Seafarer®

Pursuing Lasting Progress in Emerging Markets®

Seafarer Overseas Value Fund

Overview

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 Ratio1
Load
12b-1 Fee
Minimum Initial Investment – Regular Account
Minimum Initial Investment – Automatic Investment Plan2
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 Yield3
Price / Book Value3
Price / Earnings34
Earnings Per Share Growth34
Gross expense ratio: for Investor Class; for Institutional Class1
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.

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 Hong Kong and Singapore.

Sources: ALPS Fund Services, Inc., Bloomberg, Seafarer.
Portfolio holdings are subject to change.
  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, 2021.
  2. Shareholders who sign up for an Automatic Investment Plan can request a waiver of the Institutional Class investment minimum. View the waiver program criteria.
  3. Calculated as a harmonic average of the underlying portfolio holdings.
  4. 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)

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)

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
The rates of return are hypothetical and do not represent the returns of any particular investment.
All performance is measured in U.S. dollar terms. For the MSCI index, performance is calculated to reflect the reinvestment of dividends, capital gains, and other corporate actions gross of foreign jurisdiction withholding taxes (i.e., such taxes are ignored).  For the Morningstar index, performance is calculated to reflect the reinvestment of dividends, capital gains, and other corporate actions net of foreign jurisdiction withholding taxes. 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 Index except where noted.

3 years Since Inception2
Alpha
Beta
R-squared
R-squared vs. S&P 500 Index
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, 2021.
  2. As of 5/31/16.
The Seafarer Overseas Value Fund is not sponsored, endorsed, sold, or promoted by Morningstar, Inc. Morningstar, Inc. makes no representation or warranty, express or implied, to the shareholders of the Fund or any member of the public regarding the advisability of investing in the Fund or the ability of the Morningstar Emerging Markets Net Return U.S. Dollar Index to track general equity market performance of emerging markets.

Composition

Holdings Portfolio Composition

Top 10 Holdings as of

Holding Sector Country Issuer Mkt Cap ($B) Yield1 Price/ Book Price/ Earnings2 EPS Growth23
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 / Earnings56 EPS Growth56
Region # of Holdings Fund +/− vs. Index Avg Mkt Cap ($B)4 Gross Yield5 Price / Book5 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 / Earnings56 EPS Growth56
Sector # of Holdings Fund +/− vs. Index Avg Mkt Cap ($B)4 Gross Yield5 Price / Book5 Prior Year This Year Next Year This Year Next Year
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. Index
Source: ALPS Fund Services, Inc.
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. The consensus estimate for EPS growth is negative for this security.
  4. Weighted Average Market Capitalization of Issuer.
  5. Calculated as a harmonic average of the underlying portfolio holdings.
  6. Based on consensus earnings estimates. Excludes securities for which consensus earnings estimates are not available.

Distributions

Year-end 2020 Distribution Estimates

Please note that these estimates are subject to change.1 Due to the Fund’s small size, the actual distributions may vary from the estimates to a greater degree than is typical for most mutual funds.

Record
Date
Ex, Pay and
Reinvest Date
Ordinary
Income
Short Term
Capital Gains
Long Term
Capital Gains
Total Distrib.
Per Share
SFVLX (Investor Class) 12/9/20 12/10/20 $0.166 $0.000 $0.000 $0.166
SIVLX (Institutional Class) 12/9/20 12/10/20 $0.175 $0.000 $0.000 $0.175

Actual distribution amounts will be available on this page on or after the ex-date.

All shareholders of record on December 9, 2020 will receive the year-end distribution. On December 10, 2020 the share price of the Fund will be reduced by the amount of the distribution (net of any market performance), and the distribution will either be paid or reinvested as of market close (per the shareholder’s previously established account settings).

The estimates shown above should not be used in the computation of federal or state income taxes.

  1. Estimates are based on Fund shares outstanding as of November 17, 2020.

2020 Distribution Dates

Distribution frequency: Annual

Please note: future dates are subject to change.


Record Date
Ex, Pay and
Reinvest Date
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
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.

Foreign Source Income

The Seafarer Overseas Value 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 Value Fund

Portfolio ReviewThird Quarter 2020

During the third quarter of 2020, the Seafarer Overseas Value Fund returned 5.59%.1 The Fund’s benchmark indices, the MSCI Emerging Markets Total Return USD Index and the Morningstar Emerging Markets Net Return USD Index, increased 9.70% and 9.01%, respectively. By way of broader comparison, the S&P 500 Index returned 8.93%.

