Critique on Current Period

The end of the quarter marks the conclusion of the first half of quite an eventful year for the markets and for Tralucent! The Tralucent Global Equity Fund (“the Fund”) saw a 5.82% return over the last quarter, and a 21.62% over the last year. Comparatively, the global market benchmark returned 3.88%, and 19.73%. The Fund continues to outperform the benchmark, and we are extremely proud of this fact.

We attribute our outperformance to both our stock picks on the long side and on the short side. Of note, it is worth highlighting that the Fund has generated a 9.56% return from our shorting activities to date. Explicitly put, if you had $100,000, you would have realized $9560 in gains from shorting alone.

In the first quarter of this year, we saw the US banking sector take a major hit due to the collapse of Silicon Valley Bank (SIVB), a regional bank headquartered in California. We want to point out that we DID in fact own SIVB in the Fund. However, it only accounted for about 0.43% of the Fund. This is a perfect opportunity to point out the power of diversification – even though one holding went entirely to 0, this did not even have a meaningful effect on the total value of the Fund and its holdings.

After the banking woes early in the year, the market then moved on to having a spectacular bull run thus far. Technology stocks are leading the way in gains, and a large part of this can be attributed to the surge in artificial intelligence (AI) investment, use, and general excitement. A few of our holdings have skyrocketed – for example, NVDA is up over 220% this year. It is now our largest holding at approximately 4% of the Fund. We do want to emphasize that we are keeping a very close eye on if this AI explosion turns into a bubble. Thus far, we are seeing fundamentals supporting higher valuations, but this can change quickly, and we must stay on our toes in order to continue to make informed, strategic decisions.

In other news, we are continuing to make progress on launching our ETF. It is slow and steady work, and we want to make sure we do everything the right way from the get-go. We are hoping it will launch in Q4 of 2023 so that come 2024 it is full steam ahead. We will have more information about this shortly, including converting existing units to the ETF to unlock additional liquidity, and what this will all mean for our investors.

Finally, we have recently been working on promoting our Fund in anticipation of the ETF launch. This includes providing in depth information to 3^rd party fund information websites such as Fundata and Morningstar. Fundata has recently provided us with 3-year information and rankings for the Fund against others in Canada and we have ranked spectacularly! The details are as follows:

3 YEAR BASIS	Performance Rank	Sharpe Ratio	Sharpe Rank	Standard Deviation
TGF110 (Class A)	13/100	1.0618	12/100	13.94%
TGF120 (Class M)	11/100	1.0889	11/100	13.95%

2023 has been a very exciting year thus far, and we are very excited to see what the next 6 months have in store for Tralucent, for the Fund, and for all our money buddies!

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 of March 31, 2020. At inception, the value per unit of the TGF was $10.00.

Tralucent mandates that 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 almost 200 businesses from around the world. This greater diversification gives 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, all the 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.

Q2 2023	Up 5.82%
One year ending Q2 2023	Up 21.62%
From Inception to Q2 2023	Up 81.38%

Because the Fund has only existed since March 31, 2020, and in the absence of ten years of returns, investors should consider the longest history available, which is since its inception on March 31, 2020.

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 historical performance of the Fund 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 almost 200 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 much cash.

During the fourth quarter, Tralucent did not make any notable moves.

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.

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.

We have enhanced our total returns significantly since we launched our fund in 2020. Since inception, our shorting activities have returned a total of 9.56%. This has let us significantly dampen the volatility of our fund and soften the downturn experienced in the markets.

The Fund is authorized to be short the equivalent of 50% of its equity capital. Currently the TGF is short 49 different names, equalling approximately 37% of the Fund’s equity capital on a delta dollar basis. On average, one position is less than 1%, which is very conservative. Each of the names are then subdivided into over a hundred sub positions in total.

The profit and loss from our shorting activities over time can and will vary a lot. It is our hope that this activity will offset the management costs. Every now and then our shorting activities will lead to a loss but over long periods of time we hope that in market downturns we will gain enough to meaningfully offset some of the losses on the long side. Over long periods of time, it is our hope to enhance the fund’s total rate of return in a meaningful way.

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 have shown to be vastly superior to the prevailing yields in the fixed income markets. We expect the equity markets to yield 7%-10% per annum over the next ten to thirty years. This is vastly superior to the 4.4% 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.

While we believe the Fed currently has a heavy hand in battling inflation, we do believe that beast will be tamed in short order. This will directly impact equity and bond markets – equities will rise handsomely, and bonds shall suffer selloffs. As we do not currently invest in any bonds, we believe we are well positioned (and looking forward to) the future rise in the markets.

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 remember 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.