Seafarer®

Pursuing Lasting Progress in Emerging Markets

Seafarer Overseas Value Fund

Overview

Factsheet Prospectus Annual Report On Value
in the Emerging Markets White Paper

Investment Objective

The Fund seeks to provide long-term capital appreciation.

Strategy

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

The Fund’s portfolio is comprised of securities identified through a bottom-up security selection process based on fundamental research. The Fund seeks to produce a minimum long-term rate of return by investing in securities priced at a discount to their intrinsic value.

Share Classes

Investor Institutional
Ticker SFVLX SIVLX
CUSIP
NAV
30-Day SEC Yield – Subsidized
30-Day SEC Yield – Unsubsidized
Fund Distribution Yield
Net 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

Holdings
% of Net Assets in Top 10 Holdings
Weighted Average Market Cap
Market Cap of Portfolio Median Dollar
Gross Portfolio Yield4
Price / Book Value4
Price / Earnings45
Earnings Per Share Growth45
  • Gross expense ratio: for Investor Class; for Institutional Class2 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
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
United Arab Emirates

Select developed countries with significant economic and financial linkages to developing countries, including Hong Kong and Singapore.

  • 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 this or any 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 (excluding brokerage expenses, interest expenses, taxes and extraordinary expenses) to and of the Fund’s average daily net assets for the Investor and Institutional share classes, respectively. This agreement is in effect through .
  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. Calculated as a harmonic average of the underlying portfolio holdings.
  5. Based on consensus earnings estimates for next year. Excludes securities for which consensus earnings estimates are not available.

Performance

Factsheet Historical Fund Data

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

Gross expense ratio: for Investor Class; for Institutional Class1

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

Gross expense ratio: for Investor Class; for Institutional Class1

Growth of a $10,000 Investment Since Inception 5/31/16 - 6/30/17

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

The Fund was first offered on May 31, 2016. The Fund’s return characteristics are not yet available.

  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 (excluding brokerage expenses, interest expenses, taxes and extraordinary expenses) to and of the Fund’s average daily net assets for the Investor and Institutional share classes, respectively. This agreement is in effect through .
  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 this or any index.

Composition

Factsheet Historical Fund Data

Holdings Portfolio Composition

Top 10 Holdings as of

Holding Sector Country Issuer Mkt Cap ($B) Yield1 Price/ Book Price/ Earnings234 EPS Growth234

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 / Earnings78 EPS Growth78
Region # of Holdings Fund +/− vs. Index5 Avg Mkt Cap ($B)6 Gross Yield7 Price / Book7 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 / Earnings78 EPS Growth78
Sector # of Holdings Fund +/− vs. Index5 Avg Mkt Cap ($B)6 Gross Yield7 Price / Book7 Prior Year This Year Next Year This Year9 Next Year910

Sources: ALPS Fund Services, Inc., Bloomberg, Seafarer

30-Day SEC Yield: subsidized SFVLX ; SIVLX / unsubsidized SFVLX ; SIVLX ()
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 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. Index5

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. Yield = dividend yield for common and preferred stocks and yield to maturity for bonds.
  2. Based on consensus earnings estimates for next year.
  3. Consensus estimates for earnings and EPS growth are negative for this security.
  4. Consensus estimates for earnings and EPS growth are not available for this security.
  5. 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.
  6. Weighted Average Market Capitalization of Issuer.
  7. Calculated as a harmonic average of the underlying portfolio holdings.
  8. Based on consensus earnings estimates. Excludes securities for which consensus earnings estimates are not available.
  9. The pronounced EPS Growth forecast for the Consumer Discretionary sector this year and decline next year is influenced by a single constituent company. That company’s earnings have recently been very volatile. Consensus forecasts (produced by research arms of investment banks) suggest that the company's earnings are affected by a significant, one-time valuation gain in the current fiscal year, which will be absent the following year, leading to substantial profit volatility; however, such consensus forecasts are subject to a very high degree of uncertainty.
  10. The pronounced EPS Growth forecast for the Industrials sector for next year is influenced by a single constituent company. That company’s earnings have recently been very volatile. Consensus forecasts (produced by research arms of investment banks) suggest that the company's earnings will recover from depressed levels, leading to substantial percentage growth in profits; however, such consensus forecasts are subject to a very high degree of uncertainty.

