Hereford Funds – Firth Asian Value Fund
March 2014
March 2014 Investment Review
In March 2014 the total return of the Fund after deducting all fees and expenses was -0.9%. By comparison the total return of the MSCI AC Asia
ex Japan Small Cap index was 1.2% and the total return of the MSCI AC Asia ex Japan index was 1.0%.
Key Information Hereford Funds – Firth Asian Value Fund
NAV A Shares (31/03/2014):
Total Fund Size:
Strategy Assets:
Fund Launch Date:
$110.81
$70 million
$179 million (a)
31/05/11
Performance (%) (net of fees and expenses)
Jan
Feb
Mar
HFFAVF1
Small Cap2
Asia ex Japan
3
HFFAVF1
Small Cap2
Asia ex Japan
3
HFFAVF1
Small Cap2
Asia ex Japan
3
HFFAVF1
2
Small Cap
Asia ex Japan3
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2011
-
-1.2
-2.4
-2.3
0.6
2.8
1.1
-8.5
-11.4
-9.9
-12.6
-16.3
-13.2
6.4
10.1
12.0
-5.9
-8.7
-8.3
0.8
-1.2
0.6
-19.7
-26.1
-20.2
-
-
-
-
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2012
6.1
10.0
10.8
12.1
9.0
6.0
-1.4
-3.8
-3.1
-0.9
-1.7
0.0
-5.9
-7.8
-9.6
0.9
1.8
3.0
3.9
0.0
2.6
4.2
2.2
-0.5
3.1
6.7
7.0
2.2
-1.1
-0.3
-0.2
2.9
2.8
3.3
3.5
3.1
29.6
22.4
22.4
Jan
Feb
Mar*
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2013
3.8
3.5
1.7
1.9
1.6
-0.1
2.0
0.5
-2.2
1.0
2.6
1.8
0.4
1.2
-1.3
-4.8
-8.7
-5.7
0.9
0.8
1.8
-1.9
-2.5
-1.5
2.9
6.2
5.4
1.0
2.7
4.4
0.7
-0.9
0.2
0.7
0.2
-1.1
8.7
6.9
3.1
Jan#
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2014
-2.1
-1.7
-4.7
0.9
3.8
3.5
-0.9
1.2
1.0
HFFAVF1
Small Cap2
Asia ex Japan3
Source: Bloomberg, Firth Investment Management
1. Hereford Funds – Firth Asian Value Fund 2. MSCI AC Asia ex Japan Small Cap USD Net Index
* Month end date used is March 28, 2013.
# Month end date used is January 29, 2014.
-2.0
3.1
-0.7
Since Launch
10.8
-0.3
-0.1
3. MSCI AC Asia ex Japan USD Net Index (large and mid cap)
MSCI small cap indices for Indonesia, Thailand, the Philippines and India rose the most during the first quarter of 2014, recovering sharply from a
poor start to the year. Hong Kong small caps performed poorly over the quarter.
Regional small cap market returns Jan – Mar 2014
MSCI AC Asia ex Japan small cap country indices – Jan - Mar 2014
Source: Bloomberg, Firth Investment Management
Asian currency performance was mixed. The Indonesian rupiah appreciated almost 7% over the quarter and the Indian rupee 3% against the US
dollar. The Chinese renminbi and Taiwan dollar depreciated, while most other regional currencies were flat. There were only minor changes to
central bank policy rates in India (increase) and Thailand (decrease).
The portfolio had lower exposure to the better performing markets and currencies over the quarter and greater exposure to underperforming
markets and currencies. (See portfolio composition chart at the end of this report).
Over the first quarter of 2014 Asian small cap outperformed large cap. Within small cap, “growth” outperformed “value” (as measured by MSCI
style indices). Perhaps when growth is scarce companies that are growing receive a premium, but whatever the reason this is a headwind for the
Fund.
Some further analysis of the top performing decile of small caps over the first quarter indicates that the companies concerned have high earnings
variability, leverage and momentum but exhibit lower value characteristics and dividend yield relative to the universe. The Fund therefore has
quite a different profile from what has performed well over the last quarter. We do not expect to do well in periods where lower quality (weaker
balance sheets) or momentum outperforms.
