Seafarer®

Pursuing Lasting Progress in Emerging Markets®

Seafarer Overseas Growth and Income Fund

Overview

Effective November 19, 2018, the Fund’s Institutional Class (SIGIX) is available for purchase by all investors. The Fund’s Investor Class (SFGIX) is closed to most new investors. View the Message to Shareholders.

Investment Objective

The Fund seeks to provide long-term capital appreciation along with some current income; it also seeks to mitigate adverse volatility in returns.

Strategy

The Fund invests primarily in the securities of companies located in developing countries. The Fund invests in several asset classes including dividend-paying common stocks, preferred stocks, and fixed-income securities.

The Fund seeks to offer investors a relatively stable means of participating in developing countries’ growth prospects, while attempting to mitigate adverse volatility in returns. 

Share Classes

Investor Institutional
Ticker SFGIX SIGIX
CUSIP
NAV
30-Day SEC Yield
Fund Distribution Yield
Gross Expense Ratio2
Load
12b-1 Fee
Minimum Initial Investment – Regular Account
Minimum Initial Investment – Automatic Investment Plan3
Minimum Initial Investment – Retirement Account
Minimum Subsequent Investment

Underlying Portfolio Holdings

Holdings4
Unique Corporate Issuers5
% of Net Assets in Top 10 Holdings
Weighted Average Market Cap
Market Cap of Portfolio Median Dollar
Gross Portfolio Yield6
Price / Book Value6
Price / Earnings67
Earnings Per Share Growth67
   
All performance is in U.S. dollars with gross (pre-tax) dividends and/or distributions reinvested. The performance data quoted represents past performance and does not guarantee future results. Future returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

Geographic Focus

Developing countries including, but not limited to:

Africa
Botswana
Ghana
Kenya
Mauritius
Morocco
Nigeria
Tunisia
South Africa
Zimbabwe
East and South Asia
Bangladesh
China
India
Indonesia
Malaysia
Pakistan
Philippines
South Korea
Sri Lanka
Taiwan
Thailand
Vietnam
Emerging Europe
Bosnia and Herzegovina
Bulgaria
Croatia
Czech Republic
Estonia
Georgia
Greece
Hungary
Lithuania
Kazakhstan
Poland
Romania
Russia
Serbia
Slovenia
Turkey
Ukraine
Latin America
Argentina
Brazil
Chile
Colombia
Jamaica
Mexico
Peru
Trinidad and Tobago
Middle East
Bahrain
Egypt
Jordan
Kuwait
Lebanon
Oman
Palestine
Qatar
Saudi Arabia
United Arab Emirates

Select developed countries with significant economic and financial linkages to developing countries, including Australia, Hong Kong, Ireland, Israel, Japan, New Zealand, Singapore, and United Kingdom.

Sources: ALPS Fund Services, Inc., Bloomberg, Seafarer.
Portfolio holdings are subject to change.
  1. The MSCI Emerging Markets Total Return Index, Standard (Large+Mid Cap) Core, Gross (dividends reinvested), USD is a free float-adjusted market capitalization index designed to measure equity market performance of emerging markets. Index code: GDUEEGF. It is not possible to invest directly in an index.
  2. Seafarer Capital Partners, LLC has agreed contractually to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiver / Expense Reimbursements (inclusive of acquired fund fees and expenses, and exclusive of brokerage expenses, interest expenses, taxes and extraordinary expenses) to 1.15% and 1.05% of the Fund’s average daily net assets for the Investor and Institutional share classes, respectively. This agreement is in effect through August 31, 2020.
  3. Shareholders who sign up for an Automatic Investment Plan can request a waiver of the Institutional Class investment minimum. View the waiver program criteria.
  4. Excludes short-term government bonds; includes medium- and long-term government bonds.
  5. Excludes all government bonds.
  6. Calculated as a harmonic average of the underlying portfolio holdings.
  7. Based on consensus earnings estimates for next year. Excludes securities for which consensus earnings estimates are not available.