Distributions

2017 Distribution Dates

Distribution frequency: Annual

Please note: future dates are subject to change.


Record Date
Ex, Pay and
Reinvest Date
Year-end Distribution 12/13/17 12/14/17

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
SFVLX (Investor Class)
SIVLX (Institutional Class)

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

Should you have any questions, please contact Shareholder Services at (855) 732-9220 (Mon–Fri 9am–8pm ET).

Past performance is no guarantee of future results. There is no guarantee that the Fund will pay or continue to pay distributions.

Portfolio Review

Portfolio Review Portfolio Review Archives

Seafarer Overseas Value Fund Portfolio ReviewFirst Quarter 2017

During the first quarter of 2017, the Seafarer Overseas Value Fund returned 8.86%.1 The Fund’s benchmark, the MSCI Emerging Markets Total Return Index, rose 11.49%. By way of broader comparison, the S&P 500 Index gained 6.07%.

The Fund began the quarter with a net asset value of $10.16 per share. The Fund paid no distributions during the quarter, and it finished the period with a value of $11.06 per share.2

Performance

The first quarter of 2017 marked a point of departure for the Value Fund’s performance relative to its short history. Since inception until the end of 2016, the net asset value (NAV) had proven remarkably stable, both at the time of the Fund’s inception in the middle of a strong emerging market (EM) rally, and through the EM sell-off at the time of President Trump’s election. A “step-function” may best describe the Fund’s subsequent performance during the first quarter of 2017. The Fund appreciated strongly throughout the quarter until early March, when the NAV stabilized again.

In examining the drivers of performance for the quarter, I do not discern any sector or country patterns. The top contributors are an eclectic group operating in real estate, advertising, shipping, and leisure. Stock price appreciation was satisfyingly distributed among most Fund holdings, with approximately one third of portfolio securities appreciating in excess of 10%. However, I do detect a reflection at the stock level of what my colleague, Andrew Foster, has described as an earnings acceleration at the EM universe level (please refer to the Growth and Income Fund’s third quarter 2016 portfolio review). Indeed, while the top and bottom contributors to performance during the quarter both share a history of negative earnings momentum up to the first half of 2016, in most cases, the quarter’s top performers did report earnings growth in the second half of 2016.

I would take the argument one step further by noting that as it concerns holdings in the Value Fund only, the acceleration in earnings was limited to that: earnings. Revenue has shown limited signs of acceleration thus far. Furthermore, the primary basis of differentiation between the top and bottom contributors to performance is one of revenue exposure. The top performers share a regional base of operations, while the bottom contributors have country-specific revenue bases.

Analyzing the portfolio through this dimension proves insightful in that I interpret the appreciation of emerging market stocks as not only a reflection of improved earnings momentum, but an anticipation of an expected revenue acceleration. Perhaps unsurprisingly, and equally illuminating, the stocks with the worst performance have their revenue bases confined to China and Mexico, two countries singled out by the Trump administration. I think this observation is simply a coincidence, albeit an interesting one, in that the two worst performers, AMVIG Holdings and Xtep International, do have stock-specific drivers of negative revenue momentum. In the case of the Fund’s only holding in Mexico, Crédito Real, the stock actually contributed positively to the quarter’s performance. Nonetheless, I place it in this negative category because the stock sold off significantly since the election of President Trump and the company earns revenue primarily in Mexico. These factors represent part of the reason that I find value in the stock and purchased it for the Fund by the end of the first quarter.

Indeed, in addition to the strong appreciation of the Fund, the other salient factor for the portfolio during the quarter was the addition of three new holdings. All three are stocks that I have been tracking for some time, and I discuss them further in the Allocation section below.