The Fund began the quarter with a net asset value of $9.84 per share. It paid no distributions during the quarter and finished the period with a value of $10.39 per share.2

Performance

During the third quarter of 2020, the Seafarer Overseas Value Fund’s net asset value (NAV) continued to recover in absolute terms from the market drawdown in the first quarter. Nevertheless, the sequential performance improvement pales in comparison to that of the benchmark indices.

It would be easy to hide behind sweeping statements, such as “value investing is out of favor,” to explain the Fund’s relative performance. However, I am stating in writing that the underlying dynamic of investment return generation through the recognition of attractive valuation is alive and well even within the current growth-oriented market context.

The Fund is fortunate to have held Amvig Holdings (Structural Shift source of value; the “source of value” for a Fund holding is hereafter referenced in parentheses), a Chinese tobacco packaging manufacturer, during the third quarter to illustrate the point. Presumably driven by the low valuation Hong Kong-listed Amvig shares ascribed to the company’s cash flow, a Chinese private equity fund announced a tender offer for the publicly-listed shares of the company at a 51.4% premium to the last traded price prior to the announcement.

Similarly, the share price of Wilmar International (Asset Productivity and Breakup Value), an edible oils and consumer company, contributed positively to performance for yet another quarter, as company announcements made clear that the initial public offering (IPO) of its Chinese subsidiary would take place in the near future.

It is important to note that Amvig’s business did not experience any shifts during the quarter that the share price needed to adjust to, nor was Wilmar’s operation in China a new development. Both businesses had operated for decades, and the market had plenty of opportunity to price each of them.

And yet, only now did these companies realize the value embedded in their balance sheets. So much for the theory of market efficiency ...

Still, if market participants recognize the inefficiency that academic textbooks do not, why is the Fund’s performance significantly lagging the benchmark indices this year?

Based on the performance of the rest of the portfolio, part of the answer to this question must relate to the idea that share prices tend to overshoot. I make this statement based on the performance this quarter of three stocks that had significantly detracted from the Fund’s NAV since the start of the pandemic: First Pacific (Breakup Value), a consumer and infrastructure conglomerate operating in South East Asia; PetroVietnam Fertilizer and Chemical (Management Change and Asset Productivity), a Vietnamese fertilizer manufacturer; and Giordano (Structural Shift), a manufacturer and retailer of casual wear in Asia and the Middle East. These companies rank among the poorest performers during the first quarter of the year when markets were trying to price the impact of the pandemic; yet, they rank among the best performers this quarter after disclosing more information on how operations fared during the first half of the year. The point of citing these examples is that the market, like every other human endeavor, is an imperfect mechanism and prices do overshoot in both directions.

This price overshooting tendency is the only way to explain the 0.3x price to book value of portfolio holding Georgia Capital (Breakup Value), a conglomerate operating in the country of Georgia. Despite owning some of the country’s prime assets in sectors including banking, healthcare, and utilities, the stock trades at a valuation more appropriate for a company facing solvency risk. This contradiction, however, did not stop the portfolio holding from ranking among the top detractors to performance this quarter.

Similarly, China Foods (Asset Productivity), a Coca-Cola bottler with territories covering half of China, also ranked among the worst performers this quarter. The contradiction in this case relates less to valuation, and more to the relationship between operating results and stock price performance. Despite reporting resilient first half results, a trait shared by high-flying technology stocks, China Food’s stock price declined significantly in absolute terms during the quarter in spite of an already low valuation.

The only way I can explain the contradictions highlighted in the two examples above is that at this stage the market seems disinterested in Georgia Capital’s frontier market risk and China Foods’ small capitalization risk. I base this interpretation on the contrast between these two companies and other portfolio holdings that also performed poorly during the quarter but for understandable reasons. Holdings such as Melco International Development (Breakup Value and Asset Productivity), a casino owner and operator in Macau, as well as Shangri-La (Breakup Value and Asset Productivity), a hotel owner and operator in Asia, represent businesses dependent on their customers’ ability to travel. Thus, the poor performance of their stock prices in the quarter despite their low equity valuations is understandable. That is not the case for other portfolio holdings, such as the previously cited examples.

In summary, while the overall performance of the Value Fund relative to the benchmarks so far this year is disappointing, I would not conclude that either the strategy itself, or value investing more generally, is “dead.” Rather, I see the underlying dynamic that enables value realization to be alive and well. I observe, however, that public equity markets seem disinterested in virtually any risk unrelated to the largest companies in the benchmark.

