Element Global Value

February 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) : 102.80 Launch date: Portfolio Manager: 14-January-2011 Filipe Alves da Silva, CAIA
110 105 100 95 90 85 80 Jan/11

Weekly Performance Chart

MSCI World Local Portfolio

Jan/12

Jan/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% 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% 0,62% 2,67% 1,35% -2,83% -1,18% -12,57% 0,97% 0,87% 13,73% 3,38%

-0,86% -6,98%

Investment Highlights

The portfolio continued to follow general equity markets on their way up for another month, albeit at a slower pace, with February being the 6th consecutive month of underperformance relative to the MSCI World. In this half-year period the portfolio appreciated by +5.1%, while its benchmark advanced by +11.4%. The main factors that contributed to this prolonged sluggish relative performance were: 1. The 33% and 10% decline in the shares of Apple and Microsoft, two of the largest positions, with a negative impact of -2.80% and -0.55%, respectively. 2. Poor performance of mining related companies (Monument Mining, Veris Gold Corp and Energold Drilling), with a combined impact of -0.72%. 3. Not being fully invested contributed -0.44% towards the underperformance. Although I do not focus much on the benchmark while managing the portfolio, ultimately my objective is to outperform it over a 3-5 year period. If I am not able to do this, then I am better off simply buying a low-cost index-tracker, and avoid spending countless hours going through annual reports and the like. This sub-par performance has not dented my conviction that I add value through careful research and capital allocation, so dont expect to stop receiving these report anytime soon. Using an ever truthful expression, that serves as caution during good times, but as a consol during bad times: This, too, shall pass!

Element Global Value

Investment Highlights (cont.)

During the month, KazMunaiGas E&P, the company mentioned in the January report, finally joined the portfolios ranks . Besides this addition, other changes were made to the portfolio: The position in IBM was increased to just shy of the 10% maximum allowed level. The company continues to execute its strategy and remains on track to achieve $20 in operating earnings by 2015. Stamping an undemanding 15 multiple, and adding the dividend, returns an IRR of 17%, a very attractive return, especially when you take into account IBMs steady recurring revenues and low execution risk to the $20 target; Doubled the position in Veris Gold Corp, lowering the average cost significantly, since the shares were cut in half since they were first added to the portfolio. The company is following through with its plan, and should put a new mine into production and sign toll agreements to process 3rd party ore in the coming quarters, which may act as a catalyst for value realization in Veris shares. The position in Amadeus was reduced by close to 50%, mainly due to reasons detailed in the annual letter. The company has become a huge cash-cow with limited growth opportunities, and its hefty margins are under threat from a large possible competitor (Google). At 17.5x earnings, shares are trading at fair value. Besides a large acquisition, I dont see how the company will drive earnings meaningfully in the future. Exited La Seda de Barcelona. The company is undergoing a turnaround, but the current management was unable to maneuver the company into profitability due to excessive debt and sluggish economic conditions. With the company hemorrhaging money, its debt will probably be restructured to avoid bankruptcy, which should be highly dilutive for current shareholders. This is one situation I prefer to watch from the sidelines. The share price has been rightfully demolished, falling by 90% since I first added La Seda to ther portfolio: thankfully this was always one of the smallest positions in the portfolio, which reduced the impact that the share price decline had on overall performance. Meanwhile, I have been trying to buy more shares in the Traded Life Interests Fund (named Alternative Asset Opportunities) but, so far, my efforts have been fruitless. The shares are very illiquid, often going days without a single trade, and I am not mentally prepared to pay-up for them! The investment opportunity remains very attractive, with 3yr expected IRR now standing at 23%.

On page 4 (complete list of holdings) I added some fundamental ratios that show that overall, the average company in the portfolio has a lower price to earnings ratio, lower debt level and lower price to book ratio than the average company on the MSCI World. I advise the reader that a company should not be judged merely on these ratios, as the story behind the numbers is much more important.

Element Global Value

Investment Guidelines
Max. Long Exposure: Min. Long Exposure: Use of Derivatives: 130% 70% 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 Fi del i ty Chi na Speci a l Si tua ti ons Appl e Inc Mi cros oft Corpora ti on Peps i Co Berks hi re Ha tha wa y BMW Archer Da ni el s Mi dl a nds Teva Pha rma ceuti ca l s

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

Ability to Short:

Currency Hedging:

Total

59,6%

Allocation by Sector
Cash
Other Utilities Telecommunication Services Materials Health Care Consumer Staples Consumer Discretionary Energy 2,5% 0,4% 5,3% 3,8% 5,1% 5,0%

