About The Fund

Why Did I Start a Mutual Fund?

I started a mutual fund because I’m selfish.

I wanted to find a big group of investors who would pay me what I consider a modest fee to do what I like best: Learn new and obscure things about companies and industries in out-of-the-way places and then turn them into investing ideas.

I admit that learning the ins and outs of the rare earth mining industry, for example, is really exciting. Did you know that neodymium and dysprosium, two rare earth metals, are critical components in building hybrid cars and wind turbines? Or that China controls 95% of the world’s supply of rare earth metals? Well, neither did I—once upon a time. And now I know not only those facts but the stock tickers for two Australian companies that mine rare earth metals.

And that I’m enough of a math geek to find pleasure in doing the math that shows why China’s 50 wind turbine manufacturers can’t all make money—and then figuring out which two can.

It’s a terrible character flaw. And indulging it costs money.

Which is where you and the mutual fund come in.

In a perfect world I’d be able to spend hours digging into the guts of the exploding Asian dairy sector—did you know that India became the world’s biggest producer of milk, surpassing the United States in 1998?—without worrying about where my next rupee was coming from. But in this imperfect world I have to find a patron. And with the world currently experiencing a serious shortage of Cosimo de Medici and other Renaissance princes, I’m afraid it means you’re on the hook.

So what do you get in exchange? You get the gladly and freely given hard work of someone who thinks it’s fascinating to discover that 65% of the milk consumed in India is now unpackaged, and that while milk consumption is growing at an annual rate of 2.4% a year, consumption of packaged UHT milk—the kind that doesn’t need refrigeration before it’s opened—is projected to grow at an annual rate of 5.2% a year through 2012 and beyond. And then thinks that finding the stock of a company that will profit from this trend is a really engaging challenge.

So, that’s the deal: fund investors pay me a fee, and I try to find out cool stuff to turn into investment ideas. With, of course, one goal: to make money. (I fully appreciate that Renaissance princes didn’t sponsor people like Vasco da Gama to find a sea route to India just out of intellectual curiosity, so you get the same bargain).

Why should this work? I’ve printed a chart just below to give you an inkling. It tracks the U.S. Standard & Poor’s 500 Stock Index, the gold standard for big U.S. companies, against an index of stocks from the world’s emerging economies over the last five years. (It uses the MSCI Emerging Markets index.)

What do you see? That emerging market stocks have beaten the stocks of the bigger and better known U.S. companies hands down in rising markets. And, contrary to the common wisdom, they haven’t tumbled as far in the last big bear market either.*

Obscurity pays, you see.

I don’t think there’s much you or I can add to the market’s knowledge of IBM or Wal-Mart. Some twenty-three Wall Street analysts study IBM’s every move. Even more – twenty-nine –follow Wal-Mart.

But a Chinese fruit-juice company? The biggest little Australian coal mining company in Mozambique? The owner of the biggest selling vodka brands in Eastern Europe?

Ah, those you have to dig for. And if you find them before the world does, the stocks of those companies can be very profitable when the world finally does discover them.

So come along. It may not be the beginning of a beautiful friendship, but I do hope it will be the start of a very profitable relationship.

* The performance data quoted represents past performance and past performance does not guarantee, nor can it predict, future results. Please also note that it is not possible to invest in an index.