Dear Fellow Wintergreen Fund Shareholder,
EXCERPT FROM THE 2013 ANNUAL REPORT SHAREHOLDER LETTER
2013 seemed to be the year when the quality, valuations, and risks of businesses ceased to matter to most stock market participants. The Standard & Poor’s 500 Composite Index (“S&P 500”) remarkable rise for the year was its best return since 1997 during the run-up of the technology bubble. The ten best performing names in the S&P 500 had extremely high returns, while carrying an average price-to-earnings multiple of 58. Among these top performers were a struggling retailer (Best Buy Co., Inc.), a recently bankrupt airline (Delta Air Lines, Inc.), a brokerage still digging itself out from the financial crisis (E*TRADE Financial Corp.), a biotechnology company (Celgene Corp.), and two poster children of a potential new internet bubble (Netflix Inc. and Facebook Inc.). We believe the extraordinary returns on securities we view as highly speculative names are a microcosm of the broader market in 2013 — market participants moving down the quality spectrum in search of returns, without regard for and understanding of risks and valuations. We believe overseas securities languished and emerging markets became the scapegoat of popular opinion.
The widespread appetite for risk has been fueled in part by years of artificially low interest rates in most developed markets around the world. When safe high-quality assets yield a fraction of one percent, it isn’t surprising to see many investors flock to high-risk, high-reward investments, be it junk bonds or speculative equities. This is exemplified by high-yield bond spreads approaching historical lows, sub-prime mortgages being bid up 17% in the past year, and speculative equities posting triple-digit gains. Classic fundamental analysis of business values, a keystone in true investing, was replaced with an insatiable desire for returns at any cost and often a failure to acknowledge the inherent risk of many investment vehicles.
There is a popular Wall Street notion that momentum trading (i.e., buying stocks that have recently risen in price solely because they have recently risen in price) allows someone to hop from trend to trend as if they are a surfer riding the crest of a wave, and that this will enable one to trade their way to wealth. This “quick and easy” approach to speculating, which has been sold to investors in a relentless media blitz accompanying the latest bull market, is seldom successful in the long-run. More often, people don’t get just wet, but financially soaked.
Rather than risk our shareholders’ money by trying to deftly hop from one market fad to another, Wintergreen Fund, Inc. (the “Fund” or “Wintergreen”) prefers to avoid the clamor of the market and explore for valuable but unloved companies all over the globe. By owning companies which operate in nearly every geography and currency in the world, at any given moment the Fund typically has exposure to some markets and sectors which are performing well and others which are not. Over long periods of time, we believe this diversity of exposure has the potential to lead to solid results for shareholders, although we of course have no control over market sentiment in the short-term. As of year-end, the Fund had approximately 60% of its equity investments in companies outside of the United States. If we consider that many of the Fund’s U.S.-listed holdings do a significant portion of their business overseas, that proportion is even higher.
David J. Winters, CFA
The views contained in this report are those of the Fund’s portfolio manager as of December 31, 2013, and may not reflect his views on the date this report is first published or anytime thereafter. The preceding examples of specific investments are included to illustrate the Fund’s investment process and strategy. There can be no assurance that such investments will remain represented in the Fund’s portfolios. Holdings and allocations are subject to risks and to change. The views described herein do not constitute investment advice, are not a guarantee of future performance, and are not intended as an offer or solicitation with respect to the purchase or sale of any security.
The Fund is subject to several risks, any of which could cause an investor to lose money. The Fund may purchase risk arbitrage securities (securities of companies involved in a restructuring) or distressed companies. These companies may not be successful in their restructuring and securities of distressed companies are generally more likely to become worthless than securities of more financially stable companies. Smaller companies involve substantial risk as these securities are traditionally more volatile in price than larger company securities. Securities rated below investment grade, sometimes called junk bonds, involve a greater degree of risk than investment grade bonds in return for higher yield potential. The Fund may be subject to interest rate risk which is the risk that debt securities in the Fund's portfolio will decline in value because of increases in market interest rates. By participating in derivative securities, the Fund may attempt to hedge (protect) against currency risk which is the risk that the value of foreign securities may be affected by changes in currency exchange rates. Derivatives can be volatile and involve various types and degrees of risks, depending upon the characteristics of a particular derivative. International investing involves certain risks and increased volatility not associated with investing solely in the U.S. These risks include currency fluctuations, economic or financial instability, lack of timely or reliable financial information or unfavorable political or legal developments. These risks are magnified in emerging markets. Short sale risk is the risk that the Fund will incur an unlimited loss if the price of a security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security.
In light of these risks, the Fund may not be suitable for all investors.
Before investing you should carefully consider the Fund's investment objectives, risks, charges and expenses. The prospectus and summary prospectus contain this and additional information regarding the Fund. To obtain a prospectus or summary prospectus, please download from this site or call toll-free 1-888-468-6473. The prospectus and summary prospectus should be read carefully before investing. This website is not a solicitation for the Fund outside of the United States.
Foreside Fund Services, LLC, distributor (www.foreside.com)