Performance

Total Returns

As of (Prior Month)

2 NAV / Index Level () Annualized Cumulative Inception Date Net Expense Ratio1 Gross Expense Ratio1
YTD 1 Mo 3 Mo 1 Yr 3 Yr 5 Yr Since Inception Since Inception

As of (Prior Quarter)

2 NAV / Index Level () Annualized Cumulative Inception Date Net Expense Ratio1 Gross Expense Ratio1
YTD 1 Mo 3 Mo 1 Yr 3 Yr 5 Yr Since Inception Since Inception
Growth of a $10,000 Investment Since Inception
The rates of return are hypothetical and do not represent the returns of any particular investment.
All performance is in U.S. dollars with gross (pre-tax) dividends and/or distributions reinvested. The performance data quoted represents past performance and does not guarantee future results. Future returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.
Source: ALPS Fund Services, Inc.

Return Characteristics as of

Relative to the MSCI Emerging Markets Total Return Index2 except where noted.

3 years Since Inception3
Alpha
Beta
R-squared
R-squared vs. S&P 500 Index4
Upside Capture Ratio
Downside Capture Ratio
Source: Morningstar.
  1. Seafarer Capital Partners, LLC has agreed contractually to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiver / Expense Reimbursements (inclusive of acquired fund fees and expenses, and exclusive of brokerage expenses, interest expenses, taxes and extraordinary expenses) to 1.15% and 1.05% of the Fund’s average daily net assets for the Investor and Institutional share classes, respectively. This agreement is in effect through August 31, 2020.
  2. The MSCI Emerging Markets Total Return Index, Standard (Large+Mid Cap) Core, Gross (dividends reinvested), USD is a free float-adjusted market capitalization index designed to measure equity market performance of emerging markets. Index code: GDUEEGF. It is not possible to invest directly in an index.
  3. As of 3/1/12.  The Fund’s inception date is 2/15/12 but Morningstar data is only available as of the beginning of the following month.
  4. The S&P 500 Total Return Index is a stock market index based on the market capitalizations of 500 large companies with common stock listed on the NYSE or NASDAQ. It is not possible to invest directly in an index.

Composition

Holdings Portfolio Composition

Top 10 Holdings as of

Holding Sector Country Portfolio Component1 Issuer Mkt Cap ($B) Yield2 Price/ Book Price/ Earnings3 EPS Growth3
Portfolio holdings are subject to change.
Sources: ALPS Fund Services, Inc., Bloomberg, Seafarer.

View all Holdings

Portfolio Composition by Region as of

All Holdings ADRs, Common & Preferred Equities Only
% Net Assets Price / Earnings89 EPS Growth89
Region # of Holdings4 Fund +/− vs. Index6 Avg Mkt Cap ($B)7 Gross Yield8 Price / Book8 Prior Year This Year Next Year This Year Next Year
Sources: ALPS Fund Services, Inc., Bloomberg, Seafarer.

Portfolio Composition by Sector as of

All Holdings ADRs, Common & Preferred Equities Only
% Net Assets Price / Earnings89 EPS Growth89
Sector # of Holdings4 Fund +/− vs. Index6 Avg Mkt Cap ($B)7 Gross Yield8 Price / Book8 Prior Year This Year Next Year This Year Next Year
Sources: ALPS Fund Services, Inc., Bloomberg, Seafarer.
30-Day SEC Yield: SFGIX ; SIGIX ()
The performance data quoted represents past performance and does not guarantee future results. Future returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. View the Fund’s most recent month-end performance.

Portfolio Composition by Component as of

Portfolio Component1 % Net Assets
Source: Seafarer.

Portfolio Composition by Asset Class as of

Asset Class % Net Assets
Source: ALPS Fund Services, Inc.

