During the third quarter of 2025, the Seafarer Overseas Growth and Income Fund returned 6.58%.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 11.20% and 9.53%, respectively. By way of broader comparison, the S&P 500 Index returned 8.12%.

The Fund began the quarter with a net asset value of $13.37 per share. It paid no distributions during the quarter and finished the quarter with a value of $14.25 per share.³

Performance

As is evident from the benchmarks’ impressive gains, emerging market stocks surged during the third quarter – as did most stock markets around the world. In my view, there was no singular determinant for the market’s performance; rather, several welcome conditions manifest in tandem.

Perhaps the most substantial of these was the uninterrupted production of corporate profits: earnings from the second quarter (announced during the third) were quite good. Despite widespread worries that tariffs would weigh on profit margins (an overrated concern, at least thus far), and a weak domestic economy in China (a well-justified concern, by contrast), profits in the developing world leapt higher. At present, emerging market companies are forecast to expand earnings by 10% collectively in 2025 – a bit lower than what was anticipated at the outset of the year, but quite robust given the fear stemming from “Liberation Day.”⁴

Markets also rose on the back of technology-related gains. Semiconductor companies associated with the burgeoning global expenditure on artificial intelligence (AI) saw their shares vault higher, especially during September, as strong reports of profitability underwrote enthusiasm. Investors applauded as a small number of highly-watched semiconductor companies (in the developing world: Taiwan Semiconductor, SK Hynix and Samsung Electronics) reported robust earnings as the demand for processing power expanded unabated for yet another quarter.

In addition, Chinese investors pushed the country’s leading internet firms higher (notably, Alibaba and Tencent) on the hope that such companies would develop profitable new businesses tied to the promulgation of AI within China. While AI services constitute a small portion of China’s overall economy, the local industry is nonetheless booming, as Chinese companies such as DeepSeek have demonstrated successful AI models that can go toe-to-toe with the best models in the world.

Further still, Chinese stocks did well, generally: broad China indices rose about 20% during the quarter, as investors tried to anticipate an economic recovery in the Middle Kingdom.⁵ Investors’ behavior seems wildly speculative at this juncture: corporate profits in China are forecast to grow less than 2% in 2025, and at first blush don’t seem to justify the surge in local stock prices.⁴ However, I suspect some of the buying represents a healthy shift on the part of investors, moving household savings towards stock portfolios and away from the massively overdeveloped and moribund residential housing market.

The one drag on emerging equities – albeit a minor one – was the U.S. dollar. Emerging market currencies soared in the first half of 2025, attaining a record high versus the dollar by the end of the second quarter. However, during the third quarter, emerging currencies retreated a bit, reducing the benchmark’s returns about -1% when translated back into U.S. dollars.

Amid this environment, the Growth and Income Fund performed strongly in absolute terms but underperformed its benchmarks for the quarter. As noted above, technology stocks were the massive outperformers – whether information technology stocks or Chinese internet companies. The Bloomberg benchmark index is highly concentrated in such positions, and it was propelled higher by them: those two groups of stocks account for nearly 30% of the index’s allocation and contributed nearly 60% of its gain. While the Fund profited in like fashion from its technology holdings, its exposure is not as concentrated (its allocation to information technology and China internet firms is just over 20%), and thus its absolute gains were not as large. Meanwhile, its contributions were far more balanced than those of the index – with gains driven by its exposure to financial and consumer stocks – but this was not sufficient during the three months to make up for the pronounced returns from technology. We continue to believe the Fund’s diversification will serve it well over time; we prefer that it derives its gains broadly, from a range of companies and industries, rather than the extreme dependence that global markets place on all things related to artificial intelligence.

Allocation

The Fund made three allocative changes during the quarter: it established a new position in a Chinese industrial company (Haitian International); it exited a position in a Chinese snack and prepared foodstuffs company (Want Want); and it established a new position in a natural gas processing company based in Abu Dhabi (ADNOC Gas).

Haitian International makes plastic injection molds for use in a wide variety of industries – consumer products and appliances, technology devices, automotives, health care, and much more. Haitian has a steady history of growing profits and paying attractive dividends in an otherwise cyclical and competitive industry. The bulk of its sales are to companies located in China – most of whom in turn produce products for consumption within China. As noted briefly above (and discussed at length below), the Chinese domestic economy is only limping forward at present, and this has weighed on Haitian’s growth. Yet more importantly, from my perspective, the company has seen a substantial acceleration in its sales abroad, notably to Europe and Southeast Asia. It seems to be gaining share from larger rivals, tariffs and other barriers to trade notwithstanding.

Want Want is a storied if perhaps tired brand in China. Its roots are in Taiwan, but long ago the company’s founder shifted its operations, distribution and marketing to mainland China. Amid an environment characterized by weak domestic consumption, competition in snack and prepared foods markets has been fierce, with notable entry from new brands created recently within China. Want Want has held its own against the competition, but not grown much otherwise. Yet even as the company’s dividends have remained strong, I exited the position when I saw the founder sold his own private property to the listed company, ostensibly for a new production facility. At present, the company’s current facilities are underutilized; I cannot imagine why the company would need more land at this juncture, least of all the purchase of a private land holding that happens to enrich the founder. The transaction reeked of poor governance, and I found it unacceptable.

