Letters to shareholders


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Dear Shareholders,

The largest stock positions in the Vltava Fund portfolio at the beginning of 2020 were Berkshire Hathaway, Credit Acceptance, Magna, Sberbank and WH Smith. Our portfolio is concentrated into investments that in our opinion offer the best combination of return and risk. Sufficiently attractive investment opportunities are quite rare, and therefore we endeavour to make maximum use of them. Only minimal changes were made in our portfolio through the past year. Currently, we hold 17 stock positions. The ten largest of these make up about 79% of our portfolio.

The Fund’s portfolio is currently valued by the market at ten times the earnings of the past 12 months. This means that in the past year the net earnings of our companies totalled approximately 10% of their market capitalization (known as “earnings yield,” this is the inverse of the P/E). This, in our opinion, is a very attractive valuation with a view to the quality and prospects of these companies. This number stands out particularly in comparison to the low interest rates.

Our estimate of the fundamental value of the Vltava Fund portfolio as of the close of 2019 is 31% greater than the present NAV of the Fund. The difference between our estimate of the portfolio’s value and its current valuation in the market narrowed during the past year, because the NAV of the Fund grew markedly faster than did its value. Nevertheless, that difference remains greater than average. We expect that in 2020 the value of the portfolio will grow faster than in 2019, mainly because we expect greater acceleration in profitability, and particularly among some cyclical companies within the portfolio.

In principle, there are three things influencing the development of the portfolio’s fundamental value. The first consists in our estimates as to the fundamental values of the individual companies.

The second is time itself, because the fundamental value of a company develops over time and has a strong tendency to grow as more and more of the capital earned is reinvested. The third relates to our transactions when we exchange companies in our portfolio with lower potential for companies with greater potential. We cannot influence the prices of individual stocks, but we can choose which ones we hold and that is where we concentrate our efforts. The long-term growth in the fundamental value of well-chosen stocks will also draw their prices higher. This is one of the few things upon which we can rely.

In the past 11 years, which means from the global financial crisis and at the same time from the change of our investment strategy to the one we have been following up to the present day, the NAV of Vltava Fund has grown by 368%. The world’s stock markets have risen by 165% through that same period. In the next part of this annual report you will find, as each year, the quarterly letters to shareholders from the past year (which collectively present a picture of our investments and opinions for the past year) as well as detailed data, including complete historical results and audited financial statements.

We thank you for your support and loyalty in years past, and we look forward to our continuing co-operation in the years to come.

Daniel Gladiš, February 2020


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