Lumos Alpha Flagship Portfolio 2025Q2 Investment Report
- Zhilin Zhang
- Jul 5
- 3 min read
Portfolio Performance
As of June 30, 2025, the Lumos Alpha Flagship Portfolio delivered a year-to-date (YTD) return of 7.81%. (Performance figures reflect cash accounts only; returns for margin accounts may differ depending on the degree of leverage employed.)
The portfolio's return was achieved in a highly volatile and uncertain macroeconomic environment, underscoring the strength of our disciplined investment process and robust risk management framework.
Portfolio Activity and Strategy Updates
The second quarter of 2025 presented significant challenges for capital allocation, primarily due to heightened market volatility triggered by escalating global trade tensions and erratic geopolitical signals. Notably, abrupt policy updates and social media communications from President Trump frequently induced large intraday market swings, with index-level fluctuations exceeding 5% on many daily trading occasions.
Key Adjustments Made During Q2:
Positions Exited: BABA, ALL, SYF, GE, WM
These positions were divested following comprehensive re-evaluations of each company’s growth outlook, risk profile, and valuation. The capital realized was strategically reallocated to higher-conviction opportunities.
Increased Positions: NVDA, NFLX
New Positions Initiated: IBKR, two Chinese fintech firms, and one African company
These investments were initiated based on our valuation models, which identified these businesses as much undervalued relative to their underlying earnings power and long-term growth potential.
Special Note on SYF: While our models continue to rate Synchrony Financial (SYF) as undervalued, we exited the position in Q2 to enhance liquidity for risk hedging purposes during a period of elevated uncertainty. This tactical move enabled us to capitalize on two alternative fintech opportunities which we believe offer equal or superior long-term return potential. However, we still like SYF and wait for better opportunities to purchase its shares.
Portfolio Fundamentals and Quality Assessment
The Flagship Portfolio remains anchored in high-quality businesses that demonstrate strong balance sheets, superior capital efficiency, and attractive long-term growth trajectories. The table below summarizes key fundamental metrics of the Flagship Portfolio, grouped by financial category and benchmarked against recent S&P 500 (as of mid-2025). (Note: The table summarizes the portfolio’s current holdings, which represent approximately 80% to 85% of total capital.)
Liquidity & Capital Structure
Metric | Portfolio | S&P 500 Avg | Commentary |
Debt/Equity | 0.6 | ~1.6 | Significantly lower leverage |
Current Ratio | 2.0 | ~1.2 | Stronger short-term liquidity |
Quick Ratio | 1.5 | ~1.0 | High-quality liquid asset base |
Interest Coverage | 160 | ~20 | Exceptional debt-servicing capacity |
Our Flagship Portfolio maintains a conservative capital structure and robust liquidity profile, positioning it well for defensive resilience and opportunistic deployment.
Profitability & Capital Efficiency
Metric | Portfolio | S&P 500 Avg | Commentary |
Gross Profit Margin | 59.5% | ~40% | High product/service profitability |
Operating Margin | 35.7% | ~16% | Strong operational leverage |
Free Cash Flow (FCF) Margin | 31.4% | ~13% | Substantial cash generation capability |
Return on Equity (ROE) | 46.5% | ~18% | Excellent return on shareholder capital |
Return on Invested Capital (ROIC) | 41.7% | ~10% | Strong capital allocation discipline |
Our Flagship Portfolio exhibits best-in-class profitability, reflecting both premium business models and effective management execution.
Growth Metrics
Metric | Portfolio | S&P 500 Avg | Commentary |
Revenue 3-Year CAGR | 21.1% | ~8% | Strong historical revenue growth |
Revenue Forward 2Y CAGR | 16.0% | ~6–8% | Above-market forward growth expectations |
EPS 3-Year CAGR | 35.8% | ~10% | Exceptional earnings expansion |
EPS Forward 2Y CAGR | 33.2% | ~8–10% | Continued earnings momentum anticipated |
Our Flagship Portfolio is strategically tilted toward high-growth companies with durable competitive advantages and strong secular tailwinds.
Valuation & Cash Conversion
Metric | Portfolio | S&P 500 Avg | Commentary |
PEG Ratio | 1.1 | ~1.6 | Attractive valuation relative to growth rate |
Free Cash Flow Yield | 5.6% | ~3% | Strong cash return on equity capital |
Cash Conversion Ratio | 133% | ~100% | High efficiency in converting earnings into cash |
Our Flagship Portfolio holdings offer attractive valuation relative to growth and deliver strong shareholder returns through cash generation.
Industry Allocation
Our Flagship Portfolio maintains diversified exposure across sectors, with a strategic tilt toward growth-oriented industries. The chart below shows the current distribution by industry.
Special Notice
In the Flagship Portfolio, approximately 15% to 20% of capital is consistently allocated to an AI-driven algorithm designed to enhance upside potential while mitigating downside risk. Since June 2025, this allocation has been transitioned to our newly deployed Quant-I Algorithm. Originally developed prior to 2020, Quant-I was tested with real capital in live market conditions from 2020 to 2024. Following five years of successful real-world evaluation, the algorithm has now been deployed across all managed client accounts. For more information about this algorithm, please visit: https://www.lumosalpha.com/quantportfolios
Outlook
While we anticipate continued volatility through the remainder of 2025, we remain confident in the strength of our holdings and the rigor of our investment process. The portfolio is well-positioned to capture upside in selectively growing sectors while maintaining downside protection through superior fundamentals and liquidity management.
We will continue to evaluate opportunities and risks dynamically, adjusting exposures as conditions evolve. Our focus remains on long-term capital appreciation through disciplined, high-conviction investing.
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