|
September 2011
You should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For a free copy of the most recent Prospectus, visit our website at www.kineticsfunds.com or call 1-800-930-3828. You should read the Prospectus before you invest. Performance data quoted represents past performance, which does not guarantee future results. Investment return and principal value of an investment may fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, click on the link below.
(Click here for most recent and complete performance information)
(Click here for the most recent portfolio holdings)
Dear Fellow Shareholders,
The Kinetics Global Fund (the “Fund”) (No-Load Class) returned -17.25% for the three months ending September 30, 2011, compared with returns of -13.87% for the S&P 500 Index and -17.42% for the MSCI AC World Index, bringing year-to-date performance for the Fund to -18.84%, compared with -8.68% and -13.56% for the S&P 500 Index and the MSCI AC World Index, respectively.
The historic levels of volatility experienced in the global markets over the last several months have been unpleasant to experience. However, despite macroeconomic concerns driving market activity, we do not believe that the fundamentals for the companies in the Fund have changed materially. The preponderance of portfolio companies are domiciled in regions with low interest rates and muted inflation, and have the potential to benefit from substantial domestic growth in a recovery and or sustained growth in developing economies. What have changed, however, are the valuations at which many of these companies are currently traded. For instance, the current earnings and book value multiples of the MSCI AC World Index, as compared to those in 2009, show that the index, which previously traded at multiples that implied strong growth, is now priced as if little or no growth is to be expected. As value investors, we are far more eager to allocate capital when prices discount negative news as opposed to positive news.
We view the discounted prices as an opportunity to continue to transition the portfolio into stable international businesses, managed by premier capital allocators at attractive valuations. Among the areas of interest are companies with stable international operations and revenues with the potential to benefit from expansion in secular markets. Examples include luxury goods providers, such as LVMH and Richemont. These companies own portfolios of recognized brands with a growing number of potential buyers in regions like Asia, where demand for luxury goods has increased following years of economic growth. Luxury brands have commanded consistently higher prices (and high margins) amidst a difficult economic climate.
Additional holdings that we view favorably and continue to increase in weighting include companies which are taking action during periods of uncertainty to make opportunistic investments at distressed prices. Examples include owner-operated companies such as Leucadia and Icahn Enterprises. Both of these companies are run by proven investors with a commitment to long-term sustainable growth. However, rather than being rewarded by the market for their superior operating results, they trade close to or below book value. We believe that these companies will continue to make astute investments and grow their returns on capital over the long term, and believe that the market will recognize the value of the stocks in the long term. Both companies have diversified businesses and operations that we believe can be enhanced or maintained under various likely economic scenarios.
The Fund also holds predictable, sustainable real estate portfolios, such as UOL Group and City Developments Ltd. These Singapore-based companies own unique assets in high demand areas, yet trade at what we view as low earnings and book value multiples. The earnings are likely to stabilize and or increase, providing management with ample opportunity to enhance shareholder value.
While the high levels of volatility in the equity markets have proven disconcerting to many investors, including the Kinetics team, we believe that in the long term, the stock prices of issuers will once again be driven by their fundamentals. Accordingly, we believe that current valuations provide us the opportunity to build positions in profitable, resilient businesses at a discount to their intrinsic values. It may take time for the stocks to reflect the intrinsic value of these companies, but we are optimistic that, in time, our patience will benefit our investors.
We thank you for your confidence and believe you will be rewarded for it.
The Horizon Kinetics Investment Team
Disclosure
The opinions expressed are not intended to be a forecast of future events, or a guarantee of future results, or investment advice. Additionally, the views expressed herein may change at any time subsequent to the date of issue hereof.
Because the Funds [other than The Paradigm Fund and The Small Cap Opportunities Fund] invest in a single industry, their shares do not represent a complete investment program. Internet and biotechnology stocks are subject to a rate of change in technology, obsolescence and competition that is generally higher than that of other industries, and have experienced extreme price and volume fluctuations. International investing presents special risks including currency exchange fluctuation, government regulations, and the potential for political and economic instability. Because smaller companies [for The Global and Small Cap Opportunities Fund] often have narrower markets and limited financial resources, they present more risk than larger, more well established companies.
Non-investment grade debt securities (i.e., junk bonds) are subject to greater credit risk, price volatility and risk of loss than investment grade securities. Further, options contain special risks including the imperfect correlation between the value of the option and the value of the underlying asset.
Unlike other investment companies that directly acquire and manage their own portfolios of securities, the Funds pursue their investment objectives by investing all of their investable assets in a corresponding portfolio series of Kinetics Portfolios Trust.
You will be charged a redemption fee of 2.0% of the net amount of the redemption if you redeem or exchange your shares 30 days or less after you purchase them.
Distributor: Kinetics Funds Distributor LLC is an affiliate of Kinetics Asset Management LLC, and is not an affiliate of Kinetics Mutual Funds, Inc.
|
