Investing
Quercus Fund posts wildest monthly swings in its history through mid-2026
By Bear Creek Staff, . Bear Creek Capital Network.
The Quercus Fund's second shareholder letter of 2026, published by Seeking Alpha, opens with a blunt acknowledgment: seven of the first eight months of the year produced monthly returns greater than 7% up or down, which the fund's manager describes as the most volatile monthly sequence in the fund's history. The letter does not attribute that volatility to any single cause, listing tariffs, wars, artificial intelligence developments and bond yields as partial explanations before dismissing the exercise. The manager's preferred frame is Ben Graham's line, made famous by Warren Buffett, that "the market is there to serve you, not to instruct you."
The largest single source of that volatility, according to the letter, was Sanjiang Chemicals. The stock rose 86% from the start of the year to its peak, then fell 53% to a bottom on July 13 that coincided with a first-half 2026 profit alert. The manager notes that the peak came more than a month after a regional conflict began, which he argues is proving to be a net positive for the company, making the subsequent selloff difficult to explain on fundamental grounds. First-half 2026 net profit was up more than 100% year over year and more than 60% larger than the full-year 2025 figure, driven by flexibility in feedstock sourcing and sales mix. The fund remains a holder. The manager expresses confidence in Sanjiang's management, noting that the company climbed from the bottom quartile of the industry cost curve to a competitive position over less than a decade without issuing equity, and that two leased very large ethane carriers will soon allow the cracker to run consistently on imported ethane.
On the exit side, the fund sold its entire position in Compagnie de l'Odet, which the letter says is the first time since the fund launched that it has held no shares. The manager says the investment case has not collapsed: the company's value per share remains obscured by a complex corporate structure built around Universal Music Group. The stated reason for selling is that better opportunities exist elsewhere. He adds, as a secondary consideration, that artificial intelligence represents a growing threat to Universal Music Group's business and that the annual outlay for music catalog acquisition now looks like a recurring cost rather than a one-time investment.
The fund also sold its Braskem Idesa bonds. Braskem Idesa filed for Chapter 11 in August 2026 and, under a pre-agreed restructuring, is expected to emerge roughly a month from the time of writing. The letter describes the post-restructuring debt as splitting into exit notes, which function as existing debt that took a haircut, and equity special purpose vehicle notes. The manager's concern with the equity SPV notes is that Braskem S.A. holds call options against them, capping upside for other holders, while a portion of a separate creditor's claim is not subject to those calls. He describes the equity SPV notes as bond-like in practice and concludes that the combined value of both tranches likely exceeds the price at which the fund sold, but that the capital can be deployed more productively.
The new position described at length is in FPH and the Lopez family holding structure in the Philippines. The entry point, according to the letter, was a discovery that a 4% stake in Meralco, the largest Philippine utility, was being carried on FPH's balance sheet at a value equal to FPH's entire market capitalization, while the stock traded at roughly 2 times earnings. The Lopez structure runs from Lopez Inc. down through Lopez Holdings to FPH to FirstGen, which controls geothermal assets through Energy Development Corporation, as well as hydro and natural gas plants. The geothermal angle matters because the Philippines is among the world's largest geothermal producers and has set targets to expand renewable energy's share of its power mix significantly. The manager notes that some Philippine geothermal wells have operated for more than 40 years.
The fund's overall portfolio, as described in the letter, trades at a look-through recurring price-to-earnings ratio of less than 3.5 times, with the manager estimating intrinsic value at roughly three times the current price. A third of the portfolio consists of positions initiated during 2026.
What the Seeking Alpha publication of this letter does not establish is the fund's total assets under management, its fee structure, or the identities of other holdings beyond those discussed. Investors watching concentrated value funds with heavy Asia and emerging-market exposure will find the Sanjiang and FPH theses worth tracking, particularly as the Philippine energy buildout and Chinese chemical cycle both develop over the next several quarters.
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