The final point to make with regard to performance is that, as was the case in the fourth quarter of 2016, emerging market currencies continue to account for a significant proportion of overall returns in the universe. A representative basket of EM currencies appreciated 4.76% against the U.S. dollar during the first quarter of 2017, accounting for 42% of the MSCI Emerging Markets Index’s total return of 11.49%.3

Allocation

I added three new holdings to the Fund during the quarter. All three are companies I have been tracking for some time. The reason for adding them this quarter and not earlier is a combination of price action and new information.

The impetus for adding Crédito Real to the portfolio by the end of the first quarter was price action. The stock price depreciated 26.18% from the U.S. presidential election on November 8, 2016 through March 31, 2017.4 The risks for this payroll lender are largely known by now: more expensive costs of Mexican and U.S. corporate bonds, which the company uses to fund its payroll lending; and a slowdown in the demand for credit. What the valuation at a 1.2 price to book value ratio fails to properly account for is the high return of the business coupled with the low level of risk assumed, as well as the cash that will accumulate on the balance sheet as growth slows down. In essence, the company is too profitable for the level of growth expected for the next year, which is why I place it under the Asset Productivity category of value, within Seafarer’s framework of the seven sources of value in emerging markets. In other words, the market is focused on revenue growth prospects, ignoring that the company’s lending capacity and value actually grow as cash accumulates on the balance sheet during a slow period.

Further to the East, another portfolio addition is Tabreed, headquartered in Abu Dhabi, and listed in Dubai. The company designs, builds, and operates central cooling facilities, which pump chilled water to buildings via its pipeline network for the purpose of air conditioning. This technology is both more efficient (greener) and more economical than distributed cooling technology. I place this company within the Deleveraging category of value. Tabreed is growing cash flows to existing shareholders as it partially repurchases mandatory convertible bonds, and the remaining debt amortizes faster than the service contracts that provide 30-year revenue visibility. Furthermore, the company continues to build capacity in lock-step with concession growth.

Rounding out our global tour by going even further to the East, the Fund added China Yangtze Power to its holdings. It is worth highlighting that this security is a Chinese A-share. In other words, the company is listed in Shanghai and trades in renminbi, which means that foreign investors have traditionally lacked unfettered access to this security until the establishment of the Shanghai-Hong Kong Stock Connect in November of 2014. Seafarer has tracked this company since before the establishment of the Stock Connect. However, only recently has Seafarer become sufficiently comfortable with the inner-workings of the Stock Connect to purchase a Chinese A-share security via the program.

Comfort with market access is one of the reasons for adding China Yangtze Power to the portfolio now. The other reason is new information concerning a major acquisition, which the company finalized during 2016. Now that consolidated financial and operating details are available, I have determined that the free cash flow yield this company generates is not only attractive, but enjoys high visibility. The company presents an attractive combination of sharing this cash flow with investors (5% dividend yield), deleveraging over the next few years, and pursuing growth in the long term with significant capacity additions currently gestating at the parent level. I classify the company under the Structural Shift category of value due to the uncommonly competent nature of management in this state-owned enterprise, China’s push for green energy, and the expected partial liberalization of electricity prices in China over the coming years.

Allocation among existing holdings in the Fund has been a balancing act between Fund inflows and appreciating holdings. The Value Fund has received steady inflows throughout the quarter. These inflows have kept the weight of appreciating securities in check, obviating the need to sell down the quarter’s strongest performers for risk control purposes. Given the more cyclical nature of the best performing securities in the portfolio, I have intentionally favored the steadier, more income generating businesses in the allocation of Fund inflows. The purpose of this allocation choice is to safeguard as much of the Fund’s NAV as possible in the event of market drawdown. As I discussed above, my read of market action during the first quarter of 2017, both for EM as a whole and for the top performing names in the portfolio, is that there is a degree of speculation on a potential revenue acceleration. I am not judging whether this estimation is correct. The Fund does not own the names in the portfolio for this reason. My tactical allocation simply aims to maintain a balance within the overall portfolio with the objective of safeguarding against a reversal of what has proven to be a very strong quarter, while maintaining the portfolio’s overall character.

