During the first quarter of 2025, the Seafarer Overseas Growth and Income Fund returned 3.53%.¹² The Fund’s benchmark indices, the Bloomberg Emerging Markets Large, Mid, and Small Cap Net Return USD Index and the Morningstar Emerging Markets Net Return USD Index, returned 1.56% and 1.17%, respectively. By way of broader comparison, the S&P 500 Index returned -4.27%.

The Fund began the quarter with a net asset value of $11.62 per share. It paid no distributions during the quarter and finished the period with a value of $12.03 per share.³

Performance

The first quarter of 2025 brought dramatic shifts in the relative performance of global capital markets. U.S. markets tumbled, as did the U.S. dollar. Amid the market tumult driven by anticipation of a trade war, it felt eerily calm in the emerging markets, as if they were situated in the eye of the storm.

As if nothing was out of the norm, companies across the developing world reported financial results for the fourth quarter of the preceding year, just as they do every year. By and large, performance was fairly good; indeed, profits in the emerging markets expanded by about 12% during 2024.⁴ The forecast rate of earnings growth for 2025 is likewise 12%.⁴ The holdings in your Fund reported their results as well, tabulating to about 10% growth for 2024. While that pace was a bit below that of the overall market, your Fund’s holdings rewarded shareholders with a superb expansion in dividends, such that the Fund finished the first quarter with a gross investment portfolio yield of 3.7% (compared to a 2.9% dividend yield for the overall market).⁵

What was a bit out of the norm – but frankly not contrary to my expectation – was that emerging currencies recovered a meaningful portion of the steep losses incurred during the preceding quarter. Contravening the confident assurances of nearly every currency trader, strategist and pundit, a representative basket of emerging currencies gained about 1% between the end of December and the end of March; this despite a looming trade war that was supposed to supercharge the dollar’s value.⁶ Indeed, currency movements comprised about one quarter of your Fund’s gains during the period.⁷

Amid this eerily calm and relatively benign backdrop, emerging equities produced modest gains during the quarter. Like currencies, many trends that dominated equities in the fourth quarter of 2024 were reversed in the first quarter of 2025. At the end of 2024, every sector except for technology was deeply in the red; yet in the first quarter of 2025, it was technology stocks that sank, whereas most other sectors surged. Notably, consumer stocks – which had faltered badly at the end of last year – recovered a good deal of ground during the first quarter of 2025. Indeed, the Fund’s holdings in “discretionary” stocks and “staples” companies drove the bulk of its performance during the quarter.

And then, just a few days after the end of the first quarter, any pretense of calm or normalcy evaporated, as “Liberation Day” heralded the beginning of an unpredictable global trade war. Markets everywhere convulsed. Even as I write this review in late April, it feels as though a lifetime has passed since the end of March. I am happy to report that so far, the Fund and its portfolio are still standing.

Allocation

The Fund’s investment portfolio undertook two changes of note during the quarter: it added Grupo Banorte, one of Mexico’s most prominent commercial banks; and it established a position in Shenzhen Mindray, one of China’s leading manufacturers of medical equipment, including patient monitors, ultrasound scanners, and diagnostic equipment.

Our work on Banorte indicates that it has carefully cultivated a banking clientele – and a resulting balance sheet – that should drive growth with steady margins, regardless of interest rate cycles. It has done so even amid heightened competition from newer, digitally savvy banks. Further, Banorte appears to enjoy surplus capital, which can either fuel efficient expansion or enhanced shareholder returns (or both).

Founded in 1991, Shenzhen Mindray has a long history; it first listed on the U.S. Nasdaq in 2006. However, the founders chose to re-privatize the company in 2016 – and then relisted the company in 2018 on the Chinese A-share market, resulting in a much greater market capitalization. Over the past five years, its growth has accelerated as it has won a leading position in China’s medical equipment market, displacing foreign competition bidding on outfitting new hospitals in the mainland. Looking forward, we suspect much of its marginal growth will manifest outside China, as it wins more market share in the rapidly growing markets of Southeast Asia and South America.

Outlook

Seafarer is very much a “bottom-up,” “micro-driven” firm. We spend nearly all our time researching, analyzing and discussing individual companies – companies which we think we can invest in for a decade or more, and which we often do. We do not waste our time guessing at the relative growth rates of countries, or speculating on rate cycles, or opining on politics, or predicting which sector will be “hot” this year. “Top-down” work of that sort would be enormously lucrative, if only it were possible. I have yet to come across any practical method (or practitioner) that can employ “top-down” portfolio construction consistently, over time, with results that discernibly improve upon random chance.

Yet amid the current environment, dominated as it has been by sweeping changes in U.S. trade, economic and global security policies, I must confess that even we have been distracted by more “macro” than ever before. It is impossible to avoid such topics at present, and I suppose it is inevitable that we develop opinions on what might happen next. Yet I find the present moment as inscrutable and as unpredictable as ever – and thus while the “top-down macro” has seemingly never been more critical, it remains as impractical as ever.

