence over the next 18 months, akin to the 1970s. Inflation has already begun to whipsaw since the Fed’s previous two rate cuts, and currently all inflation metrics are trending well above the Fed’s 2% target. The Atlanta Fed’s measure of sticky inflation has increased to 3.8% in December 2024, indicating that Powell most certainly has his work cut out for him. We are prepared for higher rates, with 10-year yields potentially reaching 6–7%. Three rate cuts have sent yields steadily climbing, and falling global demand for Treasuries (both China and Japan have sold record amounts of the securities in the third quarter) also bodes ill for their outlook. For want of aggressive rate policy in 2021, it is likely that whatever brief post-covid recessionary pain was necessary will now be dragged out for the next couple of years, as the Fed now does not expect inflation to return to 2% until 2027.

Palantir remains one of our best-performing investments, and we look forward to their continued success in 2025 and beyond. Where NVIDIA dominates in AI hardware, Palantir dominates in software. The company continues to literally terraform the AI landscape and is set to join the NASDAQ 100, and while the significance of its most recent contract (a seemingly paltry $36.8 million deal with USSOCOM) was overlooked by many, the fact that Palantir has been established as the lead software integrator for SOCOM’s Mission Command System means it will continue to expand special operations solutions globally. It also brings Palantir’s cutting-edge AI capabilities to SOCOM, which could very well be a significant battlespace differentiator. Although the company’s valuation makes it vulnerable to correction, a fully-Republican administration with close ties to the founders of Palantir will likely lead to increased spending on defense and security, translating to increased demand for Palantir’s products and services.

Meanwhile, commodities such as gold remain indispensable as inflation hedges, and uranium investments present a unique opportunity driven by AI’s energy demands. Infrastructure investments critical to AI development, particularly in the energy sector, should not be overlooked. This is especially true given that the demand for near-term data center build-outs is physically impossible to meet given the stresses inherent in the current grid system: not only is capacity constrained, but geopolitical pressures (such as China weaponizing its mineral wealth) promise to put upward pressure on several commodities prices, especially those that are vital to the foundations of the AI industry: silicon, steel, quartz, copper, and rare earths.

Companies such as Amazon and Meta are attempting to stay ahead of the curve with their interest in nuclear power — which we have repeatedly and routinely touted as the only real solution for clean energy, and it would seem that the global market agrees — and this capital push will likely continue throughout 2025 and beyond because the underlying fundamentals are permanent: data are created at a dizzying pace (over 400 million terabytes per day) and the competitive edge offered by data will not decrease for the foreseeable future, meaning the need for massive data centers and equally massive energy infrastructure projects will also only increase.

Guiding these strategies are the timeless investment principles, such as those championed by Stanley Druckenmiller and Warren Buffet, by which we live. Concentrating investments in high-conviction ideas, being adaptable to changing conditions, diversifying across asset classes, and integrating bottom-up research with macroeconomic insights are all essential. High-conviction positions, supported by rigorous analysis, can yield substantial returns even amid market uncertainty. Several key risks bear close monitoring: the trajectory of inflation, potential shifts in Federal Reserve policy, the sustainability of the fiscal deficit, corporate debt refinancing cycles, and political developments, especially those related to the results of the 2024 election. Additionally, the adoption rates and disruptive effects of AI, coupled with bond market stability, will play critical roles in shaping the financial landscape.

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Garrison Fathom
Garrison Fathom

Written by Garrison Fathom

Building and investing in organizations with a focus on disrupting the status quo for the benefit of both investors and society as a whole.

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