Portfolio Composition by Market Capitalization as of

Market Capitalization % Net Assets +/− vs. Index6
Sources: ALPS Fund Services, Inc., Seafarer.
Due to rounding, percentage values may not sum to 100%. Values less than 0.5% may be rounded to 0%.
  1. Core Holdings: moderately underappreciated growth; moderately elevated current yield. Growth Holdings: higher growth potential; lower current yield. Value Holdings: lower growth potential; higher current yield.
  2. Yield = dividend yield for common and preferred stocks and yield to maturity for bonds.
  3. Based on consensus earnings estimates for next year.
  4. Excludes short-term government bonds; includes medium- and long-term government bonds.
  5. Excludes all government bonds.
  6. The MSCI Emerging Markets Total Return Index, Standard (Large+Mid Cap) Core, Gross (dividends reinvested), USD is a free float-adjusted market capitalization index designed to measure equity market performance of emerging markets. Index code: GDUEEGF. It is not possible to invest directly in an index.
  7. Weighted Average Market Capitalization of Issuer.
  8. Calculated as a harmonic average of the underlying portfolio holdings.
  9. Based on consensus earnings estimates. Excludes securities for which consensus earnings estimates are not available.

Distributions

2020 Distribution Dates

Distribution frequency: Semi-annual

Please note: future dates are subject to change.

Record Date Ex, Pay and Reinvest Date
Mid-year Distribution 6/24/20 6/25/20
Year-end Distribution 12/09/20 12/10/20

To be notified of distribution estimates, sign up for Seafarer email updates.

Historical Distributions

Ex, Pay and Reinvest Date Reinvest NAV Ordinary Income Short Term Capital Gains Long Term Capital Gains Total Distrib. Per Share Cumulative Distrib. Per Share Since Inception
SFGIX (Investor Class)
SIGIX (Institutional Class)

For more information on the Fund’s distribution policies, please see the “Dividends and Distributions” section of the Prospectus.

Foreign Source Income

The Seafarer Overseas Growth and Income Fund has elected to pass through to shareholders the foreign taxes paid on income earned from foreign investments. These foreign taxes are reported in Box 7 of Form 1099-DIV. As a shareholder in the Fund, you may be able to claim a tax credit or an itemized deduction on your federal tax return for the amount of taxes paid to foreign countries. Please consult your tax adviser.

Year Foreign Source Income (as a % of Box 1a on Form 1099-DIV)
Past performance is no guarantee of future results. There is no guarantee that the Fund will pay or continue to pay distributions.

Portfolio Review

Seafarer Overseas Growth and Income Fund

Portfolio ReviewSecond Quarter 2020

During the second quarter of 2020, the Seafarer Overseas Growth and Income Fund returned 19.43%.1 The Fund’s benchmark, the MSCI Emerging Markets Total Return Index, returned 18.18%. By way of broader comparison, the S&P 500 Index returned 20.54%.

The Fund began the quarter with a net asset value of $9.48 per share. During the quarter, the Fund paid a semi-annual distribution of approximately $0.072 per share. This payment brought the cumulative distribution, as measured from the Fund’s inception, to $3.065 per share.2 The Fund finished the quarter with a value of $11.25 per share.3

Performance

Despite a preponderance of challenging news regarding the COVID-19 pandemic, stock markets throughout the developing world marched uniformly higher in the second quarter. Investors willfully ignored any contrary information: during the quarter, consensus estimates for overall corporate profit growth in 2020 from the emerging markets collapsed from +12% (as measured in early January) to -13% (as measured again, at the end of June).4 Growth estimates for 2021 are stubbornly anchored much higher, at +31%; yet this is only so because financial analysts, beset by an unprecedented degree of uncertainty about the near term, have not yet adjusted their forecasts from those made at the beginning of the year – substantively prior to the spread of COVID-19. Put simply, the markets are moving blindly forward, uncritically hoping for a better set of outcomes; the markets have ceased to know or measure anything substantive, as they normally do when engaged in the act of “price discovery.” I fear that such rampant speculation has been fueled entirely by the historic levels of monetary stimulus afforded by the U.S. Federal Reserve and the People’s Bank of China.

Chinese stocks dominated the surge during the quarter – bizarrely so, given a weak outlook for the domestic economy, and given the prevalence of political frictions abroad that now hamper the international expansion of many Chinese companies. Yet it is precisely these contrary facts that appear to have pushed stock prices dramatically higher: investors in China seem to believe that such adverse events will give the Chinese government impetus not only to stimulate the local economy, but also to come to the aid of the country’s many beleaguered industries. The latter premise is not entirely silly, as Beijing has historically exercised a heavy hand in promoting various companies as “national champions” and selecting “winners and losers.”

