The portfolio delivered a net return of 0.5% for the first half of 2021 while FTSE Global All Cap index’s return is 12.7% during the same period. Our portfolio’s cumulative return since 2016 is 101% while the above-mentioned index’s cumulative return is 105%. Cash is 18% of the portfolio.
In the past six months, I exited 51jobs and Avanza. The privatisation deal for 51jobs was finalised in June 2021 and we netted 12% profit over 9 months. We have 2 other workout situations within the portfolio comprising 9.5% weight. Works-out is a way to earn better-than-cash returns with a short duration and less affected by the general market price fluctuations. I will always prefer owning great businesses at a reasonable valuation over work-outs but in times where I cannot find sufficient such investment ideas, then work-out is often the next best option.
Unfortunately, we are no longer partners in Avanza’s growth journey because Avanza’s valuation was so expensive that the prospective return on a 5-year horizon is very likely to be negative. Operationally, Avanza is firing on all cylinders and I am very confident that they will continue to do well. If valuation becomes reasonable again, I would definitely like to own Avanza again.
We became a partner to a very high-quality business in China – Tencent. Tencent is a company that defies categorisation. It is so many things all at once – gaming, social network, fintech, media and cloud. Despite being one of the largest companies globally, it still has a very long growth runway ahead and is likely to offer an excellent risk-adjusted return. Tencent owns WeChat which is in my mind a modern utility in the digital life of Chinese people. On one hand, the dominance of WeChat provides Tencent with predictable long term earnings growth but on the other hand, this same dominance also raises the spectre of anti-monopoly regulations. Tencent has leverage WeChat to weaken competitors by denying Bytedance and Alibaba access to China’s largest social network. In the not too distant future, Tencent is very likely to open up WeChat ecosystem to its competitors at the request of regulators and hopefully, this should be enough to satisfy the regulators. However, there is always a risk that Tencent would be forced to spin-off WeChat due to its position as a natural monopoly to truly ensure equal access to all stakeholders. At this moment, this risk seems small but significant. I take comfort in the fact that historically Tencent has been a responsible corporate citizen that cares deeply about its users and the wider society. For example, Tencent has been very restrained in terms of monetisation on WeChat while investing heavily into the digitalisation of industrial companies through cloud computing, enterprise software solutions and building customer relationship management systems on WeChat for corporates and SMEs. Going forward, Tencent is under increasing pressure to prove that it can create more value for society than it extracts from society. And Tencent’s track record suggests that they have a very good chance of creating value for society through constant innovations.
 Assuming a fee structure of 1) no management fee, and 2) a 20% performance fee above 5% threshold