Element Global Opportunities Equity Portfolio

October 2012

The Element Global Opportunities Equity Portfolio has the mandate to go anywhere in pursuit of attractive investment opportunities, using a bottom-up investment approach. Being equity focused, the portfolio has at least 70% of its assets invested in international equity markets. The portfolio uses as benchmark the MSCI World (Local) but it does not seek to mimic or track this index in any way.

Investment Highlights
Selling a stock is hard, much harder than buying. This month I sold most of our position in The Gap, as the share price more than doubled since we started buying back in May of last year. Management is executing brilliantly, buying back stock aggressively, and the market has recognized this, pushing the price to levels not seen in the past decade. When you see such good job from management it becomes hard pressing the sell button, but the stock price didn't leave much upside left, so this was the logical decision. It is all about the price.

Portfolio Details
Net Asset Value (NAV) : Strategy Assets: Launch date: Portfolio Manager: 97.64 145600 14-January-2011 Filipe Alves da Silva, CAIA

In some cases, making the sell decision is admitting the investment thesis was wrong or something didn't go as planned, and in this particular case a lot went wrong, and I am to blame for it. You may remember we initiated a position in Premier Exhibitions in January at $2.25, because the company was going to auction it's Titanic artifacts in April, which we expected to be worth $189Mn (or $3.82/share). As the auction date approached, the stock price rose exponentially, reaching $3.62, just 5% shy of our target level. Despite this, I decided to wait for the auction outcome to maximize the profit. After the auction, management informed investors they were going to study the bids more carefully. Needless to say the stock price plunged. This would be bad enough on its own, but there's more ... After waiting for the final auction outcome for 6 months, I decided enough was enough: if the auction results were any good management would have said or at least hinted something, and they were silent ... too silent. I saw an increasing risk of either a failed auction or a much lower than expected bid, which would drive the price further down. So I decided to put an end to it and sold the position at $2.28, up just 1% from the purchase price. I didn't want something that started as an investment to end up a speculation. What happened next can only be seen as adding insult to injury. One week after liquidating the position management announced they got an $185Mn bid for the Titanic assets, and the stock price shot-up. Lets just say that I didn't feel very smart afterwards! Looking back I should have sold the position before the auction, as the reward was there for the taking. At that price, the risk of continuing to hold on to the position was just too high for the small upside left. Rest assured, I will make many more mistakes in my investment career, I just hope they aren't as silly and obvious as this one! This month we bought shares in Canal+ (C+), a French media company with very specific and interesting characteristics. The current structure of C+ was set in place by Vivendi 10 years ago to overcome a French law that prohibited the sole ownership of a channel with more than 2.5% audience share. This resulted in the shareholder structure of C+ being divided by Vivendi and Lagardre, which together own 48.5% of the company, with the remain being public float. What sets C+ apart is that it benefits from a guaranteed and known stream of earnings until 2050: the company is entitled to receive 3.3% of aaaaaa subscription revenues generated by its channels, with this cash flow Weekly Performance Chart having a lower and upper limit that increase by 2.5% per year. This is what makes C+ interesting: as the share of subscription revenue C+ is entitled to is 106 now below the lower limit, C+ is simply receiving the lower limit. 103 C+'s shares are tossed around like a normal stock, but the known stream of earnings make C+ a bond type investment. Valuing the company this way I get at a price of around 7.40, a 58% upside from our purchase price (4.70). To make things more interesting, the law that prevented Vivendi from owning 100% of C+ changed (max. audience share is now 8%), and Lagardre stated it wants to sell its stake. This paves the way for Vivendi to make an offer to buy the rest of C+. If you are interested in knowing more about C+, read a more detailed summary of the investment case on my blog.
100

97 94 91 88
85 82 Jan-11 May-11 Sep-11 Jan-12

MSCI World Local Portfolio

Apr-12 Aug-12

Monthly Performance
Jan 2011 2012 -1,11% 7,06% Feb 1,61% 5,19% Mar -2,05% 1,62% Apr 3,30% -0,86% May -1,25% -6,98% Jun -1,72% 2,62% Jul -1,37% 0,62% Aug -7,23% 2,67% Sep -7,20% 1,35% Oct 8,70% -1,50% Nov -2,83% Dec YTD -1,18% -12,57% 11,68%

Element Global Opportunities Equity Portfolio

Investment Guidelines
Max. Long Exposure: Min. Long Exposure: Equity Hedging: 130% 70% May use options on single name equities or equity indices to hedge downside risk Hedged on a best effort basis

Largest Positions
Name
i Sha res MSCI Worl d ETF Hedged IBM Appl e Inc Fi del i ty Chi na Speci a l Si tua ti ons Mi cros oft Corpora ti on Peps i Co Ama deus IT Hol di ngs Berks hi re Ha tha wa y Teva Pha rma ceuti ca l s BMW

Weight
16,2% 9,4% 8,0% 5,9% 5,7% 5,5% 4,3% 4,2% 3,9% 3,9%

Currency Hedging:

Total

67,0%

Allocation by Sector
Cash
Real Estate Utilities Telecommunication Services Materials Health Care Consumer Staples Consumer Discretionary Energy 1,8% 2,9% 2,0% 0,6% 4,4% 4,8%

Allocation by Country
Cash Others Brazil China Netherlands Italy Sweden Spain Switzerland Germany Australia France Canada United Kingdom Japan United States 0% 2,9% 6,6% 1,5% 7,4%

0,2% 0,2% 0,2%

7,8% 0,6%

6,1%
13,0% 17,2%

Industrials
Information Technology Financials 0%

1,9%
33,0% 12,1% 5% 10% 15% 20% 25% 30% 35%

4,4% 0,6% 3,2% 5,3% 1,9% 1,4%

56,0% 10% 20% 30% 40% 50% 60%

Currency Exposure
120% 100% 80%
102,4%

Contacts
For more information please contact Filipe Alves da Silva directly or send an email to element.cap@gmail.com

60% 40% 20%

0% -20%
-17,1% 6,6%

Disclaimer
1,5% 4,4%
0,3% 2,0%

Past performance is not indicative of future performance. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities.

-40%
EUR USD CNY BRL CAD GBP UAH

E L E M E N T

Element Global Opportunities Equity Portfolio

Complete List of Holdings

Name
iShares MSCI World ETF Hedged IBM Apple Inc Fidelity China Special Situations Microsoft Corporation PepsiCo Amadeus IT Holdings Berkshire Hathaway Teva Pharmaceuticals BMW Archer Daniels Midlands Lowe's BlackRock Telefnica Chatham Lodging Trust Avangard Corning Inc Renault MRV Engenharia Jakks Pacific Energold Drilling Monument Mining IMAX Corporation Societe d'Edition de Canal+ Telefonica 11 PUT 06/2013 OPAP PAX Global Technology Veris Gold Corp Cninsure GAP Inc Ted Baker Addvantage Technologies La Seda de Barcelona Cash

Weight
16,2% 9,4% 8,0% 5,9% 5,7% 5,5% 4,3% 4,2% 3,9% 3,9% 3,3% 2,9% 2,8% 2,3% 2,0% 2,0% 1,8% 1,5% 1,5% 1,3% 1,3% 1,3% 1,1% 1,0% 0,9% 0,9% 0,8% 0,7% 0,7% 0,4% 0,3% 0,2% 0,1% 2,0% 100,0%

Total

Disclaimer: Past performance is not indicative of future performance. Reference in this document to specific securities should not be construed as a
recommendation to buy or sell these securities.