Hereford Funds-IMVA Opportunity Fund
June 2015
Investment Review (a), (b)
During the 2nd quarter, our top performing positions were Altisource Portfolio Solutions (ASPS), McDermott International (MDR), and Anacor Pharmaceuticals (ANAC). Altisource has emerged from the smoke of the
wreckage of Ocwen Financial and has recently confirmed its earnings guidance for the year. The stock appears to be very cheap and has multiple alternatives for growth. McDermott is blooming under its new
management team and has announced a series of impressive offshore construction awards in the Middle East. Anacor Pharmaceuticals has been a proverbial “homerun”; the company is in the midst of a very
successful drug launch and has another compound in drug trials that also appears to be very promising. Bottom three underperformers were 3D Systems, Cree, and Quidel. The price action in 3D Systems (DDD) is a
little nerve wracking, and I don’t know how soon the company will begin to exceed Wall Street expectations. Short sellers are clearly having a field day with the stock. On the other hand, the management team appears
to be increasingly confident, the balance sheet is strong, the company is free cash flow positive, and margins should increase in the second half of this year. This management team owns a lot of the stock and is clearly
building the company with a long-term “terminal value” calculation in mind. I am confident this will be a great stock for investors who can hold on through this period of low earnings visibility. Cree (CREE) announced a
sizeable write-off and plans to consolidate some of its facilities. Concurrently, management has been buying stock, and the company announced (another) $500 million stock repurchase. The stock is near its trough
book value multiple and looks inexpensive to me. Quidel (QDEL) is doing fine and has a very attractive pipeline of diagnostic products coming out over the next year or so. Weakness in the stock is fairly normal at this
time of year because the company still has large exposure to the North American flu season, which is difficult to forecast at this point.
Sales during quarter included the liquidation of Noble Corporation (NE) and Murphy Oil Corp (MUR). I also reduced Anadarko Petroleum (APC) and Advanced Energy Industries (AEIS). Noble is caught up in the
negative dynamics of the offshore drilling market; it is very difficult to see how the offshore drillers will outperform other areas of the energy sector. Murphy is similarly out of favor, but I believe the fundamentals for
Southwestern Energy are better and switched those two. I was able to reduce our Anadarko position during the strength in the energy sector in late April. Advanced Energy sounds a lot like an oil and gas company, but
it is actually a technology company which produces power conversion equipment for the semiconductor, solar, and flat panel display markets. I reduced our position as it approached our full value target.
Purchases during the quarter included initial positions in EPIQ Systems (EPIQ), T. Rowe Price (TROW), Pier 1 Imports (PIR), Southwestern Energy (SWN), and Bottomline Technologies. EPIQ Systems provides
bankruptcy processing and electronic discovery software. EPIQ has an attractive business, but the company’s financial results have been generally disappointing, and management is under pressure from activist
investors to improve operating results. T. Rowe Price is a blue chip, asset management company; the stock is trading near the low end of its historic valuation range, and the dividend yield is attractive. Pier 1 Imports is
a home-furnishings retailer that has undergone a significant turnaround over the past five years. We believe the company is on the cusp of generating strong profit growth after two years of investments in its ecommerce platform. I used Southwestern Energy to replace Murphy Oil, as mentioned above. SWN gives us exposure to natural gas reserves/production in a company with a history of operational excellence and
consistent results. Natural gas prices should recover in the next year or so due to increased demand from a variety of sources including power plants’ switching from coal to natural gas and LNG exports from the U.S.
Bottomline Technologies is a high quality transaction processor that IMVA has owned successfully in the past. The company appears to be gaining market share and operating scale in several of its product lines, and
our meeting with company management during the second quarter was very positive.
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.