Allocation by Country
Cash Others Brazil China Netherlands Italy Sweden Spain Switzerland Germany Australia France Canada United Kingdom Japan United States
35%

5,1% 7,9% 1,8% 8,0%

0,1% 0,1% 0,1%

4,1% 0,4%

5,0%
12,8% 18,1%

4,6%
0,4% 4,6% 5,0% 1,3% 0,9% 55,7% 0% 10% 20% 30% 40% 50% 60%

Industrials
Information Technology Financials 0%

1,3%
28,6% 12,0% 5% 10% 15% 20% 25% 30%

Currency Exposure
120%
101,4%

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

100% 80%

60% 40% 20%

0% -20%
-19,6%
6,9% 1,8%

Disclaimer
4,0% 1,4% 1,9%
1,3%

Past performance is not indicative of future performance. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities. You should conduct the due diligence yourself.

-40%
EUR USD CNY BRL CAD GBP UAH HKD

E L E M E N T

Element Global Value

Complete List of Holdings & Fundamental Statistics

Name
IBM Apple Inc Microsoft Corporation PepsiCo Berkshire Hathaway BMW Archer Daniels Midlands Teva Pharmaceuticals BlackRock Lowe's Societe d'Edition de Canal+ Telefnica Renault Avangard Amadeus IT Holdings Corning Inc MRV Engenharia IMAX Corporation OPAP PAX Global Technology Jakks Pacific Veris Gold Corp Monument Mining KazMunaiGas E&P Energold Drilling Cninsure Calfrac Well Services GAP Inc Ted Baker Addvantage Technologies Weighted Average Median

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

Mkt. Cap. (Mn. )

171.429 317.466 178.347 89.531 193.497 45.262 16.071 26.767 32.037 32.433 655 45.510 14.377 503 8.773 14.220 4.696 1.309 1.593 187 205 129 72 6.278 86 228 816 12.088 608 17 92.521 7.525

P/E
13,1 10,0 10,9 18,5 20,0 9,9 13,4 16,5 17,3 21,9 14,0 11,3 7,5 2,2 17,4 10,1 9,8 41,5 4,1 9,6 neg neg 2,2 4,9 n/a 14,2 11,2 14,3 29,8 10,7 13,7 11,3

Forward P/E
12,0 9,7 8,9 17,3 18,0 9,2 12,4 6,7 15,4 18,3 n/a 9,7 6,8 2,9 13,7 10,7 8,9 25,9 13,7 9,3 44,2 n/a n/a 5,7 10,0 11,6 17,0 12,7 22,7 n/a 12,4 11,8

Dividend Yield (%)

1,7 2,4 3,3 2,8 3,3 2,4 2,9 2,8 1,7 5,2 7,4 3,5 2,6 2,9 3,0 11,0 2,3 7,4 4,1 1,8 2,2 2,6 2,4

P/B
11,9 3,3 3,2 5,3 1,3 1,6 1,1 1,4 1,6 3,1 2,4 2,2 0,6 0,1 5,7 0,9 1,6 6,8 1,8 1,1 1,3 1,3 0,4 0,8 0,9 0,7 1,4 5,5 6,2 0,6 3,6 1,5

Net Debt to Equity (%)

117 (103) (77) 97 (65) 208 47 65 14 61 (59) 199 85 9 98 (12) 48 (4) (10) (72) (12) 267 (1) (11) (7) (78) 51 (9) (2) (9) 36 (2)

Funds, REITs & Others

iShares MSCI World ETF Hedged Fidelity China Special Situations Chatham Lodging Trust Alternative Asset Opportunities Cash

Weight
10,1% 6,3% 2,4% 2,6% 5,1%

Mkt. Cap. (Mn. )

n/a 705 229 40 n/a

P/E
19,6 n/a n/a n/a n/a

Forward P/E
n/a n/a n/a n/a n/a

Dividend Yield (%)

2,6 n/a 4,9 n/a n/a

P/B
1,9 n/a 1,2 n/a n/a

Net Debt to Equity (%)

84 n/a 117 n/a n/a

Main Indices
MSCI World S&P 500 EuroStoxx 600

Weight

Mkt. Cap. (Mn. )

n/a n/a n/a

P/E
19,6 18,2 18,3

Forward P/E
n/a 13,9 12,6

Dividend Yield (%)

2,6 2,1 3,0

P/B
1,9 2,3 1,6

Net Debt to Equity (%)

84 n/a n/a

Note: Some of the above statistics might be wrong. I took these statistics from Bloomberg and other sources, and smell tested the vast majority of them.
Be especially suspicious of P/E and forward P/E statistics.NET DEBT to EQUITY is negative when the company has a net cash (meaning cash & equiv > debt)