To December 31st, 2013 the change in unit prices of the HughesLittle Value Fund and HughesLittle Balanced Fund were as follows:
Let’s start with a number: 100 percent. This is a significant number for investors, a milestone even, as it represents a ‘double.’ In the autumn of 2013, the initial group of investors in the Value Fund and Balanced Fund – who invested in 2005 – crossed the 100 percent gain mark on their original capital invested. It took us a little over eight years to achieve this milestone. This represents an annualized return of about nine percent.
Other groups of Value Fund investors who have also doubled their original investment are clients who invested between October 2008 and July 2009 and between May 2010 and July 2010. Similarly, clients who invested their RSP or RIF money in the Balanced Fund between October 2008 and April 2009 have also doubled their original capital. All of these latter groups of investors in the HughesLittle Funds invested at lower unit prices than the original investors of 2005 and have subsequently enjoyed returns in the range of 15 to 21 percent per year.
These are decent results through a period of mixed financial market and economic conditions. The Funds have generated rates of return that we expect over the long term. Most importantly, these are high enough rates of return to keep you ahead of inflation as well as generate a satisfactory result over a life time. The chart below shows a $250,000 investment growing at the Funds’ rate of return since inception, 9.4 percent per year:
We included the 100 year number for those interested in creating a multi-generational legacy. The last row also shows that in hindsight your great grandfather, with a little foresight, could have made you today the 30th wealthiest person in Canada – just behind Charles Bronfman.
One thing that has helped our past results and should garner praise (rather than irreverence) from your great grandchildren is our focus not just on generating good returns but also on properly assessing risk in our investments.
The investment world has many different types of risk. Academics use price volatility or something called beta to measure risk. There is also benchmark risk, liquidity risk, and unconventionality, to name a few. We view these measures of risk as secondary.
We think our definition of risk is more relevant to our clients: ‘risk’ is the likelihood of not achieving a satisfactory return. This could be an outright capital loss or not achieving your objective return over the long-term.
To fully understand the risks that may be inherent in our portfolios currently and in the future we first try to assess the risks we may have incurred in the past. We do this by dissecting the performance of our operating companies over a number of years through a variety of conditions. For example, if a company has performed well we want to know whether we were we smart or just lucky. Or if a company has flopped – were we inept or unlucky. And if conditions had of been different would that have produced a different outcome?
By exploring these questions it becomes clear whether we own strong companies or weak ones and whether we are paying reasonable prices. We demand real evidence that our companies are performing well over many years and through a variety of economic and competitive conditions. When a company performs well enough, long enough, that tells us something about the ‘riskiness’ of the business.
We then try to apply what we have learned from the past to the future. For most companies however, a good past performance is no guarantee for the future. Future and past risks are seldom the same. In industries like technology or retail for instance, competitive forces are constantly inflicting damage in unforeseen ways, regularly turning peacocks into feather dusters..
See full report in PDF format: HughesLittle Value Fund Annual Report