During the second quarter of 2026, the Seafarer Overseas Value Fund returned 2.74%.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 19.86% and 22.41%, respectively. By way of broader comparison, the S&P 500 Index returned 15.20%.

The Fund began the quarter with a net asset value of $17.49 per share. It paid no distributions during the quarter and finished the period with a value of $17.97 per share.³

Performance

The Value Fund’s relative underperformance during the second quarter of 2026 was as disappointing as it was large. Its explanation is in fact very simple: the narrow concentration of benchmark returns during the quarter in the information technology sector in general, and the semiconductor industry in particular. By contrast, the Value Fund had a more measured exposure to said sector and industry, and a broader set of performance drivers.

Indeed, the information technology sector accounted for 18.5% out of the Bloomberg benchmark’s 19.9% return. Semiconductor stocks accounted for the bulk of the technology gain. If one was to reclassify Samsung Electronics as a “semiconductor” stock (it is technically classified as a “technology hardware and equipment” company because it has other business lines), semiconductor-related companies would collectively account for 14.5% out of the index’s 19.9% return.

Even though semiconductor-related companies tend to exhibit high earnings growth and strong, positive revisions for earnings expectations – traits more appropriate for a growth strategy than a value one – the Value Fund did find a way to capture said earnings growth while preserving a valuation grounding. The Fund’s highest weighted stock, on average, during the quarter was Samsung C&T (Breakup Value; the “source of value” for a Fund holding is hereafter referenced in parentheses), the de facto holding company for the Samsung Group. As such, the Fund benefited from an indirect exposure to Samsung Electronics, which was the second highest contributor to the benchmark’s return, having appreciated by 95.55% during the period. The stock price of Samsung C&T rose by 83.63% during the same period, making it the highest positive contributor to the Fund’s performance.

Similarly, the Fund’s second highest exposure, on average, during the second quarter was to Samsung SDI (Breakup Value and Structural Shift), a South Korean battery manufacturer. While not a semiconductor stock, it does benefit from strong positive earnings revisions due to the increasing penetration of batteries in the power management of artificial intelligence (AI) data centers. The stock ranked as the third highest contributor to Fund performance.

Investors should bear in mind that the Value Fund had a combined 9.9% average weighting to Samsung C&T and Samsung SDI during the second quarter of 2026. This combined exposure is at the higher end of what the Fund has historically accepted in terms of risk concentration in a particular corporate (the Samsung Group in general) or a common driver (AI-related hardware).

As such, the question that arises from the Value Fund’s relative underperformance is a portfolio manager’s choice between managing risk in absolute terms, or relative to the benchmark. As explained the Outlook section of this portfolio review, the Fund prioritizes absolute risks over relative ones.

In contrast to the benchmark, the Value Fund’s performance benefitted from contributors to return other than technology-related companies. One such positive contributor was a cohort of financial companies. Indeed, Lion Finance (Asset Productivity and Segregated Market), one of the two largest banks in the Republic of Georgia, Credicorp (Asset Productivity), Peru’s largest bank, and HDFC Bank (Asset Productivity and Structural Shift), India’s largest private sector bank, ranked among the highest contributors to the Fund’s total return.

Two clusters stood out on the negative side of the return ledger. Interestingly, neither related to the crisis in the Middle East. The first cluster consisted of the Fund’s two holdings in the paper and pulp industry: Suzano (Asset Productivity and Deleveraging), a Brazilian hardwood pulp producer whose capacity represents approximately 30% of the world’s non-integrated capacity, and Mondi (Structural Shift), a multinational paper and packaging company with a large presence in Eastern Europe. The paper and pulp industry is in the midst of a cyclical downturn. The weak share price for both companies probably reflects market disappointment at the lack of meaningful industry capacity rationalization thus far.

The second group of negative contributors to the Fund’s performance during the quarter consisted of companies that relate to Chinese consumption. Specifically, this group includes: China Foods (Asset Productivity), a China-based Coca-Cola bottler, DFI Retail (Management Change and Asset Productivity), a multi-format retailer, and Melco International (Asset Productivity and Deleveraging), a Macau casino owner and operator. China Foods was the only company of the group that failed to report earnings growth for the first quarter of the year, while DFI announced strong earnings growth, and Melco International reported a return to profitability for 2025. The weak share price for these stocks probably reflects deteriorating market sentiment toward the Chinese economy in general and consumption in particular.

Allocation

During the second quarter of 2026 the Fund established one new position and exited two holdings.