Allocation

During the third quarter of 2020, the Fund added two new holdings that fit the general description of what Seafarer refers to as a “gem.” These are companies that have historically distinguished themselves by a return on equity significantly higher than the cost of equity almost regardless of the macroeconomic context they operate in, combined with good treatment of minority shareholders.

It should not surprise the reader that Brazil’s woes, as reflected in the approximately 45.2% devaluation of the currency since early 2017, have provided unusually low valuations for gems that have historically traded at a premium valuation. Taking advantage of this opportunity, the Fund established a new position in Ambev (Structural Shift and Asset Productivity), a Brazil-based Latin American brewer that also operates in Canada. The market is currently trading Ambev stock at the level it traded in 2009, presumably because of poor operating conditions and a newfound competitive threat from Heineken that is perceived as structural. Whereas I am more sanguine about the competitive threat, though I fully acknowledge I may be wrong, I am reasonably confident that Ambev will recover its historical level of profitability in U.S. dollars. A brewer with Ambev’s caliber of management, brand equity, and distribution strength has an underappreciated capacity to recover margins and U.S. dollar-based profit after a currency devaluation. That is ultimately what the Fund is buying with this new holding.

The second addition to the Fund this quarter is Itaú Unibanco (Asset Productivity and Breakup Value), the largest privately-owned bank in Brazil. Concerned about the seemingly fatal combination of higher prospective loan losses and low interest rates with which to fund said losses, the market is also trading Itaú stock at the same level as it did in 2009. What the Fund is buying with this new holding is an unusually low price for the bank’s extraordinary ability to generate a return on equity in the mid-teens even under stressed operating conditions, management’s ability to generate a return on equity hovering around 20% under less-stressed conditions, and the underappreciated value of the bank’s stake in XP Inc, best described as Brazil’s version of Charles Schwab.

The Fund exited three positions during the quarter. The sale of China Resources Beer (Structural Shift), a Chinese brewer, and Qualicorp (Structural Shift), a Brazilian life insurance broker, both relate to valuation. The former represents a textbook case of a share price that in my estimation already anticipates that China Resources Beer will generate profit in-line with what other global brewers earn, which significantly exceeds the Chinese brewer’s abnormally low profitability. While the latter was not as richly valued as China Resources Beer, Qualicorp had already realized much of its value after competitor Rede D’Or took a strategic stake in the insurer. The Fund decided to book profits and reinvest these in Ambev and Itaú.

Finally, the Fund exited Del Monte Pacific (Deleveraging and Management Change), a food producer and owner of the Del Monte brand. The Fund realized a meaningful loss with this sale. I deemed this realization in the Fund’s interest after it became clear that management is running out of time to turn around the U.S. subsidiary. While the company has made significant progress on this front, its refinancing agreements to extend the maturity of its considerable leverage include terms that I consider too onerous. Furthermore, even if management ultimately succeeds in making the U.S. operation profitable, it is doubtful that it can earn its new cost of debt. The Fund exited Del Monte Pacific because the investment’s risk rose beyond a level I felt comfortable with.

Outlook

In last quarter’s portfolio review I discussed how monetary and fiscal policy in developed economies increasingly mimics the worst practices of emerging markets in their earlier history. Predicting low investment returns for U.S. equity markets following the combination of said policies and generally acknowledged high valuations for U.S. equity market indexes, I also discussed structural points of differentiation for prospective investment returns between developed and emerging markets.

Given the underperformance of emerging market benchmarks relative to the S&P 500 index over the past decade, I felt compelled to address a few points a U.S. dollar investor should consider when contemplating an allocation to emerging markets.

Given the Fund’s performance relative to the benchmarks year-to-date, I feel similarly compelled to address the question of whether a value strategy remains useful for investors. Arguably, I already made the case for the Seafarer Overseas Value Fund in the white paper On Value in the Emerging Markets. Please refer to it for quantitative and qualitative arguments.

I will use the opportunity in this portfolio review to instead share my personal view, at a more conceptual level, of why a value discipline remains as relevant as it has always been. As explained earlier in this review, I see the process of value realization still at work in individual cases, though not at a strategy or index level. As I pointed out in the case of Amvig Holdings and Wilmar International, low valuation can persist for extended periods of time, and the timing of it leading to substantial investment returns is unpredictable. Thus, a value strategy requires the wherewithal and patience to exploit this market “inefficiency.” This is ultimately the trade-off a value-oriented investor engages in.