Over the quarter we fully exited four positions and added three new ones. There are usually about 50 stocks in the portfolio, which has been
consistent for some time. The Fund’s higher cash level reflects reductions in position size outweighing increases. A slower rate of scaling in to a
full position is a reflection of the type of opportunity we are encountering. More “deep value” or “transition” opportunities are being encountered
than “under-appreciated quality.” The latter type tends to be more plentiful in the wake of a general sell-off in markets such as in the 2008-09
period. With the former two types typically the company has some problem from which it must recover. This requires greater patience and before
building the position we often prefer to see the next company results, or some form of further disclosure, which can be several months away. This
type of opportunity also tends to be less liquid.
Cash holdings
Source: Firth Investment Management
The three new positions added in the quarter are a Singapore based furniture manufacturer, a Korean supplier to Samsung Electronics, and a
Korean manufacturer of office equipment. These are all deep value opportunities which typically trade below the residual left to the owners of the
business after liquidating all current assets and repaying total liabilities.
The four holdings exited over the quarter are Boardroom, UMS, Ajisen and Ottogi. Boardroom, a corporate secretarial and accounting services
provider, was the subject of a privatisation offer by its main shareholder GK Goh. UMS, a supplier to Applied Materials (the semiconductor
equipment manufacturer), was sold into the sharp share price rise following very good FY 2013 results. The major shareholder had also been
reducing his stake.
The portfolio is an outcome of our value and quality based screens and not a strong macroeconomic view. Prudential investment limits cap our
country exposure and ensure diversification. The screens continue to rank Hong Kong listed companies highly where we find cheapness, low
leverage, strong cashflow, and healthy dividends. By comparison, the South (East) Asian part of our universe is more leveraged, generates less
free cashflow and pays lower dividends. (See table below). As prices change to reflect these risks our screens will produce more opportunities in
these markets.
Small cap universe: median valuations by country
Country
Number of
Securities
Market Cap
USDm
Free Float
USDm
P/E ratio
P/B ratio
Div Yield %
Return on
Equity %
10.5
China
398
547
137
13.8
1.3
2.5
Hong Kong
566
245
97
11.8
1.1
3.5
5.7
India
449
290
105
18.1
2.0
1.4
13.1
Indonesia
155
476
136
21.2
2.6
1.5
13.2
Malaysia
264
257
96
17.0
1.5
2.7
10.5
Philippines
60
477
131
17.0
2.4
2.0
9.8
Singapore
228
228
89
13.7
1.2
3.0
8.6
South Korea
937
155
84
15.5
1.3
1.3
6.0
9
466
94
21.6
2.2
2.8
13.5
Sri Lanka
Taiwan
998
187
104
18.8
1.7
3.2
7.6
Thailand
172
339
92
16.2
2.5
3.3
14.9
Vietnam
47
148
73
10.5
1.8
4.0
16.6
Universe
4283
227
97
16.2
1.5
2.3
8.3
Source: Bloomberg, Firth Investment Management
The difficulty in Hong Kong/ China continues to be the challenges of higher costs, lower growth, and competition. FY 2013 results for the
portfolio have been mixed as companies respond at different speeds to these problems. Some will take longer than others; however, in most we
see evidence of positive internal change i.e. improving operational efficiency. This could be a source of surprise when sales growth returns.
John McCartney
7 April 2014
Source: Bloomberg, Firth Investment Management
*Both MSCI benchmark indices (Bloomberg: MSLUAAJN and NDUECAXJ) are net total return indices in USD. MSCI calculates net total return by reinvesting any
dividend income after deducting withholding taxes.
Country breakdown
Hong Kong/China
Indonesia
India
Korea
Malaysia
Philippines
Singapore
Taiwan
Thailand
Others
Cash
% of assets
41
0
5
10
3
1
9
10
1
5
16
Sectoral breakdown
Consumer Discretionary
Consumer Staples
Financials
Health Care
Industrials
Information Technology
Materials
Others
Cash
% of assets
43
8
3
0
10
12
3
5
16
Investment Objective
Hereford Funds - Firth Asian Value Fund is to generate long term capital growth from a portfolio of listed company securities in Asia (ex-Japan). The Compartment will
follow a value-based investing approach and will have a bias towards smaller capitalisation stocks.