Outlook

In the portfolio review for the previous quarter I noted that, beyond the vagaries of policy changes in China or the election of President Trump, the core underlying issue facing both the U.S. and China is the ever-declining ability of new debt issuance to generate gross domestic product (GDP) growth. The table below illustrates this concept. The table tracks changes in public debt and nonfinancial debt by decade for each country and compares it to GDP. While this basic exercise is not intended to be an exhaustive study of the subject, the conclusion is clear. On a crude basis, each new dollar of debt in the U.S. and China produces approximately 30 cents of additional GDP. This trend – the rapidly declining productivity of deployments of debt capital – is not sustainable, prima facie; and it is even less so in the context of a rising cost of servicing that debt.

Dollar of GDP per Additional Dollar of Debt
U.S. Dollar Millions
1985-19951995-20052005-2015
United States
GDP Change$3,510 $5,756 $4,713
Public + Nonfinancial Debt Change4,732 7,846 15,789
Marginal GDP / Debt0.740.730.30
China
GDP Change$1,604 $8,393
Public + Nonfinancial Debt Change2,79426,690
Marginal GDP / Debt0.570.31
Past performance does not guarantee future results.
Sources: Federal Reserve of St.Louis FRED Economic Data, Bloomberg, Seafarer.

I published this table because I’d like to focus our collective attention on what really matters. A strong stock market appreciation in the U.S. and emerging markets has followed the U.S. presidential election. There is endless speculation about various Trump policies, both the helpful (less regulation and lower taxes), and the misguided (imposition of additional trade barriers and a rise in deficit spending).

Instead of debating each policy ad nauseam, it is important at times of swift change, such as the present one, to focus on a few core drivers and dismiss the rest as more likely to be noise than information.

The point of the preamble above is this: U.S. banks have $2 trillion of excess reserves that could be deployed to finance either a larger U.S. government deficit directed at infrastructure, or corporate capital expenditures presumably incentivized by lower tax rates. This factor probably lies at the core of the U.S. stock market reaction to the election. While the deployment of these reserves would flow to corporate earnings and probably translate to higher stock valuations, the long-term and ultimate determinant of asset values (i.e. a Fund’s NAV) is less whether these reserves are deployed, and more whether this additional credit goes to enduring productive use. The table above suggests that from an historical perspective, there is little ground for optimism.

What does this mean for the Seafarer Overseas Value Fund? In terms of the immediate future, and to the extent that a portion of a potential new cycle of credit and spending growth in the U.S. flows overseas and affects emerging market asset prices, there is potential for the Value Fund to lag markets or other funds with a more growth-driven focus.

In terms of my own actions, I intend to continue searching for new value ideas wherever they may present themselves. Sometimes they show up in countries that have gone through macroeconomic adjustment, such as this quarter’s new portfolio addition in Mexico. On other occasions, value does not show up even where one expects it to do so, such as my inability to see value in a subset of Egyptian stocks before and after the country’s currency devaluation. And yet in other instances, one finds value in stable economies such as the portfolio additions in the United Arab Emirates and China this quarter.

The point is that almost regardless of the overall economic environment, companies still go through their own natural dynamics, yielding potential opportunities for the Value Fund. One prediction I would make about the future is that I expect this natural process to continue.

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

Paul Espinosa Seafarer Capital Partners, LLC
  • 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 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 this or any index.
  • 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 this or any index.
  • The views and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect the writer'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 March 31, 2017, AMVIG Holdings, Ltd. comprised 2.7% of the Seafarer Overseas Value Fund, Xtep International Holdings, Ltd. comprised 2.8% of the Fund, Credito Real SAB de CV comprised 2.7% of the Fund, Tabreed (National Central Cooling Co. PJSC) comprised 2.6% of the Fund, and China Yangtze Power Co Ltd. comprised 2.5% of the Fund. 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: SIVLX). The Investor share class (ticker: SFVLX) returned 8.74% during the quarter.
  2. The Fund’s Investor share class began the quarter with a net asset value of $10.18 per share; it finished the quarter with a value of $11.07 per share.
  3. Source: Bloomberg.
  4. Source: Bloomberg.