Element Global Value

3rd Quarter 2013

The Element Global Value Portfolio has the mandate to go anywhere in pursuit of attractive investment opportunities, using a bottom-up investment approach. Being equity focused, the portfolio has at least 70% of its assets invested in international equity markets. The portfolio uses as benchmark the MSCI World (Local) but it does not seek to mimic or track this index in any way.

Portfolio Details
Net Asset Value (NAV) : 111.09 Launch date: Portfolio Manager: 14-January-2011 Filipe Alves da Silva, CFA, CAIA
100 90 80 Jan/11
120 110

Weekly Performance Chart

MSCI World Local Portfolio

Jul/11

Dec/11 Jun/12 Nov/12 May/13

Monthly Performance
Jan 2011 2012 2013 -1,11% 7,06% 2,90% Feb 1,61% 5,19% 0,47% Mar -2,05% 1,62% 1,33% Apr 3,30% May Jun Jul Aug Sep Oct 8,70% -1,50% Nov Dec YTD -1,25% -1,72% -1,37% -7,23% -7,20% 2,62% -3,88% 0,62% 4,46% 2,67% -0,90% 1,35% 3,84% -2,83% -1,18% -12,57% 0,97% 0,87% 13,73% 11,72%

-0,86% -6,98% 1,51% 1,68%

Investment Highlights

The portfolio gained +7.50% in the 3rd quarter and is now up +11.72% for the year, which compares with +5.92% and +16.86% for a global basket of equities (here measured by the MSCI World Local). Although one never likes to underperform the benchmark, I expect the portfolio to behave in a more conservative way than global equities: this means that in very strong years for equity markets (such as this one) the portfolio should be expected to underperform, while in years where markets are down or have modest gains, I expect the portfolio to outperform. During the quarter equity markets continued their relentless move up despite several worrisome events during the quarter. On one front, after signaling to markets that it would start reducing its quantitative easing program, the Fed decided it was premature to do so; and on another front Washington managed to throw the government into a shutdown and bring up the debt ceiling discussions again, undermining confidence in itself. The combination of equity markets breaking through new highs and the fact that the portfolio is fully invested should make me feel happy, but that has not been the case. It is becoming increasingly difficult to find attractively priced securities that offer a good margin of safety and make for a solid investment, as valuations in general seem to be approaching fair value. Despite this, with interest rates pegged to zero, a carefully selected basket of stocks continues to be the best place to have your money.

Element Global Value

Investment Highlights (cont.)

I have stressed this point in previous reports: investors purchasing long term fixed-rate investment grade rated bonds are making a terrible long-term investment. The low yields offered by these bonds (and dont forget to account for taxes) are most likely going to be eaten away by inflation. Why someone with a long-term investment time frame would buy a 10 year fixed-rate bond from a highly rated company such as Johnson and Johnson, Microsoft or Exxon yielding around 3.25% and not buy shares in those companies (which have a similar yield than their respective bonds) is beyond my understanding. On the other side of the medal, investors in the shares of these companies should be more than happy that their companies can pay so little to borrow money.

During the quarter there were no new investments. The main changes made to the portfolio were the sale of Jakks Pacific, and the doubling of the position in Amerco (featured in the June 2013 report). Jakks was added to the portfolio in May of 2011. Back then I had written From a business point of view Jakks is not a very striking company, but from a valuation stand point it is currently trading at very attractive levels: it holds a cash pile equivalent to about 50% of its market capitalization, has little debt, and trades at about 6.5 times its 12 month trailing earnings (cash adjusted). After a couple of months Oaktree offered to buy the company for $20 a share. Management declined and even adopted a poison pill, but later did a self-tender offer, exhausting most of its surplus cash. Unfortunately I did not take this exit. After this, management did several ill-justified acquisitions, sales plunged and profits turned into losses, as kids moved away from more traditional toys. As there seems to be no clear path out of the troubles the company is in, I decided to sell the position and realize a 69% loss. The story for Amerco is the opposite. Management continues executing well, business is booming and it is likely that management will initiate a dividend soon. I can only hope that I am presented with the opportunity to increase the exposure to this wonderful company. After the quarter was over I added a new position in CF Industries. CF is a low-cost producer of Nitrogen (a key component of fertilizer) as the company benefits from the low price of natural gas, a side effect of the shale gas boom the US is experiencing. The company has a very shareholder friendly approach, with a massive buyback program in place, and its shares trade for a very low multiple. Nitrogen prices are at trough levels ($300/ton), but if this price recovers to a more reasonable level ($400/ton) I expect the company to almost double its earnings. More on this investment thesis in the next report.