In contrast, I see a culture of “something for nothing” pervading public policy and investment culture alike. Governments in developed economies appear to believe that more debt (ever-expanding fiscal deficits) will somehow reverse a debt-induced, structural economic slowdown. The U.S. Federal Reserve officially announced in August of this year that it will likely abandon the best practice of raising rates in anticipation of inflation, and instead raise them once inflation has already been running above 2% for some time. The Fed seems to believe that somehow inflation creates employment, thus enabling it to fulfill its dual mandate of full employment and an inflation target of 2%. If deficits and inflation led to prosperity, developing economies would have graduated to developed status long ago.

Similarly, with regard to investment culture: the ever-expanding popularity of passive investment strategies and their outperformance of most actively-managed funds appears to have cemented a blind belief in the efficiency of markets. In effect, investors seem to believe that they can generate a lasting investment return by simply buying the largest companies whose prices have appreciated the most. Somehow, size and past price performance constitute the basis of future investment returns. Work in the form of research, contemplation, patience, process, and diligence are not requisites for earning attractive future investment returns. These simply appear without any work involved, the same way that governments seem to rely on deficit spending at the expense of entrepreneurial work to drive economic growth, and the Fed relies on currency debasement instead of hard money as the foundation for full employment.

This mentality appears to have spread to the value vs. growth dilemma as well. I see it on a bottom-up basis in the numerous companies Seafarer researches as well as in Fund holdings, as explained in the Performance section of this review. At an index level, I see this mentality in the long-running outperformance of indexes focused on large, tech-oriented constituents. More generally, size and revenue growth seem to trump profit considerations in predicting individual stock price appreciation. Prominent examples of this dynamic include Tesla and Uber. Again, the underlying assumption seems to be that somehow revenue growth has value without the hard work of figuring out how to earn a profit first.

This detour into sharing my personal views on the current investment climate is not meant to justify the Fund’s underperformance versus the benchmarks, but rather its intent is to make self-evident the flimsy ground on which index returns to date are based. I do expect a change in the investment regime as a result; and rather than a comeback of value versus growth, I do expect a return to profit and valuation as the drivers of sustainable returns, as they have always been.

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

Paul Espinosa,
All performance is measured in U.S. dollar terms. For the MSCI Emerging Markets Total Return USD Index, performance is calculated to reflect the reinvestment of dividends, capital gains, and other corporate actions gross of foreign jurisdiction withholding taxes (i.e., such taxes are ignored). For the Morningstar Emerging Markets Net Return USD Index, performance is calculated to reflect the reinvestment of dividends, capital gains, and other corporate actions net of foreign jurisdiction withholding taxes. 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 September 30, 2020, Amvig Holdings, Ltd. comprised 2.9% of the Seafarer Overseas Value Fund, Wilmar International, Ltd. comprised 5.3% of the Fund, First Pacific Co., Ltd. comprised 5.4% of the Fund, Petrovietnam Fertilizer & Chemicals JSC comprised 3.4% of the Fund, Giordano International, Ltd. comprised 2.2% of the Fund, Georgia Capital PLC comprised 2.9% of the Fund, China Foods, Ltd. comprised 4.3% of the Fund, Melco International Development, Ltd. comprised 3.7% of the Fund, Shangri-La Asia, Ltd. comprised 4.5% of the Fund, Ambev SA comprised 2.6% of the Fund, and Itaú Unibanco Holding SA comprised 2.4% of the Fund. The Fund did not own shares in The Coca-Cola Co., Heineken N.V., XP Inc., Charles Schwab Corporation, China Resources Beer Holdings Co., Ltd., Qualicorp Consultoria e Corretora de Seguros SA, Rede D’Or Sao Luiz SA, Del Monte Pacific, Ltd., Tesla, Inc., or Uber Technologies, Inc. View the Fund’s Top 10 Holdings. Holdings are subject to change.
The Seafarer Overseas Value Fund is not sponsored, endorsed, sold, or promoted by Morningstar, Inc. Morningstar, Inc. makes no representation or warranty, express or implied, to the shareholders of the Fund or any member of the public regarding the advisability of investing in the Fund or the ability of the Morningstar Emerging Markets Net Return U.S. Dollar Index to track general equity market performance of emerging markets.
  1. References to the “Fund” pertain to the Fund’s Institutional share class (ticker: SIVLX). The Investor share class (ticker: SFVLX) returned 5.60% during the quarter.
  2. The Fund’s Investor share class began the quarter with a net asset value of $9.82 per share; it finished the quarter with a value of $10.37 per share.