The Fund added Swire Pacific (Breakup Value and Asset Productivity) an Asia-focused conglomerate – with roots dating back to the 1860s in Hong Kong and China – that combines a highly sustainable, bond-like mid-single-digit dividend yield with meaningful upside potential from discounted asset values and improving capital allocation. Swire’s management has demonstrated disciplined, shareholder-friendly capital allocation by exiting underperforming businesses, recycling capital into higher-return opportunities, paying special dividends, and repurchasing shares rather than pursuing empire building. Its value is anchored primarily by three assets: Swire Properties, whose growing portfolio of mainland China luxury retail properties is expected to drive future earnings and dividends; Cathay Pacific, which offers cyclical upside as aviation demand and Hong Kong’s role as a regional hub recover; and its Coca-Cola bottling business, which provides stable cash flow and growth through Southeast Asian expansion. The stock trades at a substantial discount to its book value and our estimated net asset value.

The Fund exited its position in Wilmar International (Asset Productivity and Breakup Value), prompted by the Indonesian government’s announced plan to create an agency to centralize control of the country’s key commodity exports, including palm oil, coal, and ferroalloys. Under the plan, exporters will be forced to sell to the government’s central agency, which will in turn negotiate price and commodity allocations with international importers. I expect that the imposition of this government structure on private sector companies will break Wilmar’s vertically-integrated operating structure. Approximately two-thirds of Wilmar’s palm oil plantations are located in Indonesia, whereas its downstream operations are more diversified internationally. These downstream subsidiaries will now have to procure palm oil and related products from the government’s national export agency. I expect the imposition of this new superstructure will reduce Wilmar’s international competitiveness against companies less dependent on Indonesia for upstream operations.

The second Fund exit during the quarter was Emaar Properties (Breakup Value and Segregated Market), a United Arab Emirates (UAE)-based property developer and investment company. The exit was motivated by Iran’s IRGC (Islamic Revolutionary Guard Corps) threat to target U.S. corporates in the region. The regional headquarters of the majority of these companies is located in the UAE and Emaar is the owner and operator of the prime office real estate in Dubai. The IRGC’s announcement constituted a credible threat to Emaar’s physical asset base and I decided to realize the high return the Fund had earned investing in the company.

Outlook

Two key questions for investors are quietly gathering momentum under the surface of events that have dominated the financial media discourse during the second quarter of 2026: the conflict in the Middle East and all things related to AI.

The first issue is that the world is facing a second supply shock following that of the Covid-19 pandemic of 2020. Back then the confinement of the labor force at home constrained global supply chains. The expansionist policy response in the form of fiscal and monetary stimulus against inelastic supply gave rise to a bout of inflation. Today, the conflict in the Middle East substitutes an energy supply shock for the labor constraint of 2020. The impact on the global supply chain is similar even if the policy response thus far appears restrained and inflation-aware.

This framing of the present conflict in the Middle East is highly relevant in the context of what appears to be an incipient upcycle in emerging market profit growth and equity market performance. Indeed, in contrast to the experience of the preceding decade, 2026 consensus analyst expectations project the third consecutive year of profit growth for emerging market corporates.⁴ Based on equity market performance thus far, the present calendar year could potentially represent the fourth consecutive year of positive emerging market equity returns.

One could be forgiven for not realizing that a global energy shock is gathering momentum under the calm ocean surface presented by equity market returns.

In the Value Fund’s fourth quarter 2025 portfolio review I commented that “for the EM index, the outlook for 2026 seems to hinge on whether EM corporates deliver a meaningful measure of the 18% earnings growth currently projected by consensus.” As of July 2026, the updated consensus estimate figure for the same measure stands at 64.3%.⁴ Information technology continues to represent the tip of the spear for growth expectations. More interestingly, Seafarer estimates that the consensus growth estimate excluding the technology sector stands at 20.7%, with widespread contributions across sectors.⁵

If the question for the EM profit outlook is one of sustainability and resilience to global shocks (also including tariffs), the issue confronting investors is the question of risk management.

The prevalence of passive funds and the concentration of performance in a handful of large capitalization stocks appear to have conspired to increase the cost for active managers of constructing portfolios that are different from the benchmark. As well as this phenomenon has served investors in index-linked investment vehicles, the question brewing under the calm surface of equity performance is if the risk management these vehicles offer is as well conceived as the returns they have delivered thus far.

To help answer that question consider the following table of index risk concentrations from the global to stock levels, as of June 30, 2026.

