Hereford Funds-IMVA Opportunity Fund
December 2014
December 2014 Investment Review
December was negative and ended a miserable 2014 for the Fund. The December Fortune Magazine published an article on December 24th entitled “2014: The Year That Nothing
Worked”.1 I could say the same, but in my case, the underperformance was worse than normal “not working”. The fact that the Opportunity Portfolio is still outperforming over ten
years and since Inception reflects the success that the strategy enjoyed for many years before the Fund’s launch in 2014, but this past year was an ugly reminder of what can happen
to a concentrated portfolio. My fundamental investment tenants are these: concentrate capital, invest long-term, and stick with strong management teams that have substantial
ownership positions in their company. These principles have generally worked very well over the past 17 years, but this approach seemed systematically flawed this past year. One
long-term client asked how could our positions seem correlated, in a negative way? In hindsight, the resolution which helped me produce compelling returns heretofore probably
contributed to my miserable performance in 2014. So, in response to that question, the three areas that caused most of our problems in 2014 (3D Systems, Ocwen Financial and
Altisource Portfolio Solutions, and the energy sector in general) were not correlated in the mathematical sense, but my investment philosophy created some concurrent problems.
These were hard and expensive reminders, to me, of what the equity market can do in the short-term, and I need to apologize to all of you for a very disappointing year.
It may not be apparent from these results, but the portfolio had a few bright spots during the year. In general, our healthcare positions did very well, and I continue to have high
expectations there, especially for Luminex. Even in the energy sector, a couple of the swaps (Triangle Petroleum for Emerald Oil and Noble Drilling for Ultra Petroleum) seem to be
working, on a relative basis.
As mentioned above, the main problems during 2014 were 3D Systems, Ocwen Financial and Altisource Portfolio Solutions, and our energy sector exposure. In general, I think the
problems are transitory and the positions should be held. I am reluctant to say that as I know this type of persistence can be highly frustrating to investors. As the saying goes, being
too early is the same as being wrong, and having one’s investment horizon “extended” is worrisome. I have clearly been wrong, but it may be helpful to remember that in the case of
both 3D Systems and Ocwen Financial, the Opportunity Portfolio was invested for several years before making any real money, and we eventually made many multiples on our initial
investments. I think the opportunity in both of these companies, and Altisource Portfolio Solutions, could be similar at today’s prices. The energy sector is harder to analyze, in my
opinion, but it is still cyclical and appears to be heavily out of favor, and therefore attractive, to me.
As we enter 2015, the portfolio's largest positions and exposure include overweights in 3D Systems, Luminex, and a smaller but still overweight position in energy. Given these
dispositions, it is clear that I have not given up on the long-term investment approach that was previously highly successful, but I will try to be more sensitive to the short- term
considerations that can ruin a long-term thesis.
____________________________
1
Fortune Magazine, “2014: The Year That Nothing Worked”, Josh Brown
Key Information
NAV A Shares (31/12/14): $65.34
Total Fund Size: $2.00 mil
(a)
Strategy Assets: $155.56 mil
Fund Launch Date: 31-Jan-14(b)
Monthly Performance (%)
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
N/A
-0.8
-1.3
-2.1
-1.9
5.3
-6.4
1.7
-8.6
-13.1
-7.7
-5.5
N/A
4.6
0.8
0.4
2.2
2.3
-1.8
4.1
-1.8
2.7
2.5
-0.1
N/A
4.6
0.8
0.7
2.4
2.1
-1.4
4.0
-1.4
2.4
2.7
-0.3
Hereford Funds-IMVA Opportunity Fund
S&P 1500 Index(d)
S&P 500 Index(d)
Period Performance (%)
YTD
-37.9
13.1
13.7
IMVA Opportunity Portfolio(c)
S&P 1500 Index(d)
S&P 500 Index(d)
1 yr
-37.9
13.1
13.7
2 yr
-5.9
22.5
22.7
3 yr
8.6
20.4
20.4
4 yr
4.8
15.4
15.6
5 yr
9.6
15.6
15.5
10 yr
9.2
7.9
7.7
Since Inception 31/03/99
Cumulative
Annualised
137.0
5.6
135.0
5.6
115.0
5.0
IMVA Opportunity Portfolio (c) vs. S&P 1500(d) & S&P 500(d)
Ten Years Ending 31/12/14
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.
Advanced Energy Industries
Intrepid Potash, Inc.
Stone Energy
KVH Industries
Anacor Pharmaceuticals, Inc.
Babcock & Wilcox Co.
Montpelier RE Holdings, Ltd.
Freeport-McMoran
% NAV
8.59
7.30
5.35
5.17
5.16
5.02
4.74
4.66
4.36
4.27
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
1.7
-22.0
11.5
19.1
4.7
25.1
11.4
--4.5
100.0
YTD
-34.7
17.0
17.8
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) - 30/09/14
Volatility
Sharpe Ratio
Information Ratio
Tracking Error
Beta
Alpha
Reference Strategy
27.99
0.25
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
S&P 500
17.24
0.14
0.26
17.49
1.30
4.87
S&P 1500
17.43
0.17
0.22
17.29
1.30
4.11
* 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 31/12/14. The figure includes $2.00 million in assets (Hereford Funds-IMVA Opportunity Fund), $140.39 million in assets managed
directly by Investment Management of Virginia, LLC ("IMVA" or "the Investment Manager"), and $13.17 million in assets managed by other firms based upon models provided by the Investment Manager. The $140.39 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.