Bastion Industrial and Infrastructure Portfolio Fourth Quarter 2025 Letter

Bastion Industrial and Infrastructure Portfolio Fourth Quarter 2025 Letter

Corporate management is the most powerful source of optionality

By John Rotonti, Portfolio Manager

The Bastion Industrials and Infrastructure model portfolio launched on January 24, 2025. In the full-year since inception (through the market close on Friday January 23, 2026) the portfolio appreciated 23.74% net of a 1% fee, compared to the S&P 500 which returned 14.80% during the same time period. The model portfolio return was generated while maintaining a high-teens to 20% cash position throughout the year in a money market fund yielding about 4%. 

The good fortune for a new portfolio manager to come out of the gate strong with a first year of material outperformance is not lost on me. I feel blessed with the result for my clients and myself. But I want to level-set expectations. Part of this outperformance was surely luck. I place no importance on short-term results (even results that flatter me), and I encourage you to do the same. Importantly, I think that 8.94% of alpha (after fees) is extraordinary, and I do not expect to maintain this level of outperformance over time.

The model portfolio currently has 24 stock positions. Twenty-three of the twenty-four stocks are “day 1 stocks,” meaning they have been in the portfolio since inception. I will update our day 1 stock count on an annual basis. The top ten stocks account for 48% of the portfolio. I expect that the portfolio (as measured by the number of stocks and the weight of the top ten positions) will consolidate to some degree over time. In other words, I expect that our number of holdings may drop and the weight of the top ten holdings may rise. The portfolio is less diversified and more volatile than the S&P 500 and not for the faint of heart or those with shorter investment horizons. I’m investing client capital with a ten to thirty-year time frame. 

The world is complex and adaptive, and the future is therefore unpredictable. Even absent this complexity, I’ll make some bonehead mistakes. I understand the allure of trying to “hedge” against unpredictability (and my fallibility) by owning a long-tail of small positions, but I feel like indexing a portion of your capital can solve for that with lower fees. I prefer to manage the unpredictable nature of the world by giving more capital to the management teams that I think have best positioned their businesses to remain resilient and adaptable in the face of constant change and even occasional chaos (think tariffs) and crisis (think recessions). Here is what I wrote in my Q3:2025 letter…

“I also believe that good things happen to great companies. I have found that great companies end up surprising to the upside over time because they make their own luck by finding (and sometimes even creating) new profitable growth opportunities and building optionality into the business model. Superb management teams create cultures that adapt to the highly unpredictable and rapidly changing world so that their products and services remain relevant, in high demand, and reflective of where the future is likely going. Great companies can get rejuvenated during a crisis because they have the financial resilience and firepower to invest countercyclically during downturns by acquiring assets at distressed prices or repurchasing large amounts of undervalued stock. These actions during a crisis can plant the seeds for higher market share, accelerated growth, higher margins and returns on invested capital, and higher earnings power once the crisis subsides. Surviving and even thriving through the crisis also can make companies stronger, more resilient, even anti-fragile…forged in fire, so to speak.”

I’d like to spend the rest of this letter talking a bit more about corporate management, which is the single criteria that I weigh most heavily in picking stocks.

People build great businesses. The best leaders think and act like owners, meaning they are hard-wired to do what is best for shareholders over the long-term. This doesn’t mean that shareholder value creation should come at the expense of other stakeholders. Rather, owner-operators understand that maximizing long-term shareholder value can only be accomplished by creating win-win situations for shareholders and other crucial stakeholders. 

The best leaders can make a good company great or a great company beyond compare. They set the mission or purpose and make sure the employees are aligned in living the mission or purpose every day. They set the strategy, determine the business model, and choose the markets to participate in. The best leaders excel at both operating the business and allocating financial and human capital. They insist on maintaining a healthy balance sheet and have a deep understanding and appreciation for return on invested capital (ROIC) and the other drivers of intrinsic value growth. They understand that a self-funding business with a strong balance sheet, profitability, and free cash flow (FCF) generation build resilience and optionality. 

They build and nurture cultures based on continuous improvement, adaptability, and resilience. They never settle, are never satisfied, and never rest on their laurels by thinking shareholder capital is safe behind a legacy moat. Rather they invest to defend and widen existing moats and to build new moats and profitable growth streams over time. Some refer to this as stacking S-curves and others as orchestrating second or third acts. Whatever you call it, the purpose is to extend the competitive advantage and longevity runway of the business, and to maximize long-term shareholder value. I think it’s this culture of self-funding resilience and adaptability that is the greatest source of competitive advantage and optionality in a world where change is constant and accelerating. I think this is why @sidecarcap on X has written that “talented management will pull rabbit after rabbit out of their hat” and that “management strength is a company’s ultimate leading indicator.”

Every decision these leaders make is focused on identifying profit cycles, building longevity and survivorship, and maximizing long-term intrinsic value per share. They try to ride long profit cycles and extend the duration of growth rather than maximize the rate of growth in the short-term because they understand base rates and the math of compounded returns. 

These leaders understand that bigger is not always better, that focus can be a superpower, that FOMO is a deadly disease, and that sometimes shrinking (selling off underperforming assets) is the best way to grow at the per-share level. They are not perfect and are as candid and transparent about their mistakes as they are their successes. 

I recently said that Scott Strazik was my favorite CEO in the Bastion Industrials and Infrastructure portfolio because he says the things and does the things that I wish all CEOs would say and do. Here are a dozen examples of what I mean…

✔Scott is candid and focuses on the things that matter. Under the Company Updates section of GE Vernova’s press release each quarter GE Vernova starts by reporting fatalities (if there are any). GE Vernova is not obligated/required to include fatalities in its earnings press releases, and even if it were (which it isn’t), it could choose to hide it somewhere at the end or in the footnotes. But GEV chooses to lead with fatalities and make the number prominent. The fact that it does demonstrates to me the transparency and importance that the GEV culture places on “achieving and sustaining fatality-free operations.”

