2013

Dear shareholders,

Vltava Fund’s NAV grew by 21.3% in 2013, and assets under management reached 1.5 billion CZK as of 31 December 2013.

Our largest equity positions at the start of 2014 were WH Smith, Berkshire Hathaway, Walmart, Teva Pharmaceutical and Catlin Group. Our portfolio is concentrated into investments which we consider to provide the best combination of returns and risk. Sufficiently attractive investment opportunities are quite rare, and therefore we endeavour to utilise these to their best advantage. Our 10 largest positions make up approximately 70% of our portfolio.

In the current market, the Fund’s portfolio is priced at about 11 times the earnings of the past 12 months. This means that for last year the net profits of our companies amounted to 9% of their market capitalisation (i.e. that is their earnings yield, which is the inverse of P/E). In our opinion, that is a high yield and does not correspond to the quality and prospects of these companies. This number particularly stands out in comparison to interest rates that linger close to zero. By our estimates, the fundamental valuation of our shares stands about one ‑fifth higher than their current prices. A fundamental valuation is not something static, however, but rather it is gradually developing. In the case of our portfolio, it is quite solidly growing. At the end of this year, it will be on the order of one ‑third higher than today’s prices. This should create sufficiently strong upward pressure on the prices of our stocks to push them higher.

In the past five years, which means from the global financial crisis and at the same time from the change in our investment strategy, Vltava Fund’s NAV has grown to nearly four times where it had been. More precisely, it has risen by 288%. While it is true that the past five years have been very good for equity investments, our results are nevertheless exceptional by worldwide standards. Our Fund has probably achieved the best results of all stock funds in the world during that period. (If you happen to find another fund which has had better results in the past five years than ours, please let me know so that we do not by chance brag of a supremacy which is not ours. To date, we have been unable to find such a fund.)

To quadruple your money and on top of that be the best in the world, it is necessary also to have a little luck. It is very unlikely that something like this will happen to us again. Be that as it may, we believe that we will be among the best funds for a long time to come and that our returns will be good. Your expectations, though, should be realistic and should not be based on returns from the past five years.

In the next part of the Annual Report, you will find quarterly letters to stockholders from the past year. Taken together, they present a picture of our investments and opinions from last year.

We thank you for your support and goodwill through the years gone by and we look forward to our co ‑operation in the years to come.

Daniel Gladiš, February 2014