Q4 2018 Investor Letter

January 9th, 2019

For the fourth quarter of 2018, Shaperfunds generated a total return of -7.32%, versus a -13.97% return for the Standard and Poor’s 500 Index. The out-performance in the quarter was, in large part, due to the out-performance of the largest holding, Tesla Inc (TSLA), which was not always the case in 2018. Shaperfunds generated a -3.51% return for the full year 2018, versus a -6.2% return for the index.

Since the beginning of 2015, Shaperfunds generated a 44.03% return, versus a 32.17% return for the Standard and Poor’s 500 Index.

Future expected returns are a function of current valuations. Valuations across companies and industries can remain skewed for long periods of time, however, aggregate valuations across geographical regions are more reliable. Right now, valuations across different world regions are telling an interesting story:

S&P 500 Index Price/Earnings Ratio: 19.55

FTSE Developed ex US Index Price/Earnings Ratio: 12.6

FTSE Emerging Markets Index Price/Earnings Ratio: 12.2

Foreign stocks, which historically have similar price/earnings ratios as the U.S., are clearly out of favor. Emerging markets have higher growth, better demographics and there’s more opportunities to implement technologies and create wealth. Despite this, there’s a major discount in most markets outside North America.

Right now, our split between US and foreign stocks is 68:32. I’m looking for opportunities to move that split closer to 50:50 throughout 2019.

Shaperfunds holdings and percentage of portfolio, as of close on 1/7/18:

Tesla Inc 19.56%

Schwab Intl Equity ETF 11.17%

Schwab Emerging Markets ETF 10.98%

Apple Inc   5.53%

JPMorgan Chase & Co 5.41%

BlackRock, Inc 4.59%

Activision Blizzard, Inc 4.21%

Amazon.com, Inc 3.81%

Facebook, Inc 3.55%

General Electric Company 3.55%

Tencent Holdings 3.44%

Spotify Technology 2.79%

Alphabet Inc 2.5%

Charlotte’s Web Holdings Inc 2.21%

Twitter Inc 2.05%

AT&T Inc 2.02%

Scotts Miracle-Gro Co 2%

salesforce.com, inc 1.99%

Constellation Brands, Inc 1.99%

Hain Celestial Group Inc 1.83%

Gilead Sciences, Inc 1.76%

American Express Company 1.6%

Baozun Inc 1.47%


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