ADNOC Gas is the publicly-listed midstream gas processing arm of the Abu Dhabi National Oil Company, the state energy firm within the United Arab Emirates (UAE). Paul Espinosa added it to the Fund as he believes it offers a welcome balance of growth, stability, and yield. The company is investing aggressively in its processing capacity over the next four years; Seafarer’s analysis suggests the company’s contractually-assured return on that investment should readily justify the associated costs and risk. The company should benefit from the upstream oil and gas development by its parent company to supplant gas imports in the UAE – meeting both growing domestic demand and providing extra supply for liquified natural gas (LNG) exports. At the time of publication, the company’s stock offers a trailing gross dividend yield of approximately 5%.

Outlook

Looking forward, there are several unresolved issues that linger over the emerging markets. The first of these are the various “trade wars” around the world, accompanied by the imposition of new and substantial tariffs. As everyone knows, the U.S. initiated the latest round of tariffs in April; but it is far from the only country to do so, as many others have erected tariffs and miscellaneous barriers to trade in retaliation. As noted above, tariffs have yet to impose a substantial drag on earnings in the emerging markets – but such costs may yet be coming.

What is clear is that companies based in the developing world are only now beginning to react to tariffs in earnest. We suspect that the ultimate outcome of the “trade war” will not be known for another year or two. Further, the results are likely to be lasting and consequential. From what we can tell, companies do not appear inclined to undertake a simple, “one-time” adjustment to prices, and otherwise operate as before. Rather, they seem to be undertaking substantial, often permanent shifts in strategy: shifting patterns of investment toward new geographies, tightly managing costs and inventories, and favoring new geographical markets for distribution and sales (i.e., shifting sales to markets outside the U.S.).

The second major issue to hang over the developing world is China. Despite years of poor growth, the country’s economy remains the largest within the emerging world by a very wide margin. Right now, that central economy is a stunning conundrum: it is incredibly strong and terribly weak at once; and no one credibly knows whether its strengths or weaknesses will prevail over the next few years.

The domestic economy is the weak part. Household consumption is anemic. Following the gross mismanagement of the country in the aftermath of the global pandemic, households are nervous and worried. The all-important property market – where most households have invested the bulk of their savings – is in a state of collapse. That has undermined wealth and confidence, weighing on the propensity to consume. Job growth is weak, and apart from government expenditure and selected industries, domestic investment is overall tepid. Deflationary pressures are evident throughout the economy, and corporate profits are barely growing at all.

At the same time, China’s export sector is in rude health. The country is smashing its prior records for exports, and it is doing so increasingly through industrial dominance and manufacturing leadership in a wide range of high-value industries. China’s prowess is beginning to reshape industries the world over and leading to abundance of supply everywhere.

How the two sides of China’s economy reconcile in the future, no one knows. For all its strength, the economy seems precarious: households are worried, consumption is hampered, and corporate profits are stifled. Yet China’s rising industrial might is refashioning markets and earning profits abroad. However, to do so, China remains incredibly dependent on access to those markets for growth and profits. Without exports, the economy would likely shrink, and corporate profits would likely contract. The central question is whether and how long the world remains open to China’s export machine. The Chinese government will use its political clout to keep markets open and barriers down for as long as possible – but it remains unstable until its domestic economy recovers.

The last major issue hanging over the emerging markets is decidedly more positive: shareholder returns. While 2025 has thus far witnessed substantial capital gains – i.e., rising prices on public stocks – we remain focused on the growing number of companies that are enhancing their policies for dividend payment, and in some cases, initiating stock buybacks. We are pleased to note that in 2025, dividends are rising among the Fund’s holdings on pace with, if not eclipsing, the growth in underlying earnings. If the Fund’s dividends outpace earnings, this will be the second consecutive year they do so (and last year was a record year for dividends within the Fund). We believe this trend is reflective of a broader shift towards improved capital management and better governance among emerging market companies around the world.

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 September 30, 2025, securities mentioned in the portfolio review comprised the following weights in the Seafarer Overseas Growth and Income Fund: Samsung Electronics Co., Ltd. (4.9%), Samsung Electronics Co., Ltd. Pfd. (0.2%), Alibaba Group Holding, Ltd. (3.0%), Haitian International Holdings, Ltd. (0.9%), and ADNOC Gas PLC (0.9%). The Fund did not own shares in Taiwan Semiconductor Manufacturing Company, SK Hynix, Tencent, DeepSeek, or Want Want China. View the Fund’s Top 10 Holdings. Holdings are subject to change.

Sources: ALPS Fund Services, Inc. and Bloomberg.

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 6.55% during the quarter. The Retail share class (ticker: SFGRX) returned 6.56% 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 $13.28 per share; and it finished the quarter with a value of $14.15 per share. The Fund’s Retail share class began the quarter with a net asset value of $13.26 per share; and it finished the quarter with a value of $14.13 per share.
4. Source: J.P. Morgan, "Emerging Markets Equity Strategy," October 2, 2025.
5. The Bloomberg China Large, Mid, and Small Cap Net Return USD Index rose 21.3% during the third quarter of 2025; the CSI 300 Index rose 19.8% during the same period.