What can I say with certainty about the impact of tariffs and trade barriers on the Fund’s portfolio holdings? Very little. We suspect that U.S. tariffs will impact a wide swathe of the portfolio, but only to a modest degree, blunting opportunities for revenue growth a bit, and crimping margins as operating costs escalate. Yet we also suspect that many portfolio holdings are poised to see growth in global export markets accelerate – ironically, because those companies might win share from U.S. exporters that are less welcome in Southeast Asia, South America, Africa, and Eastern Europe. The net effect is uncertain at this juncture.

Amid this unpredictable environment, I did offer one “macro” prediction in January, embedded in the Fund’s portfolio review for the fourth quarter of 2024: I argued that emerging currencies would rebound against the dollar. I try to avoid such predictions because they are foolish. Arguably, currencies are the ficklest of all asset classes. Yet I offered my prediction in print, even as nearly every pundit and currency strategist confidently asserted the opposite.

I did so for a host of reasons. First, an enormous amount of historical data suggests that emerging stocks and currencies move in tandem. When emerging stocks rise, so too do currencies; and likewise, the opposite. Last year was (apparently) a stark exception to the rule: emerging stocks rose when priced in local currency terms, but currencies fell dramatically against the dollar. I saw no fundamental reason for this long-held trend to suddenly break. I was therefore confident that the speculative, politically influenced momentum trading of the fourth quarter would not continue, for the simple reason that the fundamentals would not sustain it.

However, I was also convinced that if the U.S. radically altered its approach to trade – particularly by forcing balanced trade with its international partners – it might structurally undermine demand for the dollar. Most speculative traders and pundits have assumed that as the U.S. spends less on imports, it will sell fewer dollars to pay for those exports; less selling should result in higher prices for the dollar, right? Wrong, at least in my reckoning. Professor Barry Eichengreen of U.C. Berkeley explained the mechanism best in a recent article in Financial Times:

The currency of the leading trading nation is a natural habitat for its exporters and importers, who loom large in global markets. There is then an incentive for exporters and importers elsewhere, when seeking to do business with this major economy, to similarly utilize its currency, given its convenience for their customers and suppliers. The incentive is similar for foreign entities seeking to borrow on this dominant country’s financial markets. Consequently, when the weight of an economy in global trade and finance declines, the market forces making for widespread use of its currency have a corresponding tendency to weaken. A perverse “America First” tariff policy destructive of U.S. trade would accelerate this process.⁸

As I write this review in late April, the same representative basket of emerging currencies has surged further, attaining a multi-decade, all-time high versus the dollar. I do not know what will happen next: I got lucky once, and I am not about to offer another “macro” prediction. However, I can offer some general advice. First, treat any pundit that offers a simple answer to a complex problem with thorough skepticism, if not outright disdain. Second, do not assume that long-standing trends will continue, simply because they have always done so, or because there is no obvious alternative to the trend. If fundamentals dictate that a long-established trend cannot be sustained, make no mistake: it will not be. Markets will produce a new equilibrium, possibly in the form of a previously unimaginable alternative. Lastly, ensure that your wealth remains highly diversified, in every manner practical or even imaginable. Diversification remains the cheapest insurance possible in an unpredictable world beset by substantial volatility, one in which long-held assumptions might be upended.

Thank you for entrusting us with your capital. We appreciate that you have selected Seafarer as your long-term investment adviser in the developing world, and we will continue to work to earn your trust in the years ahead.

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 March 31, 2025, securities mentioned in the portfolio review comprised the following weights in the Seafarer Overseas Growth and Income Fund: Grupo Financiero Banorte SAB de CV (1.5%), and Shenzhen Mindray Bio-Medical Electronics Co, Ltd. (1.5%). View the Fund’s Top 10 Holdings. Holdings are subject to change.

Source: ALPS Fund Services, Inc.

Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

The Seafarer Funds are not sponsored, endorsed, sold, or promoted by Morningstar, Inc. Morningstar, Inc. makes no representation or warranty, express or implied, to the shareholders of the Funds or any member of the public regarding the advisability of investing in the Funds 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: SIGIX). The Investor share class (ticker: SFGIX) returned 3.55% during the quarter. The Retail share class (ticker: SFGRX) returned 3.56% during the quarter. All returns are measured inclusive of Fund distributions paid (in relation to Fund performance) or dividends paid (in relation to index performance), reinvested in full (exclusive of any U.S. taxation) on the pertinent ex-date.
2. 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.
3. The Fund’s Investor share class began the quarter with a net asset value of $11.54 per share; and it finished the quarter with a value of $11.95 per share. The Fund’s Retail share class began the quarter with a net asset value of $11.53 per share; and it finished the quarter with a value of $11.94 per share.
4. Source: J.P. Morgan, “Emerging Markets Equity Strategy,” March 27, 2025.
5. Sources: J.P. Morgan, “Emerging Markets Equity Strategy” April 2, 2025; ALPS Fund Services, Inc.; Bloomberg; Seafarer.
6. Sourced from Bloomberg, using the Bloomberg Emerging Markets Large, Mid, and Small Cap Currency Implied Yield Index, measured between 12/31/24 and 3/31/25.
7. Source: Bloomberg.
8. Barry Eichengreen, “Can the Dollar Remain King of Currencies?,” Financial Times, March 22, 2025.