Fellow Limited Partners,

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In the second quarter of 2025, the Flexible Fixed Income Fund returned +1.3%. This return compares to our publicly traded high yield and investment grade benchmarks, which returned +3.3% and +0.6%, respectively.

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Since its inception in early 2016, the Fund has delivered a compound annual return of 6.0%, meeting our long-term net return expectations of 5% to 7% and exceeding our benchmarks by a meaningful margin.

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Ewing Morris Flexible Fixed Income Fund LP returns reflect Class P - Master Series, net of fees and expenses as of June 30, 2025. Inception date of the Fund is February 1, 2016. U.S. High Yield Bonds are represented by the iShares U.S. High Yield Bond Index ETF (CAD-Hedged). CanadianInvestment Grade Bonds are represented by the iShares Canadian Corporate Bond Index ETF

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Bond and stock markets began the quarter with a politically-induced faceplant. While generally unpleasant, this was welcome to us as yields climbed across the entire fixed income market. Amidst both the volatility and through the remainder of the quarter, we took the opportunity to further shape the portfolio by monetizing hedges and mature ideas while entering new positions with high promise. The second quarter was one of our most active in years.

Extremes, Entries and Exits

Every few years, the market moves to optimistic extremes in pricing where the extra yield a bond carries does not compensate for its risk. We took advantage of this in 2018 by shorting long term corporate bonds and buying their long-term government benchmarks. We took advantage of this again in 2021, once the central bank induced rally in credit appeared to be in its twilight. And once the market moved back to an extreme in late 2024, we took advantage of this dynamic once again. The hedge’s presence in the portfolio, while not observable in April’s monthly return, was very evident early in the month, where the portfolio was roughly flat (based on Bloomberg BVAL pricing), while our high yield benchmark was down nearly 4 percent. While this hedge was not responsible for all of the capital preservation in the portfolio, it was a top contributor. As we had made solid profits on this hedge with credit spreads widening meaningfully toward our target, we opted to exit about 30% of this hedge.

Switching Convertibles

In 2022, we bought numerous convertible bonds trading at extraordinary discounts. At its zenith, about 70% of the portfolio was comprised of convertible bonds. Almost all of these bonds had substantial market cap cushions and cash balances. At the same time, the capital strategy of these issuers was rapidly swinging credit-friendly. It was an excellent setup. Fast forward three years, most of these bonds have evolved into quite conservative, short-term credits, which held up exceptionally well in April. The reality is, however, that while risk is exceptionally low in these investments, bonds due in a year don’t tend to contain much upside potential either. While the credit market itself is very richly valued, we have found opportunities in rotating out of fully-priced ideas that have played out into a particular kind of situation we favor: ones with what we believe contain unrecognized price appreciation on account of the engaged principals involved at these issuers.

The Power of Principals

A hallmark of fixed income investing is letting time pass in exchange for income. Investors, through the terms of their debt contract are “paid to wait”. But just like a mortgage sometimes comes to an early end when the underlying real estate asset changes hands or is otherwise restructured, extraordinary events can pose distinct, value-generative opportunities for certain bonds. Quite crucially, these events tend to be driven socially through decisions and influence of corporate directors. Occasionally, these directors happen to be large owners of a company. We appreciate these situations as they tend to be rich in opportunity from a bond perspective. In addition, since we are ‘paid to wait’ as a bond investor, the character of our investment affords us to be patient with the arrival of shareholder engagement and extraordinary bondholder value creation. Since we are paid to wait, our preference is to use our skill in identifying opportunities ripe for this kind of activity before it happens to gain upside potential that is often not yet foreseen by the credit market. In these situations, we believe we are picking up loonies for 80 and 90 cents. To show you what we mean in practice, we’ll provide three cases, all of which had significant developments in 2025.