Such hopes have led many stocks in China’s domestic market to gain over 50% in the past three months, and some have doubled, making China’s A-shares among the best-performing in the world. Yet the rampant speculation seems misguided, if only for the sheer magnitude of the government intercession it supposes. Investors are giddily pretending that nearly all technology companies – a few of which are of excellent quality, but the majority of which are of questionable capability – will somehow benefit from the state’s largesse, given the government’s ambition to spur native technologies under the “Made in China 2025” project. It is true China’s industrial policies have grown more forceful and statist under the Xi administration. Yet there is no way that Beijing can provide succor for so many companies at once, nor can it foster so many “national champions,” for it lacks the fiscal resources to do so. Further, intense competition within China will ensure that many of the companies now vaunted by the stock market will not prosper over time. Still, reality did not intrude on the Chinese dream during the quarter, and shares surged (and accelerated further in July). Thus, I am convinced large swathes of the China A-share market have entered a bubble, though I have no idea how long it will persist, or what will cause it to burst.

Amid such distorted conditions, the Growth and Income Fund kept pace with markets, but failed to capture the most aggressive returns available from the market (as mentioned above, a staggeringly large number of stocks have risen precipitously from their March lows). Most of the Fund’s gains simply represent a “knee-jerk” recovery from the COVID-19-induced nadir in markets that occurred near the end of March. The Fund’s outsized exposure to South Korean stocks drove the bulk of its gains, as several positions rose sharply. Two long-held and large positions – Naver, South Korea’s dominant search engine and e-commerce company, and Samsung SDI, a globally competitive company in battery technologies – both rose over 50% during the quarter.

At the same time, a number of stocks imposed a substantial drag on the Fund’s performance: the Fund’s exposure to smaller companies, particularly those domiciled in Hong Kong, underperformed amid the market’s broader rally. Companies in the Special Administrative Region saw their business prospects struggle amid the prevailing political turmoil, and investors shied away from Hong Kong stocks generally out of concern for the territory’s future, particularly as local activists wrestled with the possibility that Beijing might institute greater legal control (which occurred on June 30, when China’s legislature enacted the “Law of the People's Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region.”)

The Fund’s holdings in other regions, including Brazil and Southeast Asia, also fared poorly relative to the index’s rebound. In most instances, stocks rose, but well below the pace set by the index; and falling currencies negated such gains, such that many holdings outside East Asia contributed little to the Fund’s recovery.

Allocation

During the second quarter, the Fund exited five positions: Bank Rakyat (one of Indonesia’s largest banks), Ayala Corp (a holding company with substantial property and utility interests in the Philippines), Techtronic (a Hong Kong and China-based producer of power tools, available in many home improvement stores across the U.S.), Texwinca (a Hong Kong-based textile firm), and Hang Lung Properties (a company historically known for its residential developments in Hong Kong, but now principally engaged in developing and managing malls in mainland China).

The first three positions were remnants of the Selected Growth component of the Fund. (See Figure 1 for definitions of the Fund’s Core, Selected Growth, and Value portfolio components.) As noted in previous reviews, I undertook an effort to re-evaluate all Selected Growth positions after the Fund’s management change in the fourth quarter of 2019. After that review, I determined that Bank Rakyat, Ayala Corp, and Techtronic failed to satisfy the more stringent requirements that I instituted for all Selected Growth constituents of the Fund.

Figure 1: Seafarer Overseas Growth and Income Fund – Portfolio Components
Core Holdings Moderately underappreciated growth;
Moderately elevated current yield
Selected Growth Holdings Higher growth potential;
Lower current yield
Value Holdings Lower growth potential;
Higher current yield

Texwinca and Hang Lung were both former constituents of the Value component of the Fund. Both companies have struggled in recent years in the face of rising competitive burdens – Texwinca from mainland China-based garment producers that deployed advanced technologies that eclipsed its capabilities; Hang Lung from China’s manifold e-commerce retailers that are steadily undermining traditional shopping malls.