✔ Scott is building a solid track record of under-promising and over-delivering financial results, and telling you that is what he is doing. In other words, he wants to guide conservatively and outperform over time. 

✔Scott has a long-term mindset. At the December 2025 GE Vernova Investor Day, Scott shared three-year (medium-term) financial targets (once again that he says are “grounded” with “opportunities to outperform”), but spent an equal amount of time at the investor day talking about his high conviction in the drivers of the business over the next ten years!

✔Scott and his team are selling off (divesting) non-core, lower margin, lower growth businesses. This has the effect of improving organic growth, margins, and ROIC at the corporate level while also building net cash for resilience and optionality. At the same time, he is acquiring businesses that will drive growth at higher margins and ROIC. For example, the recently announced Prolec acquisition is immediately accretive to GE Vernova’s margins, before any synergies, because Prolec has EBITDA margins of 25% compared to GEV’s estimated 2025 adjusted EBITDA margins of about 8.5%. Also, the bolt-on acquisition of Woodward allowed GEV to vertically integrate key parts of the supply chain while expanding gas turbine capacity with limited CapEx. This is the type of profitable growth, lean manufacturing, high ROIC mentality I’m looking for. Here is how Scott described the benefits of the acquisition in GEV’s Q2:2025 call: “A great example of this is our acquisition of Woodward’s gas turbine parts business, which includes a factory that allows us to redirect work and optimize the layout of our Greenville plant with limited CapEx spending and improved productivity in our Gas Power supply chain. Prior to our acquisition, this site experienced 50,000 labor hours in ’24. But after approximately 100 days since close, we now see a clear path to 90,000 hours in the factory by ’28, freeing up space in our Greenville factory to drive more productive growth. These are the kinds of transactions we are working hard to add to our pipeline, where we see clear opportunity to complement the growth in markets we serve with our lean discipline to do very attractive, lower risk and accretive deals in our core.”

✔Scott understands history and capital cycles (the power industry has been violently cyclical in the past) so he is using GE Vernova’s global leadership position in an oligopoly to set the example of not overbuilding because supply (capacity) is what drives capital cycles over time. Scott is careful to not overbuild, instead focusing on delivering for customers that are waitlisted for product out to 2029. Scott said that there is no reason to risk increasing capacity today because gas turbines are not the only component in the power generation and AI supply chain with a long lead time and because they are getting great economics (pricing power and higher margins) on the out-year backlog. Scott and CFO Ken Parks have made sure the cash down payments GEV receives for gas turbine orders and slot reservations are “nonrefundable.”

✔At the same time, when he does invest capital to increase capacity he does so in a very capital efficient (low CapEx, high ROIC) way by (1) using lean to increase capacity at existing plants, (2) making bolt-on acquisitions to vertically integrate the supply chain and manufacturing prowess (see Woodward acquisition above), and by (3) forming joint ventures or other types of partnerships with leading energy and tech companies (such as Amazon Web Services, Chevron, NextEra, and NRG Energy) to share in the cost of growth. Scott understands that capital has a cost and IMO he’s laser focused on maximizing the spread between ROIC and cost of capital, which is a key driver of intrinsic value growth. 

✔Scott and his team are building a long-term higher margin services annuity stream to further increase predictability and stability (or moderate cyclicality) in the business over time.

✔In addition to the non-refundable down payments for turbine orders (discussed above), Scott understands that the balance sheet can be a source of cash flow. His team aggressively manages working capital to grow FCF and to improve FCF linearity (FCF stability across quarters). Scott’s prior experience as a CFO is shining through.

✔Scott is committed to maintaining a strong balance sheet with an investment-grade credit rating. A healthy balance sheet with investment-grade credit rating not only reduces risk, increases resilience, and lowers the firm’s cost of capital (and thereby increasing the spread between ROIC and cost of capital), but it makes it more likely that large tech and energy companies will want to continue partnering with GE Vernova in the future (world-class businesses don’t want to partner with a business with a weak credit profile). GE Vernova’s net cash position is also a smart business decision in a historically cyclical industry. It’s nice to have a rainy-day fund.

✔Scott is defending and widening the moat and trying to future proof the business with internal investments into AI and robots, as well as investments into new products such as small modular nuclear reactors (SMRs), carbon capture, solid state transformers for data centers, and even fuel cells.

✔Scott is sharing the love with shareholders. GEV has committed to returning at least 1/3 of FCF annually as a growing dividend (which the company just doubled from $1 to $2 per share) and reducing shares outstanding each year (GEV just increased the buyback authorization from $6 billion to $10 billion) to drive per-share value.

✔Finally, I think Scott understands that culture will be the biggest driver of business value growth over time, so he is over-indexing towards building the right cultural foundation in the early years of the company’s history as a stand-alone, public business. He says that culture will be a key enabler of what the company can achieve over the next ten years.

If I’m thinking outside the box, the biggest risk I see is Greg Abel hiring Scott to run the energy, infrastructure, and industrial businesses at Berkshire Hathaway because that’s what I would try to do if I were Greg (FWIW). 

In my next letter I’ll discuss the other three pillars of my stock-picking framework.

In the meantime, please know that it’s an honor to work on behalf of you and your families, and I thank you for your business and your trust.

Gratefully,

John Rotonti Jr

Portfolio Manager