Victoria’s Secret

We have long been a debt investor in Victoria’s Secret, dating back to its existence within the L Brands parent company. After having exited many years earlier, we found the situation became more interesting following its governance overhaul and the split of L Brands into Victoria’s Secret (VSCO) and Bath and Body Works in 2021. As a quite modestly levered credit, in our view, VSCO had been overly punished relative to its fundamentals, as the bonds traded down through 2022 and 2023. This credit on its own was fairly attractive, but we thought two other factors made the situation particularly compelling: timing and ownership. From a timing perspective, the typical two-year restriction on a corporate sale following a spinoff had just expired for VSCO, making this valuable brand potentially a ‘free agent’ on the market. From an ownership perspective, Windacre Partnership and BBRC International (BBRC) had become new shareholders following its spin. In understanding Windacre’s portfolio concentration and its engagement with Nielsen’s take-private, it was clear that Windacre was not an ordinary shareholder. In addition, BBRC’s involvement—ostensibly the investment office of Brett Blundy—was remarkable as well, as his position topped 10% of the company. An Australian billionaire with expertise in retail, Blundy has been instrumental in the growth and sale of not one, but two, lingerie brands. Given BBRC's balance sheet, domain expertise and transactional history, we became quite optimistic on the value of the seemingly discarded bonds offered in the market. We bought VSCO’s 2029 bonds in August of 2023 in the low 70’s with a yield of greater than 10%. Fast forward to Q2 2025, BBRC has flipped from a passive to an active filer and publicly challenged the company in June. The bonds today have appreciated significantly to around 93.

Sitting with a gain of about 20 points (not to mention the annual 4.625 points of income), it turned out that we were well-paid to wait for BBRC to take a firmer position on the company and its board.

Rapid7 Inc

Our first investment in Rapid7 dates back also to October of 2023, where we entered its convertible bonds due 2027 at 87.125. At this time, we liked the credit as the company was well-capitalized and had an increasingly credit-friendly capital strategy, focused on free cash flow generation. But what made the situation more interesting was spotting a Reuters report, citing takeover interest in the company earlier in the year—notably from private equity. When private equity purchases companies, it is for cash. Therefore, the convertible bonds in that case would see a ~13 point lift to par—an option that the market did not appear to be ascribing much value to. Between its value and optionality, we bought a modest starter position. What made things more interesting, however, is that at least two dealers were holding meaningful stock on swap for their clients—a form of ownership often used by a particular kind of investor: activists. As we continued to build our position, we were not surprised to see activists surface in the second half of 2024—in this case on the part of Jana Partners and Cannae Holdings. Fast forward to Q2 2025, the company has settled a co-operation agreement with Jana that appoints three new directors to the board. Today, the bonds have earned returns in a tax-efficient manner, moving gradually into the low 90’s, and today still containing reasonable upside to par on a potential take-private event.

Trimas Corp

Quite often we will take interest in a situation, but find ourselves on the sideline until some threshold event changes the situation. We had started paying attention to Trimas on the back of Barington Capital’s public engagement with the company in 2023. Although it was a high-quality (BB-rated) high yield issuer, the company delivered a low-quality equity investment result since its public debut in 2021. In December of 2023, Barington press released a very reasonable case for value maximization at Trimas. Unfortunately, company leadership appeared to show little receptivity. That is, until an investor showed up. This investor was Trend International AG, which filed a 13-D in October of 2024, with ownership of more than 10% of the company (vs Barington’s position of less than 2%). As we were learning that the investor behind Trend International was a private, accomplished consumer packaging entrepreneur, something happened on January 6th that took us off the sidelines. On this day, Trimas announced a transition plan for its President & CEO Thomas Amato. By our interpretation, its engaged shareholders were finally gaining traction. Soon after this news, we bought its 4.125% senior notes due 2028 at 91.875 for a yield of 6.3%.

Fast forward to Q2 2025, the company’s welcomed this entrepreneur to its board and has also found itself with a second activist in its shareholder registry: Irenic Capital Management led by Adam Katz who has deep expertise in aerospace investing from his time at Elliott Management. Year-to-date, Trimas equity is up about 50%, suggesting confidence in the value unlock driven by its principals, while the bonds have moved in the same direction, outpacing the market, delivering an IRR in the teens since our purchase.

Outlook

The beginning of the third quarter has marked a notable tightening in credit spreads. With this recent move tighter, the additional yield investors collect has reached an extreme low. But we see this as an opportunity on two fronts: Firstly, credit spreads themselves are highly effective to use as a hedge against volatile markets. We have capitalized on conditions like these before, setting hedges in 2018 and 2021. To us, it is much akin to owning a mispriced fire insurance policy in California. The price is simply wrong relative to the frequency and severity of risk. We are positioned with a hedge currently comprising 45% of the Fund. Secondly, a reality of the market is when the credit market is wide open like it is today, more deals tend to happen. This also means that activist shareholders who are looking to drive a corporate sale are more likely to succeed. This, too, should bode well for our approach and our portfolio as we move through the remainder of 2025.

Thank you for your investment in the Ewing Morris Flexible Fixed Income Fund.

*All market data referenced sourced from Bloomberg LP*