The Epic Voyage Fund slightly underperformed its benchmarks in January. But our team still feels good about where we're invested.

 

 

January

Since Inception (Annualized) Inception Date 11/1/2011

Motley Fool Epic Voyage Fund (TMFEX)

2.72%

4.18%

FTSE Global All Cap ex-US Index

3.94%

5.60%

FTSE Emerging Markets All Cap China A Inclusion Index

4.81%

2.12%

Russell Global ex-US Index

3.67%

5.97%

For a standardized list of performance for the Epic Voyage Fund, please click here. For fund holdings, please click here.

For those able to pull their eyes away from Twitter in January, emerging-market investments also provided good entertainment. The Brazilian index was up 8.5%, the Hong Kong index was up nearly 6%, and the Indian index was up 4%.

While your Epic Voyage fund trailed its benchmarks, we were still happy to post a strong start to 2017. Seven out of 10 of top our holdings rose during the month, and the bulk of the losers were undersized positions. We believe one of the secrets to help with investing success is to put more money behind your winners than behind your losers.

The exception to the undersized losers was Bladex, our third largest holding, which posted a 7.6% decline for the month. While we don’t try to read too much into short-term moves like this, there are some concerns about what might happen if trade wars break out and your team is re-examining our thesis with new negative scenarios. For now, we’re comfortable with our holding of these shares.

One driver of our underperformance this month was our underweighting of Chinese stocks – only 9% of Epic Voyage’s assets are in Chinese stocks, while the emerging-market benchmark has a 25% weighting. And while we are overweight Latin American stocks, we held the wrong type of Brazilian stocks.

Take Vale, the world’s largest iron ore producer, for example. We don’t own it, but Vale makes up about 10% of the Brazilian stock index and had what my Australian friends call a cracker of month – the shares were up 25% in local currency. And that’s on top of the 94% return it posted in 2016.

Obviously, it was a mistake for us not to have all of your money in Vale for the past 13 months. But doing so would have (1) broken our promise to the SEC not to invest more than 5% of assets under management in a single company (believe me, you don’t want to break promises to the SEC) and (2) gone against our core investing process.

Our process for investing your money is based on patience and on building wealth over the long term by investing in high-quality companies with sustainable competitive advantages and long-term growth prospects. We generally don’t consider commodity producers to be high-quality companies because they have little pricing power and have historically proved to be poor allocators of capital, overinvesting in boom times, which makes the busts extra painful. Instead, your Brazilian exposure in Epic Voyage is focused on domestic consumers through companies such as Odontoprev (dental insurance), BRF (processed meats), MercadoLibre (online shopping), and Multiplus (airline loyalty programs).

These are companies that we think have established strong positions in their chosen markets and will likely benefit for years to come as Brazilians move up the economic ladder.

We regret missing out on Vale’s crazy 2016 returns, but we’re quite happy to hold companies for the long term such as MercadoLibre, up a not-too-shabby 18% in January. Often called the eBay of Latin America, MercadoLibre has proved to be a great operator that’s still growing rapidly, and it should, if our assumptions prove correct, potentially provide us with solid returns for years to come.

Sticking to our process means we’re going to miss some incredible short-term gains when companies on the brink of bankruptcy make a recovery.

And we’re fine with that.

January was a quiet month on the trading front, and we didn’t add any new investments. We did, however, reduce our holdings of Almarai and Aluminum Bahrain.

Almarai, our Saudi Arabian dairy producer, was our largest holding to start the month, and we trimmed it slightly, though it’s still the second largest holding in the portfolio. Meanwhile, we’re slowly working our way out of Aluminum Bahrain, because we feel the company has lost its competitive advantage (government-subsidized energy costs) as low oil prices strain budgets across the Middle East.

 

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