Background, Evolution, and Disclosures

A quick reminder of the inception and composition of the Tralucent Global Equity Fund

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.

TGF brings with it several benefits

Before owning shares of the TGF, your portfolio was already quite diversified. As a TGF holder you are even more diversified than before! As a unitholder of the TGF, you are an owner of approximately 181 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 181 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.

Fund Performance as measured by A units

We urge investors to judge performance for as long a period as available. Short term results are highly unpredictable.

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: And that is since its inception on March 31, 2020

Up 6.35% for Q2 2021

Up 14.49% YTD for 2021

Up 49.30% for one year ending June 30, 2021

Up 58.93% from Inception to June 30, 2021

Although it is tempting to narrow our focus to the available history of the Fund, 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 their economies down to prevent the virus from spreading. 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.

Objectives and Strategies

Objectives

The Fund has an objective to generate the highest return it can, while not taking on any unnecessary or overly risky positions or stances. Over a rolling five-year period, we aim for it to 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.

Strategies

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.

Long Strategy

Apart from short-term borrowing to facilitate withdrawals, TGF does not borrow any money.

In the TGF long portfolio – where we are owners of 181 stocks around the world – we buy businesses that we believe to be fiercely competitive. We at Tralucent are long term investors in companies with very high conviction, we tend to invest every dollar we can and not carry cash.

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.

Short Strategy

Shorting is primarily accomplished by writing call options. We encourage you to Google and learn for yourself what options are and what writing call options – particularly naked call options are. As we use the word naked, we are not being kinky. It is a strategy.

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, we cover our position by buying back the call and writing another one at the higher stock price.

An example would illustrate the above. When Beyond Meat was trading at $135 dollars, we sold a call option and collected $1,207 dollars in premiums (100 shares at $12.07 each) for a call with a strike price of $140. If by May 21, 2021 the stock closes below $140, we stand to gain ALL $1,207 dollars.

Another way of putting it is that if the stock goes above $152.07, then we must pay the buyer of the call the difference. Say the stock closes at $155. Then we pay $1500 dollars ({155-140}x100) and incur a loss of $293 dollars. This table should help clarify the 3 possible scenarios:

	Stock closes < 140	Stock closes at 140	Stock closes > 140
Premium Collected	$1207	$1207	$1207
Outcome	Keep all premium	Keep all premium	Pay difference between closing price and $140

The Fund is authorized to be short the equivalent of 50% of its equity capital. Currently the TGF is short 42 different names. This equals 35.77% of the Fund’s equity capital. On average, one position is less than 1%, which is very conservative. Each of the 42 names are then subdivided into over a hundred sub positions.

Some notable additions to our short strategy are the so-called “meme stocks” such as GME and AMC. We firmly believe that these securities do not have the potential to appreciate meaningfully in the long term. As such, we have added these names in an attempt to profit from these overly hyped and overly irrational moving securities.

Since we started, we have gained some $716,000 in profits from shorting activities. This is equal to 1.83% of the average value of the Fund. At first glance, it may seem insignificant, however, it has profound implications for you as dedicated money buddies.

You were paying a little over that much in fees when there was no Fund. As we have been able to short with the Fund, we gained some 1.83%. The venture of you being in the Fund allowed you to gain 1.83% almost equalling your fees paid.

By going into the Fund and having the short facility that you are now part of, it is as if almost all your fees have been covered. Of course, this may change – there may be years where shorting activities lead to a loss, or where shorting activities lead to even higher gains. However, we anticipate that over time our shorting activities will only add value.

Now, 1.83% is not a significant number indeed compared to the 63% the Fund has gained. However, the true significance lies in the fact that we were able to generate gains from shorting in a very strong bull market (with the world market being up some 45%) and not lose any money. This makes us feel extremely optimistic that we can gain far more when the markets go down.

Risks

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). As well, because the relative size of any given short position is rather small, even large movements against us will not result in any meaningful erosion of capital.

Outlook

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.