The Implications of Being the #1 Performing Fund (2 min read)
We recently learned that our flagship fund reported the #1 performance for Q1 and Q2 2019 of all actively managed funds that report to Crypto Fund Research. This means we have surpassed over 50 funds globally that deploy a wide range of strategies.
As you can imagine, this was a big moment for our team; but it also forced us to think about the implications of this performance. We began to ask ourselves some tough questions, two of the most important are discussed below:
- Funds that are #1 in a given period often lag in future periods, so how do we keep our edge and consistently outperform over time?
- Are we taking excessive risks to achieve top returns?
We believe that our top performance is the result of strong investment research and theses beginning to come to fruition. Nevertheless, we realize that luck also plays an important role, especially in the short-term, as we benefited from a couple of large, favorable price movements in our portfolio. The prices did not surprise us, but the speed of change did.
In this case, our sustainable edge comes from our laser focus on valuation vs. adoption. We strive to buy quality assets that are undervalued relative to adoption and sell assets that are overvalued relative to adoption. Adoption is everything.
We emphasize quality because our goal is not to be the #1 fund today, but to be successful in a wide variety of possible future worlds where blockchains get adopted. This is why we employ a picks-and-shovels strategy in verticals such as exchanges, infrastructure, digital currencies, and entertainment platforms. One category may be wildly successful whereas another may lag or fail to gain mainstream adoption and therefore, investing in quality assets helps mitigate many of the risks in this nascent industry. When we avoid short-term speculation and stay disciplined on managing risk, the returns follow naturally. This is the nature of an exponentially-growing new technology.
While we are humbled to report top performance so far this year, we will be relieved when another fund takes this position from us, likely engaging in a strategy that optimizes for a single outcome or takes on excessive risk.
If we can be #1 at our goal of responsible and strategic investing in blockchain technology, maximizing long-term risk-adjusted returns, that would be something to celebrate.
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