You are on page 1of 4

Element Global Value

March 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) : 104.17 Launch date: Portfolio Manager: 14-January-2011 Filipe Alves da Silva, CAIA
115 110 105
100 95

Weekly Performance Chart

90 85 80 Jan/11 Feb/12
MSCI World Local Portfolio


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% 0,62% 2,67% 1,35% -2,83% -1,18% -12,57% 0,97% 0,87% 13,73% 4,75%

-0,86% -6,98%

Investment Highlights

This month Cyprus asked the EU for a bailout to save its banks from insolvency. To their surprise (and mine) EU leaders managed the courage to impose losses on bond holders and haircuts in large bank deposits, marking the first time in EUs history that depositors faced losses. The politics of saving wealthy Russians with money loaned by thrifty Germans were always going to be trick. Equity markets shrugged off Cyprus bailout and softer macro data, and went on to post another month of positive returns, with the Dow reaching all time record levels. Unfortunately, most investors still have a low allocation to equities, instead favoring the low yields offered by bonds. In my opinion, the decision between stocks and bonds, for a long-term investor, has never been easier. As a rule of thumb, the investment portfolio of an investor, with a longterm timeframe, should have a percentage allocation to bonds equal to his age, with the rest being invested in a diversified basket of equities (i.e. a 30 yr old would have a 30/70 split between bonds and stocks). As the investor ages, the allocation to bonds will steadily increase. Even so, most asset managers, especially in Europe, consider this to be too aggressive: a 60 yr old with 40% of his savings in stocks is something almost unheard of! Lets move on to a more interesting subject: surgical sponges! One of the most common problems in a surgical procedure is the risk of an object being unintentionally left inside the patient after the surgery is complete. Half of the time what was left behind is a surgical sponge or towel. Although surgical staff carefully counts what goes in and out .

Element Global Value

Investment Highlights (cont.)

of the patient, the high number of sponges used during a surgery, combined with the sponges blending in with the background when they come into contact with blood, and factors such as exhaustion and a chaotic environment in the O.R., means human error is bound to happen. It is estimated that in US hospitals a sponge is left on the wrong side of the stitches 11 times per day, with each event costing the hospital around $400k in legal and medical costs plus the associated loss of reputation. The company I invested in this month, Patient Safety Technologies (PSTX), patented the SurgiCount Satefy-Sponge System, which eliminates the incorrect counting of sponges by reducing the human error involved with manual counting. Sponges and towels are uniquely identified with an embedded QR code and surgical staff scans each one with a handheld device before and after they are used. This method is simple, affordable and very effective, causing minimal disruption in the O.R.. To date 150 million sponges in more than 7 million surgeries have been safely removed from patients, with none being left behind. Statistics point that a sponge is unintentionally left inside a patient for every 8000 surgeries, implying that hospitals using the Safety-Sponge System saved over $360 Mn in legal/medical costs while preserving their reputation and not harming any patient unnecessarily. Because the average cost of PSTXs system is $12 to $15 per procedure, hospitals incurred in roughly $100Mn of extra costs, yielding net savings of over $250Mn. Adoption of this kind of preventive measures is still low, with only 8% market penetration in the US. Adoption should pick-up in coming years due to Medicare stopping payments to hospitals for procedures to extract the retained sponges and also due to peer pressure. PSTXs customer base has been growing at triple digits, with each added customer producing a royalty-like stream of revenues for the company. Despite this attractive model, the current income statement shows an unprofitable company. This happens because the cost of expanding its customer base is immediately expensed, while the benefit accrues over time, as customers place orders for more disposable sponges on a regular basis. On a run-rate the company is already profitable. Patient Safety Technologies developed a simple, effective and affordable solution for the retained-sponge issue, and is set to reap the benefits of the increasing awareness and adoption of its system. If PSTX continues executing its strategy and adding new customers, this investment stands to be a multibagger . I go into more detail about this investment on my blog.

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
IBM i Sha res MSCI Worl d ETF Hedged 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

10,4% 10,2% 6,3% 6,1% 6,1% 5,8% 4,8% 4,0% 3,8% 3,6%

Ability to Short:

Currency Hedging:

Total TOP 10 Positions


Allocation by Sector
Cash Other Utilities Telecommunication Services Materials Health Care Consumer Staples Consumer Discretionary Energy Industrials 2,6% 1,3% 29,7% 12,4% 0% 5% 10% 15% 20% 25% 30% 35% 0,4% 5,4% 3,9% 5,7% 12,9% 17,0% 3,4% 5,3%
Cash Others Switzerland Australia Japan Kazakhstan United Kingdom Brazil Ukraine Israel Spain Germany France Canada China United States 0% 3,4% 1,8% 0,4% 0,4% 0,9% 1,0% 1,0% 1,1% 1,5% 3,6% 4,3% 4,3% 4,7% 5,5% 7,9%

Allocation by Country

Information Technology

58,3% 10% 20% 30% 40% 50% 60% 70%

Currency Exposure
120% 100% 80%

For more information please contact Filipe Alves da Silva directly or send anemail to

60% 40% 20%

0% -20%
6,8% 1,1% 5,4% 1,4%


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.



Element Global Value

Complete List of Holdings

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

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


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.