Avenir Capital March 2016 Quarterly Investor Letter; Fund Up Roughly 3.5%

Equity markets in the first quarter of 2016 gave a hard-to-miss demonstration of the behaviour of Ben Graham’s overly emotional friend, “Mr Market”. In what was one of the worst starts to a year in many decades, U.S. markets fell by 9% in the first 12 trading days of 2016 with European markets down by 12%. By the time markets broadly bottomed in mid-February, the S&P 500 was down over 10% and European and Asian stocks down 13% from the beginning of the year. The U.S. Russell 2000, a small/mid cap index, was down over 15% and over 25% from the peak in June 2015.

From the low in mid-February, the markets staged a strong recovery to nudge slightly above breakeven for the S&P 500 and a couple of percent below where they began the year for the main European/Asian indices and the Russell 2000.

The Avenir Value Fund (the “Fund”) decreased 6.5%, net of fees and expenses, in the March 2016 quarter compared to the S&P 500 which increased 1.4% and the ASX All Ordinaries which decreased 2.4% for the quarter. After hitting a low in January, the Australian dollar surged strongly in the latter part of the quarter, ultimately detracting from our return by almost 2.5% for the period.

Almost all of the decline for us occurred in January, in the strong market down draft that occurred at the start of the year, with February flat and March recouping some of the decline being up 2.7%. April continued this trend with the Fund up roughly 3.5%.

While the market proved volatile and we ended the quarter down, the strong underlying operating performance of the companies we hold in the portfolio continued during the quarter and our view of intrinsic value remains much more stable than the market prices. This highlights the need to anchor investment decisions on our fundamental view of long term cash flows and asset value rather than short term market sentiment.

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