Hereford Funds-IMVA Opportunity Fund
January 2015
January 2015 Investment Review
In January, the Fund continued to suffer from some of the problems from last year. Ocwen and Altisource took another leg down, and the energy sector continued to be volatile.
February has started off better, so I am hopeful our second year will see a bottoming and then improvement in performance.
During the month, I liquidated Freeport-McMoRan (FCX), Ocwen (OCN), and Triangle Petroleum (TPLM). My thesis on Freeport was based on the Company’s ability to sell assets
and cut capital expenditures in order to pay down debt and maintain its sizeable dividend. Commodity price weakness in oil and copper have made this task more difficult, as have
continuing issues with Indonesia over the Company’s Grasberg mine and operations. I suspect that FCX is probably cheap, and my liquidation is obviously late. Nonetheless, the
Fund has substantial exposure to a potential rebound in cyclicals and commodities, and Freeport’s potential downside appears to be growing. I used the proceeds from the FCX sale
to re-establish a position in McDermott International (MDR). The Fund had a very unsuccessful experience with MDR in 2014, and I liquidated the position at a little over $4 per share.
During January, I purchased the stock twice for an average cost of $2.67. My current thesis is based upon MDR’s backlog for 2015 and bids outstanding for 2016. MDR appears to
have gotten control of their unprofitable contracts, signed by previous management, and I believe the stock is selling at less than half of its book value. I liquidated Ocwen Financial;
this must also seem like shutting the barn door after the horses have escaped, but I replaced the position by adding to our existing position in Altisource Asset Management (AAMC).
AAMC is in the family of companies started by Bill Erbey (founder of OCN) and has been weak on account of its association with OCN. AAMC is becoming more independent from
Ocwen, and I believe the Company’s strategic position and earnings potential are undervalued. I also suspect that AAMC is becoming a particular focus for Mr. Erbey, and I want to
continue to bet with him, in spite of our horrendous experience in 2014. Finally, I liquidated Triangle Petroleum during the recent strength in oil prices. The Fund had a slight loss in
TPLM, and I wanted to take advantage of the lift in oil to high grade our energy exposure a bit. I believe oil will continue to be volatile, and TPLM has substantial potential downside if
oil prices do not recover.
Other purchases during the month included Rayonier Advanced Materials, MDC Holdings, and IBM. Rayonier Advanced Materials (RYAM) is a specialty chemical company that
manufactures cellulose products used in cigarette filters, paints, pharmaceuticals, food, and tires. RYAM is a relatively high margin business with excellent cash flow. The Company is
currently experiencing pricing erosion due to industry overcapacity, but I am hopeful that RYAM can grow its market share during this downturn. Management have recently been
buyers of the stock. MDC is a high-quality home builder, and the stock currently trades around book value. I believe that low interest rates and continued economic growth could spur
a housing rebound in the upcoming year. The Company, which has been managed more conservatively than most home builders, appears well positioned with a growing community
count. Management/insiders own over 10% of the Company’s stock, and MDC currently has a very attractive dividend yield. Every ten years or so, IBM gets written off by analysts as
being "dead in the water", and it has to re-invent itself. The Company was “dead in the water” in the early 1990s as client-computing took over; it was “dead in the water” in the late
1990s as the internet took over; and, once again, it’s “dead in the water” as cloud computing and Big Data take over. The stock presently is priced as it has been at similar “dead in the
water” lows – even as it continues to generate excellent cash flows, have record high margins, and remain positioned as a recognized leader in the computer consulting area. IBM
pays an attractive dividend and has been a massive purchaser of its own stock.