What is remarkable about the preceding table is the concentration of risk at every level of the Bloomberg EM benchmark’s composition. The common denominator across the various levels is the information technology sector. The common driver that has resulted in such a composition probably relates to the twin driving forces of the largest stocks in the benchmark also posting the highest earnings growth, and an index fund’s practice of purchasing more of a stock as its price increases.

In the absence of any other information, would an investor construct a portfolio that looks like the table above? Would a prudent investor maintain such concentrations at every level of a portfolio in the context of the risks cited earlier?

The Value Fund continues to sail propelled by its own prevailing winds and conscious of the underwater turbulence. Admittedly, being less benchmark-aware than average has cost the fund dearly this quarter from the perspective of relative return. More importantly, I am open to the market’s message regarding the valuation of high growth companies. I have touched on this topic in previous portfolio reviews. Shareholders should be aware that, as published on Seafarer’s Value Fund overview page, the consensus earnings growth forecast for Value Fund holdings stands at 15% as of June 30, 2026. This is an attractive figure in absolute terms, especially in combination with the low average valuation of portfolio holdings. Recent additions to the Fund, such as HD Hyundai Marine Solution (Asset Productivity), combine a higher-than-average earnings growth profile with an attractive valuation consistent with a value discipline. In addition, as stated, the Fund has also participated in AI-driven earnings growth through two holdings: Samsung C&T and Samsung SDI. Evidently, however, the Fund’s more measured exposure to this driver of return than the benchmark’s was clearly insufficient if the objective was to replicate the index’s performance.

As the table above makes evident, the benchmark’s return is highly concentrated in one driver: earnings growth with positive revisions in a narrow set of large capitalization companies. This factor is associated with high valuations – the one risk a value strategy seeks to eschew. The Value Fund, by contrast, seeks returns driven by multiple, independent sources, spread across a wider range of risks, as explained in the white paper On Value in the Emerging Markets.

The Value Fund does not define risk as tracking error, or the divergence between its performance and that of the benchmark, or even as price volatility per se, which underpins other popular measures of risk, such as standard deviation or beta. Instead, it defines risk in terms of the fundamentals underpinning the profit streams of the corporates the Fund owns. Furthermore, the Fund defines diversification primarily in terms of said fundamentals or sources of risk, and secondarily in terms of country and sector. In this manner, and by definition, the return the Fund delivers will also be diversified across fundamental factors. And in the context of the foregoing discussion, it should be clear that the Fund is likely to deliver a profile of return that differs from that of the benchmark, especially when the latter is as concentrated in one risk factor as I estimate it to be.

Seafarer seeks to provide superior risk-adjusted returns through market cycles, not by targeting lower volatility compared to the benchmark, but by focusing on selecting individual holdings with superior risk-reward characteristics and diversifying the risks driving those returns. In essence, price volatility is a symptom, not a cause, of the underlying risk underwriting investment returns. This is why the Value Fund adopts the risk diversification described above at the expense of other benchmark-relative measures.

I hope the above commentary helps investors understand better the Value Fund’s absolute and relative performance so they may better appreciate the role it may serve in their allocations.

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

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, 2026, securities mentioned in the portfolio review comprised the following weights in the Seafarer Overseas Value Fund: Samsung C&T Corp. (4.8%), Samsung C&T Corp., Pfd. (1.6%), Samsung SDI Co., Ltd. (3.8%), Lion Finance Group PLC (3.6%), Credicorp, Ltd. (3.0%), HDFC Bank, Ltd. (2.0%), Suzano SA ADR (2.0%), Mondi PLC (2.1%), China Foods, Ltd. (2.1%), DFI Retail Group Holdings, Ltd. (2.3%), Melco International Development, Ltd. (2.0%), Swire Pacific, Ltd. CL A (0.9%), and Swire Pacific, Ltd. CL B (0.9%). The Fund did not own shares in the other securities referenced in this portfolio review. 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: SIVLX). The Investor share class (ticker: SFVLX) returned 2.70% during the quarter. The Retail share class (ticker: SFVRX) returned 2.65% 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 $17.41 per share; and it finished the quarter with a value of $17.88 per share. The Fund’s Retail share class began the quarter with a net asset value of $17.39 per share; and it finished the quarter with a value of $17.85 per share.
4. Source: J.P. Morgan, “Emerging Markets Equity Strategy,” July 2, 2026.
5. Sources: J.P. Morgan, “Emerging Markets Equity Strategy,” July 2, 2026; Seafarer.