October 1, 2018
I am enclosing the quarterly report for the period ending September 30, 2018.
US economy remains robust and the US equity markets remain resilient during the quarter ending September 30, 2018.
Recent corporate performance was driven by (1) excessive borrowing and spending by consumers, corporations and governments due to low borrowing costs, (2) excessive spending driven by fiscal policies under an undisciplined US administration, and (3) engineered financial results due to tax cuts instituted by US government policies in December 2017. These resulted in attractive reported financial performance during the quarter’s reported earnings.
In addition, demand for US equities remained strong due to (1) late stage demand by investors from both US and foreign markets, (2) renewed demand from non-US investors due to continued strength of US Dollars. (3) large corporate buybacks, and (4) lack of credible investment alternatives among investible assets. These resulted in record breaking performance of the US equity markets during the quarter.
While enjoying fruits of the financial markets, we remain cautious! We believe the US equity markets are in overbought territories and it will not be advisable to chase momentum at this point.
We continue to view this as a sell-on-strength environment. We plan to add position only in the case of great company representing great value and prospect in the long haul, and we plan to stick with our proven thematic approach in equity selection.
We made a few adjustments during the quarter.
We sold iShares Global Materials ETF (MXI) and Vanguard Financials ETF (VFH) due to increased market risks. We sold Carlyle Group (CG) to concentrate our position in Blackstone (BX) in the asset management sector.
We sold sufficient positions in Facebook Inc. (FB), Align Technology Inc. (ALGN) and Nutanix Inc. (NTNX) to recover the investment costs. We plan to hold the remaining positions given their continuing participation in the emerging growth themes.
We added two new positions:
· Twitter, Inc. (TWTR) which is the global communications platform,
· Tencent Holdings (TCEHY) which is the leading Chinese and global social media, payment and transaction platform. Tencent has corrected close to 35% from its peak in January 2018 and has become an attractive investment.
The portfolio was valued at $XXX at the end of the quarter and has a cash position of 11.61%. The cash position is higher than desired which we believe is prudent given our assessment of market conditions.
The portfolio has performed very well and has outperformed S&P 500, MSCI EAFE and Russell 2000 YTD, over one-year and three-year periods. (See Page 2 of the Consolidated Portfolio Performance Report for the period 2013.10.01-2018.09.30).
Since October 1, 2013 when we began active management of the portfolio, the portfolio has appreciated 99% (closes to doubling) with an annual return 12.28%. We are proud of these results and we look forward to continuing growth of the portfolio going forward.
We are comfortable with the current portfolio composition.
We have a strong portfolio, and the original themes which led to their inclusion in the portfolio remain intact. As mentioned earlier, we have now shifted into a sell-on-strength environment, and we plan to continue to raise cash given market opportunities.
We thank you again for the opportunity and please let me know if you have any questions.