|
March 2013
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 Market Opportunities Fund (the “Fund”) (No-Load Class) completed the three months ending March 31, 2013 by returning 15.31%, compared to 10.61% for the S&P 500 Index (“S&P”) and 5.13% for the MSCI EAFE Index (“MSCI EAFE”), respectively, for the same period.
We are compelled to begin this quarterly commentary with the disclaimer that we do not consider or represent ourselves to be experts in economics, let alone savvy macroeconomic investors. We are bottom-up investors through and through, but when profound and unprecedented actions are taking place in global economic policy, we would be remiss if we failed to consider their potential impact upon our portfolio of securities. It is perhaps intuitive that the recent global monetary expansion (U.S., Japan, UK, among others) may be expected to result in particularly interesting developments for businesses engaged in capital market activities, as are the preponderance of the securities in the Fund.
It should come as no surprise that the recent quantitative easing by the U.S. Federal Reserve has vastly increased the money supply in the United States. Using September 30, 2008 as the last recorded “pre-crisis” money supply reading, M1 money supply has risen by over 67% and M2 by over 33% since that date. For clarification, M1 is the narrowest measure of money—it includes only the most liquid forms of money such as currency in the hands of the public, travelers’ checks, demand deposits, and other deposits against which checks can be written. M2, which is a broader measure, includes M1 components, as well as savings account balances, time deposits under $100,000, and retail money market mutual fund balances. It is useful, as a standalone endeavor, to monitor the expansion of the money supply, which has experienced steady growth for decades, albeit at an accelerated rate recently. Perhaps more informative is the velocity with which this money travels through the U.S. economy, as measured by GDP divided by each respective money supply gauge. The M1 Velocity Index currently stands at its lowest level since 1995, which is at the same level experienced in 1978. The M2 Velocity Index currently stands at its lowest reading ever during the period in which it has been calculated (1959).
There are many implications of the recent expansion of the money supply and the subsequent lack of deployment of the additional currency. The most intuitive conclusion maybe that individuals remain extremely risk averse and are willing to hold capital in low-return vehicles perceived to have the least risk. This begs the question: what might occur if this capital is eventually allocated into the economy? We posit that companies that facilitate capital market activity, many currently having little or no balance sheet risk, stand to benefit mightily from such a phenomenon. Despite the headwinds facing the capital markets industry in the form of unallocated capital, many of the positions in the Fund have not only survived, but have thrived and achieved peak earnings and net asset values.
The timing and magnitude of an eventual acceleration in money supply are truly undeterminable. There remains a considerable chance of further contraction as the Federal Reserve continues to increase supply, despite an unwillingness of the public to invest. We note that any reversion to the higher activity levels seen in previous expansionary economic cycles could have truly profound implications for this portfolio. Furthermore, the companies owned by the Fund largely carry little or no debt and are trading at what we believe to be reasonable valuation multiples. Thus, these companies are well-positioned to weather any unforeseen tumult in global markets, with the latent capacity to drive exceptional growth in a more sanguine environment.
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.
|