Element Global Value

Investment Guidelines
Max. Long Exposure: Min. Long Exposure: Position Sizing (Long): Use of Derivatives: 130% 70% Max Position 10% (at purchase) May use options or warrants (Max notional exposure of 20%) Max individual position 2.5% Max gross short exposure 30% Hedged on a best effort basis

Largest Positions
Name
i Sha res MSCI Worl d ETF Hedged IBM Mi cros oft Corpora ti on Fi del i ty Chi na Speci a l Si tua ti ons Appl e Inc Peps i Co Berks hi re Ha tha wa y BMW Al terna ti ve As s et Opportuni ti es Archer Da ni el s Mi dl a nds

Weight
10,3% 8,0% 6,3% 6,3% 6,2% 5,2% 4,6% 4,4% 3,9% 3,7%

Ability to Short:

Currency Hedging:

Total TOP 10 Positions

58,9%

Allocation by Sector
Cash Other Utilities Telecommunication Services Materials Health Care Consumer Staples Consumer Discretionary Energy Industrials 2,1% 1,3% 12,1% 0% 5% 10% 15% 20% 25% 2,4% 5,2% 12,5% 20,5% 0,4% 5,4% 3,2% 6,3%
Cash Others Switzerland Australia Japan Kazakhstan United Kingdom Brazil Ukraine Israel Spain Germany France Canada 28,4% China United States 3,2% 2,0% 0,4% 0,4% 0,9% 0,7% 1,4% 1,0% 1,9% 3,1% 4,7% 4,8% 4,9% 3,9% 8,4%

Allocation by Country

Information Technology
Financials

58,5% 0% 10% 20% 30% 40% 50% 60% 70%

30%

Currency Exposure
100%
95,1%

Contacts
For more information please contact Filipe Alves da Silva directly or send anemail to element.cap@gmail.com

80% 60% 40% 20% 0% -20%

EUR
-11,7%

Disclaimer
6,7%
1,0%

3,9%

0,5%

1,9%

1,9%

This report is based on my portfolio. Reference to specific securities should not be construed as a recommendation to buy or sell these securities. You should always conduct the due diligence yourself.

USD

CNY

BRL

CAD

GBP

UAH

HKD

E L E M E N T

Element Global Value

Complete List of Holdings

Name
iShares MSCI World ETF Hedged IBM Microsoft Corporation Fidelity China Special Situations Apple Inc PepsiCo Berkshire Hathaway BMW Alternative Asset Opportunities Archer Daniels Midlands Lowe's BlackRock Teva Pharmaceuticals AMERCO Chatham Lodging Trust Amadeus IT Holdings Renault Telefnica Societe d'Edition de Canal+ Corning Inc Avangard PAX Global Technology IMAX Corporation OPAP MRV Engenharia KazMunaiGas E&P Monument Mining Energold Drilling Calfrac Well Services Patient Safety Technologies Cninsure Ted Baker Veris Gold Corp GAP Inc Addvantage Technologies Cash

Weight
10,3% 8,0% 6,3% 6,3% 6,2% 5,2% 4,6% 4,4% 3,9% 3,7% 3,6% 3,3% 3,1% 3,0% 2,4% 2,3% 2,3% 2,2% 2,2% 1,9% 1,9% 1,7% 1,3% 1,3% 1,0% 0,7% 0,6% 0,6% 0,5% 0,5% 0,4% 0,4% 0,3% 0,3% 0,2% 3,2% 100,0%

Total

Note: Reference to specific securities should not be construed as a recommendation to buy or sell these securities. You should always conduct the due diligence yourself.