Hereford Funds-IMVA Opportunity Fund
September 2015
Investment Review (a)
The 3rd Quarter was a rough quarter for the market and worse for the Opportunity Portfolio. Our holdings are clearly more volatile than the broad market, but the current price action seems detached from the
stability and prospects of most of our holdings. We had a couple of great successes during the quarter, but these were offset by weakness in several positions and the general malaise in the materials,
industrials, and energy sectors. The energy sector, in particular, continued to suffer as oil prices collapsed, again. Valuations for the integrated oil companies (large producers and marketers of oil and gas)
are now at book value multiples and dividend yield levels not seen in 20 to 30 years. Oilfield services companies’ price-to-book value multiples are also near decade lows. I believe the oil market is gradually
rebalancing, and Schlumberger’s pending acquisition of Cameron International may have marked the bottom of this cycle. In general, I have gradually “high graded” our energy holdings over the past quarter
or so in order to stay with this out of favor sector. Consequently, we now own some of the most conservative energy companies, when taken on the whole, that I can remember in this portfolio (keep in mind
that CAM is trading in-line with Schlumberger due to their pending transaction). That may be cold comfort when the sector is totally out of favor, but I think it is an important point as we stagger through
continuing commodity weakness. For Opportunity Portfolio clients, an important question in this uncertain time must be how much more downside risk is in the portfolio? I clearly have little feel, at the moment,
for short-term market gyrations, but, in general, the portfolio is deployed in companies I would be happy to set aside, undisturbed, for five years.
Sales during the quarter included a dramatic reduction in our positon in Anacor Pharmaceuticals. ANAC management announced favorable clinical trial results in early July, and I reduced our position into
the stock’s powerful move higher. I liquidated Altisource Asset Management and added to Altisource Portfolio Solutions (ASPS). These companies are obviously related, and I feel that ASPS has a
clearer path to earnings growth and much better trading liquidity. I also liquidated Rayonier Advanced Materials (RYAM). RYAM management announced an ugly lawsuit against their largest customer
during the quarter; this was a shock and came shortly after management had announced several insider purchases, so they appear to have been just as surprised by the problems with their customer.
Finally, I reduced our position in Chico’s FAS (CHS). Chico’s management announced that they were in buy-out talks with private equity firms, and that positive news took the stock to a fair valuation, in my
opinion.
Purchases included additions to existing positons in Altisource Portfolio Solutions, as mentioned above, T. Rowe Price Group, McDermott International, 3D Systems, Bottomline Technologies, and Quidel
Corp. I have discussed all of these companies before and, suffice it to say, like the long-term potential of each very much. Byron Wein, the Vice Chairman of Blackstone Advisory Partners, writes a
quarterly memo that is usually very informative. In his memo from this summer, he says, basically, that the only way to create real wealth is to invest in technology and biotechnology for long-term capital
gains. This strategy obviously involves some patience and tolerance for volatility, but it is the underlying theme behind my incremental investments in Altisource (financial services technology), 3D Systems
(technology and bio-technology exposure), Bottomline Technology (financial services technology), and Quidel Corp (medical devices/diagnostics). These companies, when taken as a group, are likely to
produce very good returns over the next several years, in my opinion. The same point could be made for Luminex, which we already own in size. 3D Systems, in particular, appears to me to be bottoming
out and, hopefully, getting reloaded for a resumption in revenue and earnings growth and cash flow generation. DDD should be close to releasing a powerful new metal printer that should become a market
leader in aerospace applications; this may be a watershed event for DDD and will, in my opinion, get the company back on the strong growth trajectory forecast for the sector by Gartner (Gartner recently
forecast 72% compound annual growth, in dollars, for the 3D printing market from 2014 through 2019).
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 September 30, 2015
NAV A Shares:
Total Fund Size:
$54.72
$1.60 mil
$121.31 mil(b)
January 31, 2014(c)
Strategy Assets:
Fund Launch Date:
Monthly Performance (%)
as of September 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(e)
(2.9)
5.7
(1.3)
0.7
1.3
S&P 500 Index(e)
(3.0)
5.8
(1.6)
1.0
1.3
Jun-15
(0.7)
(1.8)
(1.9)
Jul-15 Aug-15 Sep-15
(4.2)
(2.7)
(9.0)
1.8
(6.0)
(2.6)
2.1
(6.0)
(2.5)
Period Performance (%)
IMVA Opportunity Portfolio(d)
S&P 1500 Index(e)
S&P 500 Index(e)
YTD
(16.3)
(5.2)
(5.3)
Since Inception (March 31, 1999 - September 30, 2015)
YTD
(16.3)
(5.2)
(5.3)
1 yr
(36.5)
(0.3)
(0.6)
2 yr
(23.9)
8.7
9.1
3 yr
(6.8)
12.5
12.4
4 yr
4.4
16.7
16.6
5 yr
4.4
13.3
13.3
10 yr
5.7
7.0
6.8
Value of a Dollar
Cumulative
98.5
122.8
103.6
Annualized
4.2
5.0
4.4
Past Ten Years (September 30, 2005 - September 30, 2015)
IMVA Opportunity Portfolio(d) vs. S&P 1500(e) & S&P 500(e)
450
410
370
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
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Hereford Funds-IMVA Opportunity Fund
September 2015
Portfolio
as of September 30, 2015
Sector Breakdown
%
Consumer Discretionary
6.8
Consumer Staples
0.0
Energy
16.1
Financials
14.9
Health Care
17.4
Industrials
9.9
Information Technology
26.1
Materials
2.6
Telecommunication Services
0.0
Utilities
0.0
[Cash]
6.2
Total
100.0
Ten Largest Holdings
Luminex Corp.
McDermott International Inc.
3D Systems Corp.
BWX Technologies Inc.
KVH Industries Inc.
Quidel Corp.
Cameron International Corp.
Altisource Ptfl Solns Reg Shs
Cree, Inc.
T. Rowe Price Group Inc.
Total
%
8.2
7.8
6.1
5.1
4.9
4.9
4.2
4.1
4.0
3.8
Since Inception (March 31, 1999 - June 30, 2015)
Risk Statistics(f)
Volatility
Sharpe Ratio
Information Ratio
Tracking Error
Beta
Alpha
IMVA Opportunity Fund
28.16
0.17
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
S&P 1500
17.05
0.20
0.08
18.52
1.27
1.97
S&P 500
16.86
0.16
0.11
18.69
1.28
2.72
53.1
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(g)
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 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.
(b) This figure refers to the approximate total assets invested in the reference strategy as of 30/9/15. The figure includes $1.60 million in assets (Hereford Funds-IMVA Opportunity Fund), $114.74 million in assets
managed directly by Investment Management of Virginia, LLC ("IMVA" or "the Investment Manager"), and $4.97 million in assets managed by other firms based upon models provided by the Investment Manager. The
$114.74 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.
(c) The Hereford Funds-IMVA Opportunity Fund was funded on 31/1/14. The first trades were executed on 3/2/14.
(d) 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.
(e) Total return including dividends.
(f) Source: eVestment Analytics – All numbers are presented gross of fees and expenses.
(g) 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
HEREFORD FUNDS. Neither the CSSF nor any other regulator has approved this document.