2014

Dear shareholders

Vltava Fund’s NAV per share grew by 18.5% in 2014, and assets under management reached 1.9 billion Czech korunas as of 31 December 2014.

Our largest equity positions at the start of 2015 were Berkshire Hathaway, WHSmith, Catlin Group, Walmart and Teva Pharmaceutical. These are the same companies as from a year ago only in a slightly changed order. Our portfolio is concentrated into investments which we consider to provide the best combination of returns and risk. Sufficiently attractive investment opportunities are rather 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 12 times the earnings of the past 12 months. This means that for last year the net profits of our companies amounted to approximately 8% of their market capitalisation (i.e. their earnings yield, which is the inverse of P/E). In our opinion, that is an attractive yield considering the quality and prospects of these companies. This number stands out particularly in comparison to interest rates that linger close to zero. By our estimates, the fundamental value of our shares stands about one ‑tenth higher than their current prices. A fundamental valuation is not something static, however. Rather, it is developing through time. 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‑‑fifth 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 six years, which means from the Great Financial Crisis and at the same time from the change in our investment strategy, Vltava Fund’s NAV has grown to 4.6 times where it had been. More precisely, it has risen by 360%. While it is true that the past six years have been very good for equity investments, our results are nevertheless exceptional by worldwide standards. This result places our fund among the very top funds in the world.

To achieve such returns, it is necessary also to have a little luck, and it is obvious that they are not sustainable over the long term. Be that as it may, we believe that we will remain 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 upon returns from the past six years.

In the next part of the Annual Report, you will find quarterly letters to stockholders from the past year. Taken together, these 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 2015