Hereford Funds – Firth Asian Value Fund
June 2013
June 2013 Investment Review
In June 2013 the Fund’s net asset value fell by 4.8% (after deducting all fees and expenses). By comparison the total return of the MSCI AC Asia
ex Japan Small Cap index was -8.7% and the total return of the MSCI AC Asia ex Japan index was -5.7%.
Asia ex-Japan stock markets and currencies endured a sell-off during June with the prospect of a withdrawal of the extraordinary monetary
measures in the United States being the apparent trigger. The Philippines, Thailand and Indonesian markets were most affected in US dollar
terms while the Indian currency weakened by over 5% against the US dollar. Indeed, Indonesia raised policy interest rates ostensibly to quell
further pressure on its currency. In China, official action to rein in its credit markets also led to falls in the Chinese and Hong Kong equity markets.
Rapid credit growth in China in recent years has resulted in much higher debt levels and raised fears of problems for its financial system as
economic growth slows.
On the whole, low exposure to the less developed southeast Asian markets and also to the financial, energy and materials sectors helped the
Fund’s relative performance. Lower prices afforded the opportunity to add to existing holdings, although trading volume was noticeably thin
despite the dynamic market environment. Strong performance from the holding in Matahari led to a further reduction in exposure.
The Fund’s holding of cash is now higher than it has been for some time. As mentioned last month, we have found it more challenging recently to
redeploy the sales proceeds of holdings that have become over-priced or have been facing “negative change”. This situation will be resolved with
a bit of patience as changing fundamentals and/ or falling prices can usually be relied upon to lead to new opportunities. We expect the higher
level of cash to be a relatively temporary position.
One source of new investment opportunities in recent months has been presented by companies operating in China. A number of consumer and
manufacturing stocks have endured significant price falls as a result of deteriorating growth and labour cost increases (which for the companies is
manifested in falling sales and materially depressed profits). Both factors are partly the result of deliberate government policy. In some cases we
are encountering stocks below the lows of price and valuation in 2008. About 30% of the portfolio is already exposed to companies operating in
China and while all conform to our criteria for “cheapness” and balance sheet robustness, we are mindful of the classic trap where cheapness is
allied to future negative change (see below). At this stage we are not planning to increase net exposure to such stocks.
If economic history suggests that a financial crisis is an inevitable rite of passage for a developing economy, then one is due at some time in
China. Of course the timing of any dislocation is hard to determine, particularly given China’s authoritarian and opaque political system. We would
argue that such an event is at least partially discounted in the value of China-related stocks. However, China’s size and importance to the rest of
the region means that the impact will not be isolated to China. Such collateral impact does not appear to be discounted by Asia’s financial
markets at this stage.
Key Information Hereford Funds – Firth Asian Value Fund
NAV A Shares (28/06/13):
Total Fund Size:
Strategy Assets:
Fund Launch Date:
$108.41
$53 million
$161 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
HFFAVF1
3
-
-
-
Apr
May
Jun
Jul
-
-
-1.2
-2.4
-2.3
Jan
Feb
Mar*
Apr
May
Jun
Jul
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
2
Small Cap
Asia ex Japan
Nov
2.2
-1.1
-0.3
Jul
3.8
3.5
1.7
Oct
3.1
6.7
7.0
Jun
0.9
1.8
3.0
Nov
4.2
2.2
-0.5
May
-5.9
-7.8
-9.6
Oct
3.9
0.0
2.6
Apr
-0.9
-1.7
0.0
Nov
6.4
10.1
12.0
Mar
-1.4
-3.8
-3.1
Oct
-12.6
-16.3
-13.2
Feb
12.1
9.0
6.0
Sep
-8.5
-11.4
-9.9
Jan
6.1
10.0
10.8
Aug
0.6
2.8
1.1
3
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.
Aug
Aug
Sep
Sep
-5.9
-8.7
-8.3
-0.2
2.9
2.8
Dec
0.8
-1.2
0.6
2011
-19.7
-26.1
-20.2
Dec
2012
Dec
2013
3.3
3.5
3.1
29.6
22.4
22.4
4.2
0.4
-5.7
Since Launch
8.4
-9.2
-7.9
3. MSCI AC Asia ex Japan USD Net Index (large and mid cap)
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
2
1
9
5
1
9
12
1
4
16
Sectoral breakdown
Consumer Discretionary
Consumer Staples
Financials
Health Care
Industrials
Information Technology
Materials
Others
Cash
% of assets
50
7
3
1
9
7
3
4
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 based upon the investment advice of the
Investment Adviser. 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
Investment Advisor
Promoter
Fund Administrator
Custodian
Legal Advisers
Auditor
Daily
None - income accumulated within the fund
Swiss-Asia Financial Services Pte. Ltd. 8 Temasek Blvd, #43-01 Suntec City Tower 3, Singapore
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%
Minimum Investment
Share Class A (b)
Share Class D
Annual Management Charge
Performance fee:
High water mark?:
Hurdle rate:
10%
Yes
MSCI AC Asia ex Japan Small Cap USD Net
$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.