The proceeds from Hang Lung were deployed to establish a new position in Mondi PLC, another constituent of the Value component of the Fund. Mondi is a global paper and packaging company with a collection of production assets that we believe to be uniquely valuable and difficult to replicate. It has a string of paper and pulp milling factories located near cheap fiber sources in South Africa, Eastern Europe, and Russia, enabling it to produce at some of the lowest costs within its industry, resulting in favorable returns on capital in the past.

Outlook

Looking forward, I remain deeply concerned that stocks in the developing world are poised for weakness – none more so than the wildly overheated markets in China. My concern stems from two sources: elevated stock prices, and poor and uncertain corporate performance (as noted above, in the Performance section). The combination is usually a recipe for volatility and declining returns.

I am happy to report that the Fund has a silver lining amid the difficult conditions: the portfolio holdings are likely, in aggregate, to produce earnings growth in 2020 (even as profits contract -13% for the broader market). At present, the portfolio’s aggregate profit growth is expected to be +19%. This statistic is exaggerated due to mathematical “base effects:” one company (First Pacific) produced losses in 2019, and as its performance “normalizes” (i.e., recovers to profitability), the resulting swing amplifies the apparent rate of growth for the overall portfolio. Yet even after adjusting for this effect by removing the company in question, the portfolio will likely produce modest growth for 2020. Six months of the year remain, and much may happen to derail expectations for future profits; yet at present, the resilience of earnings power for the Fund’s holdings is remarkable. The stock markets may at present favor “growth” and “technology darlings,” but amid such uncertain times and bubble-prone conditions, I favor a portfolio that produces tangible results, in accordance with the Fund’s strategy (which seeks companies with sustained earnings, capable of servicing ample dividends, with the potential to grow such investment income over time).

On a final note, regarding the imposition of the new security law in Hong Kong: I acknowledge that China has a sovereign right to pursue security within its borders. I also acknowledge that Hong Kong is legally, culturally and fundamentally a part of China. Yet I worry that the aggressive imposition of this law will drain Hong Kong of the unique economic, social and political freedoms that set the city-state apart from (and ahead of) the rest of the world. The law may soon render Hong Kong no different from an “average mid-sized city” in China. If so, the resilient character that distinguishes its people and the competitive drive that is a hallmark of its companies will ebb away. I cherish Hong Kong, and I fervently hope that the new law does not portend a darker future for the city, or for that of China itself.

Thank you for entrusting us with your capital. We are honored to serve as your investment adviser in the emerging markets.

Andrew Foster,
Paul Espinosa,
The performance data quoted represents past performance and does not guarantee future results. Future returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. View the Fund’s most recent month-end performance.
The views and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect Seafarer’s current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the portfolios or any securities or any sectors mentioned herein. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Seafarer does not accept any liability for losses either direct or consequential caused by the use of this information.
As of June 30, 2020, Naver Corp. comprised 2.7% of the Seafarer Overseas Growth and Income Fund, Samsung SDI Co., Ltd. comprised 4.8% of the Fund, Mondi PLC comprised 2.1% of the Fund, and First Pacific Co., Ltd. comprised 1.3% of the Fund. The Fund did not own shares in Bank Rakyat Indonesia Persero Tbk PT, Ayala Corp., Techtronic Industries Co., Ltd., Texwinca Holdings, Ltd., or Hang Lung Properties, Ltd. View the Fund’s Top 10 Holdings. Holdings are subject to change.
  1. References to the “Fund” pertain to the Fund’s Institutional share class (ticker: SIGIX). The Investor share class (ticker: SFGIX) returned 19.28% during the quarter.
  2. The Fund’s inception date is February 15, 2012.
  3. The Fund’s Investor share class began the quarter with a net asset value of $9.44 per share; it paid a semi-annual distribution of approximately $0.070 per share during the quarter; and it finished the quarter with a value of $11.19 per share.
  4. “Emerging Markets Equity Strategy Steering Board,” J.P. Morgan, 2 July 2020.