The Tralucent Global Equity Fund (TGF) was officially created on March 31, 2020 through the consolidation of holdings from approximately 260 different separately managed accounts.
Account holders were given an equivalent number of units of the TGF to the value of their holdings as at March 31, 2020. At inception, the value per unit of the TGF was $10.00.
As part of Tralucent’s mandate, Tralucent management (Bill, Michelle, Irim, Tyler, Noreen, and Sarah) also contribute to the TGF. Currently, the value of Tralucent’s portfolios is approximately 4 million dollars.
Previous to owning shares of the TGF, your portfolio was already quite diversified, but as a TGF holder you are even more diversified than before! As a unitholder of the TGF, you are now an owner of approximately 174 businesses from around the world. With greater diversification comes the confidence to say that it is nearly impossible – dare we say quite inconceivable – for your money to ever go to zero!
With very few exceptions, the 174 securities you own are established companies from around the world, from various sectors and industries, and are truly forces to be reckoned with. We firmly believe that these companies have strong management, are highly competitive in nature, and can withstand the test of time.
By reducing the number of individually managed accounts – such that most accounts are represented in the TGF – it is even easier than before for Tralucent to direct our focus to identify and buy ferociously competitive companies from all over the world that are/will be forces to be reckoned with and will continue to be such forces some fifty years from now.
We urge investors to judge performance for a minimum period of ten years.
Because the Fund has only existed since March 31, 2020, in the absence of ten years of numbers, investors should consider the longest history available: nine months.
During this last quarter, the Fund advanced 13.75% (net of all expenses).
During the last nine months, the Fund advanced 38.17% (net of all expenses).
Although it is tempting to narrow our focus to the last nine months, we urge all our clients who were rolled into the Fund from your managed account to judge the performance of your account for the entire duration of time you have been our client.
This period will be remembered for the COVID-19 Pandemic. Governments around the world shut the economies down to prevent the virus spread. It may also be remembered as a period when the stock market shrugged off the worries of economic slow down and simply marched on higher.
The performance is graphically given below.
The Fund has an objective to make as much money as possible such that it can – over a rolling five-year period – grow at a rate faster than the world equity markets. If this happens, there is a high probability that this growth will exceed inflation and preserve purchasing power.
We take the approach that markets are inefficient: one can buy undervalued securities and make money when those securities are properly valued in the future. Conversely, we can identify securities that do not have the potential to appreciate and can make money by shorting such securities.
Apart from short-term borrowing to facilitate withdrawals, TGF does not borrow any money.
In the TGF long portfolio – where we are owners of 174 stocks around the world – we buy businesses that we believe to be fiercely competitive. We at Tralucent are long investors with very high conviction, so much so that we are nearly 100% long.
During the quarter, Tralucent has continued to invest the positive cash flows into more share ownership and some fine tuning of positions. One notable addition to the long portfolio is Moderna Inc., a manufacturer of a vaccine to combat COVID-19.
Shorting is primarily accomplished by writing call options.
The advantage to writing call options is that we collect a premium from writing each call option. If we are wrong, the premium collected can cushion our mistake. When we are wrong, also we cover our position by buying back the call and writing another one at the higher stock price.
The Fund is authorized to be short the equivalent of 50% of its equity capital. Currently the TGF is short 31 different names. This equals 18% of the Fund’s equity capital. On average, one call position is 0.6%.
To be clear, there is the chance that we can be wrong on both the long and short side. However, given our approach of diversifying risk across hundreds of positions in addition to our conservatism, we believe it is unlikely that we will suffer the fate of those who are leveraged beyond reason (the current fiasco in the market is no exception either).
Although the prices of equity investments have risen handsomely in the last ten years, the earnings yield of the equity markets (around 5%-6%) have shown to be vastly superior to the prevailing yields in the fixed income markets.
We expect the equity markets to yield 5%-8% per annum over the next ten to thirty years. This is vastly superior to the paltry 1.5% yield available on long term Treasury Bonds.
We remind investors that over time, the equity markets significantly outperform other asset classes. Looking ahead to the next ten years, we have little reason to believe otherwise.
As is our firm belief that equity markets are highly unpredictable over the short-term, we decline to provide any short-term outlook.
We would urge investors to remind themselves that equity markets are not black boxes. Instead, they represent businesses run by millions of human beings that are continuously striving to be better and provide positive returns to their shareholders. It is this human aspiration to succeed which results in higher earnings of the underlying businesses and stock prices.