Key Information
as of June 30, 2015
NAV A Shares:
Total Fund Size:
$64.48
$1.94 mil
$144.89 mil(c)
January 31, 2014(d)
Strategy Assets:
Fund Launch Date:
Monthly Performance (%)
as of June 30, 2015
Jan-15 Feb-15 Mar-15 Apr-15 May-15
Hereford Funds-IMVA Opportunity Fund
(8.6)
7.4
0.0
2.3
(1.0)
S&P 1500 Index(f)
(2.9)
5.7
(1.3)
0.7
1.3
S&P 500 Index(f)
(3.0)
5.8
(1.6)
1.0
1.3
Jun-15
(0.7)
(1.8)
(1.9)
YTD
(1.3)
1.6
1.2
Period Performance (%)
IMVA Opportunity Portfolio(e)
S&P 1500 Index(f)
S&P 500 Index(f)
Since Inception (March 31, 1999 - June 30, 2015)
YTD
(1.3)
1.6
1.2
1 yr
(34.9)
7.3
7.4
2 yr
(12.3)
15.7
15.7
3 yr
1.1
17.5
17.3
4 yr
2.1
14.1
14.2
5 yr
10.5
17.4
17.3
10 yr
9.1
8.1
7.9
Value of a Dollar
Cumulative
133.9
138.8
117.6
Past Ten Years (June 1, 2005 - June 30, 2015)
IMVA Opportunity Portfolio(e) vs. S&P 1500(f) & S&P 500(f)
450
410
370
Annualized
5.4
5.5
4.9
KEY
IMVA Opportunity Portfolio
S&P 1500
S&P 500
Start of Hereford FundsIMVA Opportunity Fund
31-Jan-14
330
290
250
210
170
130
90
50
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Hereford Funds-IMVA Opportunity Fund
June 2015
Portfolio
as of June 30, 2015
Sector Breakdown
%
Consumer Discretionary
6.3
Consumer Staples
0.0
Energy
18.1
Financials
12.5
Health Care
20.9
Industrials
5.2
Information Technology
22.0
Materials
5.5
Telecommunication Services
0.0
Utilities
0.0
[Cash]
9.5
Total
100.0
Ten Largest Holdings
Luminex Corp.
Anacor Pharmaceuticals, Inc.
McDermott International, Inc.
3D Systems Corp.
KVH Industries, Inc.
Intrepid Potash, Inc.
Montpelier RE Holdings, Ltd.
BWX Technologies, Inc.
Stone Energy
Quidel Corp.
Total
%
8.7
6.8
6.5
6.5
5.5
4.0
3.9
3.7
3.5
3.3
Since Inception (March 31, 1999 - March 31, 2015)
Risk Statistics(g)
Volatility
Sharpe Ratio
Information Ratio
Tracking Error
Beta
Alpha
IMVA Opportunity Fund
28.38
0.17
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
S&P 1500
17.18
0.20
0.07
18.67
1.27
1.97
S&P 500
16.99
0.16
0.11
18.84
1.28
2.74
52.4
Fund Details
Bloomberg:
ISIN:
Reuters:
Sedol:
Valoren:
WKN:
HFIMVOALX*
LU1022309220
N/A
BJ625V8
23467814
A1XCJ3
* Share Class A
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.
Annual Management Charge
Minimum Investment
Share Class A(h)
Share Class A
1.25%
$100,000 initial; $10,000 subsequent
Order Transmission / Information
Original Applications to:
UBS Fund Services
Attn: Transfer Agent
33a, avenue J.F. Kennedy
L-1855 Luxembourg
Subsequent Applications only via Facsimile:
UBS Fund Services
Attn: Transfer Agent
Fax: (+352) 4410106417
Tel: (+352) 4410106404
Email: [email protected]
(a) The securities discussed are based on their contribution to or detraction from the entire performance of the Portfolio. A complete description of the performance calculation methodology, including a complete list of
each security that contributed to the performance of the Portfolio highlighted above, is available upon request.
(b) The transactions/securities discussed in this section are generally portfolio-wide transactions for the accounts in this Portfolio and have not been selected by any performance criteria. It should not be assumed that all
accounts in the Portfolio had the same transactions or that transactions in the future will be as profitable or will equal the performance of the securities mentioned.
(c) This figure refers to the approximate total assets invested in the reference strategy as of 30/6/15. The figure includes $1.94 million in assets (Hereford Funds-IMVA Opportunity Fund), $135.17 million in assets
managed directly by Investment Management of Virginia, LLC ("IMVA" or "the Investment Manager"), and $7.78 million in assets managed by other firms based upon models provided by the Investment Manager. The
$135.17 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.
(d) The Hereford Funds-IMVA Opportunity Fund was funded on 31/1/14. The first trades were executed on 3/2/14.
(e) 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. Past performance is no guarantee of future results, and no representation is made that results similar to those shown can be
achieved.
(f) Total return including dividends.
(g) Source: eVestment Analytics – All numbers are presented gross of fees and expenses.
(h) 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, 44F, rue de la Vallée, L2661 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