Key Information
NAV A Shares (31/1/15): $59.73
Total Fund Size: $1.79 mil
(a)
Strategy Assets: $139.55 mil
Fund Launch Date: 31-Jan-14(b)
Monthly Performance (%)
Feb-14 Mar-14 Apr-14 May-14 Jun-14
-0.8
-1.3
-2.1
-1.9
5.3
4.6
0.8
0.4
2.2
2.3
4.6
0.8
0.7
2.4
2.1
Hereford Funds-IMVA Opportunity Fund
S&P 1500 Index(d)
S&P 500 Index(d)
Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15
-6.4
1.7
-8.6
-13.1
-7.7
-5.5
-8.6
-1.8
4.1
-1.8
2.7
2.5
-0.1
-2.9
-1.4
4.0
-1.4
2.4
2.7
-0.3
-3.0
Period Performance (%)
YTD
-8.6
-2.9
-3.0
IMVA Opportunity Portfolio(c)
S&P 1500 Index(d)
S&P 500 Index(d)
1 yr
-40.3
13.7
14.2
2 yr
-13.5
17.7
17.8
3 yr
3.0
17.4
17.5
4 yr
2.5
14.0
14.0
5 yr
8.4
15.8
15.6
10 yr
8.6
7.9
7.6
Since Inception 31/03/99
Cumulative
Annualised
116.7
5.0
128.3
5.4
108.6
4.8
IMVA Opportunity Portfolio (c) vs. S&P 1500(d) & S&P 500(d)
Ten Years Ending 31/1/15
450
Start of Hereford Funds-IMVA Opportunity Fund
31-Jan-14
350
400
300
350
250
300
200
250
150
200
100
150
50
100
500
IMVA Opportunity Portfolio
Fund's TopTen Holdings
3D Systems Corp.
Luminex Corp.
Anacor Pharmaceuticals, Inc.
Advanced Energy Industries
Intrepid Potash, Inc.
KVH Industries, Inc.
Stone Energy
Babcock & Wilcox Co.
Cree, Inc.
Murphy Oil Corp.
% NAV
8.46
7.65
6.15
6.03
5.52
5.35
4.79
4.67
4.41
4.21
S&P 1500
S&P 500
Fund's GICS Sectoral Breakdown
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
[Cash]
Total
% of assets
4.1
-21.6
8.5
20.8
7.6
28.9
7.2
--1.3
100.0
YTD
-8.6
-2.9
-3.0
Investment Objective
The investment objective of the Hereford Funds-IMVA Opportunity Fund is to provide capital appreciation over a multi-year investment horizon by investing primarily
in a diversified portfolio of publicly traded equity securities of US-based companies, which hold unique opportunities in the opinion of the Investment Manager.
Potential investments comprise small, mid, and large capitalization companies; growth and value companies; and special situations, including non US-based
companies, which are listed on a US exchange. The strategy is highly concentrated and appropriate only for risk-tolerant, long-term investors who can accept the
potential for materially greater volatility than the broad market indices.
The indicative benchmarks are the S&P 1500 and the S&P 500 Indices.
Risk Profile(e)
Fund Codes
Bloomberg:
ISIN:
Reuters:
Sedol:
Valoren:
WKN:
HFIMVOALX*
LU1022309220
N/A
BJ625V8
23467814
A1XCJ3
Since Inception (31/03/99) - 31/12/14
Volatility
Sharpe Ratio
Information Ratio
Tracking Error
Beta
Alpha
Reference Strategy
28.59
0.17
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
S&P 500
17.12
0.16
0.12
18.96
1.28
2.97
S&P 1500
17.32
0.19
0.09
18.79
1.27
2.23
* Share Class A
Fund Details
Investors
Dealing day
Dividends
Investment Manager
Management Company
Custodian
Legal Advisers
Auditor
Open to Non-U.S. investors only
Daily
None: income accumulated within the fund
Investment Management of Virginia, LLC, 919 E. Main Street, Suite 1600, Richmond, VA 23219, USA
BSI Fund Management S.A., 44F, rue de la Vallée, L-2661 Luxembourg
BSI Europe S.A., 122, rue Adolphe Fischer, L-1521 Luxembourg
Elvinger, Hoss & Prussen, 2 Place Winston Churchill, L-1340 Luxembourg
Deloitte Audit S.à.r.l., 560, rue de Neudorf, L-2220 Luxembourg
Annual Management Charge
Share Class A(f)
1.25%
Minimum Investment
Share Class A
$100,000 initial; $10,000 subsequent
Order Transmission / Information
Original Applications To:
UBS Fund Services (Luxembourg) S.A.