The Compartment will directly invest primarily in shares of companies located in, incorporated in, headquartered in, listed on exchanges in or with significant
operations in or significant income derived from Hong Kong, India, Indonesia, Korea, Malaysia, the Philippines, the PRC, Singapore, Taiwan and Thailand. The
Compartment may also directly invest in smaller or developing economies in Asia such as Bangladesh, Cambodia, Laos, Pakistan, Sri Lanka or Vietnam. The
Compartment will not invest in China A Shares when investing in the PRC.
The Compartment will directly invest actively in a diversified portfolio of listed equity securities. The Compartment will generally only invest in securities admitted to
official listing on a recognized stock exchange, or dealt in on another regulated market. Although the Compartment intends to invest in a portfolio of not less than 40
stocks and not more than 100 stocks, it is not restricted in or subject to any material concentration or diversification restrictions, and may hold a more limited number of
investment positions.
The Compartment will typically be near fully invested but may hold liquid assets on an ancillary basis. Under normal market conditions, investment in liquid assets and
debt instruments of any kind will not exceed 15% of the Compartment's net assets. In exceptional market circumstances and on a temporary basis only, this limit may
be increased to 100% with due regard to the principle of risk spreading.
The Investment Manager intends to meet the Fund’s objective primarily through stock selection and country allocation. Typically stocks will be bought and held. This is
not a trading strategy and it is not intended to attempt to time general market movements. While portfolio returns will be measured against the Benchmark Index,
portfolio management will not be constrained by reference to the index.
Fund Codes
Bloomberg
ISIN
Reuters
Sedol
Valoren
WKN
HFIRASA LX *
LU0618975774
NA
B64KS81
12853411
A1H9V4
* Share Class A
Fund Details
Dealing Day
Dividends
Investment Manager
Promoter
Fund Administrator
Custodian
Legal Advisers
Auditor
Daily
None - income accumulated within the fund
Firth Investment Management Pte. Ltd. 180 Cecil Street, #13-03 Bangkok Bank Building, Singapore
VP Bank (Luxembourg) S.A., 26 Avenue de la Liberté, L-1930 Luxembourg
VPB Finance S.A., 26 Avenue de la Liberté, L-1930 Luxembourg
VP Bank (Luxembourg) S.A., 26 Avenue de la Liberté, L-1930 Luxembourg
Elvinger, Hoss & Prussen, 2 Place Winston Churchill, L-1340 Luxembourg
Deloitte, 560 Rue de Neudorf, L-2220 Luxembourg
Annual Management Charge
Share Class A
Share Class D
(b)
1.5%
2.0%
Annual Management Charge
Performance fee:
High water mark?:
Hurdle rate:
10%
Yes
MSCI AC Asia ex Japan Small Cap USD Net
Minimum Investment
Share Class A (b)
Share Class D
$100,000 initial / $10,000 subsequent
$10,000 initial / $1,000 subsequent
Order Transmission Information
Original Applications To:
VPB Finance S.A.
attn. Fund Operations / TA-HFF
P.O. Box 923
L-2019 Luxembourg
or, for transmissions via courier service,
26, avenue de la Liberté, L-1930 Luxembourg
Subsequent Applications Only Via Facsimile:
VPB Finance S.A.
attn. Fund Operations / TA-HFF
Fax: (+352) 404 770 283
Tel: (+352) 404 770 260
e-mail: [email protected]
(a) This refers to the total assets to which the Investment Adviser applies the reference strategy.
(b) Share Class A: these shares have UK reporting since launch and are registered with the BaFin for public distribution in Germany from 17/10/12.
Germany – Paying Agent as defined by German Regulation:
Marcard, Stein & Co – Ballindamm 36, 20095 Hamburg; Phone: +49/40.32.099.556, Fax: +49/40.32.099.206
(c) Share Class D: these shares have not yet been launched.
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 VPB Finance S.A., 26,
avenue de la Liberté, L-1930 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.