Dear Investors,

Volatility has clearly returned to the markets in 2018. While fund returns were negative for March and for first quarter of 2018 (Q1), we were able to realise some attractive long-term gains as detailed in the table below, and capitalise on the market volatility to “enhance” the portfolio while still maintaining a healthy cash balance for future opportunities.

Below are the eight positions the Fund has realised in Q1 2018:

We would like to highlight our investment in Arcos Dorados from February 2014 to March 2018 (4.1yrs) to showcase our long-term orientated investment process and the need for patience and discipline when undertaking a value investment based approach.

Arcos Dorados is the world’s largest McDonald’s franchisee, with over 2,000 restaurants in Latin America and the Caribbean. The company was first listed on the NYSE in 2011 (during the last emerging market boom) at an elevated valuation of more than 20x EBITDA. We acquired an initial shareholding in Arcos Dorados in 2014 after its share price had declined by over 60% to a level where we believed it offered long-term value. As the chart illustrates below, one had to have a tremendous amount of discipline, patience and conviction in the value of the assets owned by the Company, particularly the valuable real estate the Company held as the stock continued to decline by over 70% from our initial purchase price. We exited the position in March 2018 and locked in an attractive IRR over the life of the investment which enabled us to recycle the proceeds into newly out-of-favour companies in the form of H&M, Kraft Heinz, and CBS Corp. to name a few.


During the quarter we also acquired a new position in Richemont as we decided to switch out of Swatch as it had outperformed Richemont over recent times. This “switch” should be viewed as an “upgrade” to our portfolio in terms of brand quality, as Richemont is the second-largest luxury goods company in the world after LVMH, with a luxury brand portfolio (see below) that is almost impossible to duplicate.


Also during the quarter, we were able to establish positions in Kraft Heinz (controlled by 3G Capital and Berkshire Hathaway) and CBS Corporation at attractive prices and re-established positions in Nestle & P&G. 


To conclude, with ~27% in cash (at the time of writing) the Fund is well positioned to opportunistically add to existing holdings or acquire new investments.