attn: Transfer Agent
33A, avenue J.F. Kennedy
L-1855 Luxembourg
Subsequent Applications Only Via Facsimile:
UBS Fund Services (Luxembourg) S.A.
attn: Transfer Agent
Fax :
(+352) 441010 6417
Tel:
(+352) 441010 6404
e-mail: [email protected]
(a) This figure refers to the approximate total assets invested in the reference strategy as of 31/1/15. The figure includes $1.79 million in assets (Hereford Funds-IMVA Opportunity Fund), $128.35 million in assets managed
directly by Investment Management of Virginia, LLC ("IMVA" or "the Investment Manager"), and $9.40 million in assets managed by other firms based upon models provided by the Investment Manager. The $128.35 million
managed directly by IMVA comprise those accounts in the Opportunity Portfolio composite (see www.imva.net), as well as “Special” Opportunity Portfolio accounts, which are excluded from the composite for reasons/variances,
including but not limited to these: they have different weightings; client restrictions have been imposed; they are wrap accounts; they do not own all Opportunity Portfolio positions, or they own additional positions. Model assets
have been excluded from the definition of the firm for GIPS purposes.
(b) The Hereford Funds-IMVA Opportunity Fund was funded on 31/1/14. The first trades were executed on 3/2/14.
(c) Data and graph depict IMVA Opportunity Portfolio composite returns through January of 2014 and Hereford Funds-IMVA Opportunity Fund Class A thereafter (net basis). Historical net performance of the IMVA Opportunity
Portfolio composite (the Reference Strategy) reflects modeled fees and expenses typical of Hereford Funds-IMVA Opportunity Fund Class A (1.25% fee + 0.25% expense). Fund follows substantially the same parameters as
the Reference Strategy, although the Fund has a 10% constraint for individual positions and a 40% limit for the top five names (IMVA's Opportunity Portfolio has no such constraints). Performance presentation is incomplete
without accompanying footnotes as shown at www.imva.net.
(d) Total return including dividends.
(e) Source: eVestment Analytics – All numbers are presented gross of fees and expenses.
(f) Share Class A is tax transparent in Germany and has been granted Reporting Status by HMRC as of 31 January 2014.
This document is for information purposes and internal use only. It is neither an advice nor a recommendation to enter into any investment.
Investment suitability must be determined individually for each investor, and the financial instruments described above may not be suitable for all investors. This information does not provide any accounting, legal, regulatory or
tax advice. Please consult your own professional advisers in order to evaluate and judge the matters referred to herein.
An investment should be made only on the basis of the prospectus, the annual and any subsequent semi-annual-reports of HEREFORD FUNDS (the "Fund"), a société d'investissement à capital variable, established in
Luxembourg and registered under Part I of Luxembourg law of 20 December, approved by the Commission de Surveillance du Secteur Financier (CSSF). These can be obtained from [the Fund, 26, avenue de la Liberté, L-1930
Luxembourg or from BSI Fund Management S.A., 44F, rue de la Vallée, L-2661 Luxembourg and any distributor or intermediary appointed by the Fund].
No warranty is given, in whole or in part, regarding performance of the Fund. There is no guarantee that its investment objectives will be achieved. Potential investors shall be aware that the value of investments can fall as well
as rise and that they may not get back the full amount invested. Past performance is no guide to future performance.
The information provided in this document may be subject to change without any warning or prior notice and should be read in conjunction with the most recent publication of the prospectus of the Fund. Whilst great care is
taken to ensure that information contained herein is accurate, no responsibility can be accepted for any errors, mistakes or omission or for future returns.
This document is intended for the use of the addressee or recipient only and may not be reproduced, redistributed, passed on or published, in whole or in part, for any purpose, without the prior written consent of HEREFORD
FUNDS. Neither the CSSF nor any other regulator has approved this document.