Hereford Funds – Firth Asian Value Fund August 2013 August 2013 Investment Review In August 2013 the total return of the Fund after deducting all fees and expenses was -1.9%. By comparison the total return of the MSCI AC Asia ex Japan Small Cap index was -2.5% and the total return of the MSCI AC Asia ex Japan index was -1.5%. The month was marked by weak performances across currencies and stock markets in Southeast Asia and India. Currencies in both India and Indonesia fell by 9% against the US dollar. In response, Indonesia raised policy interest rates and India took further measures to protect its currency. There were no significant changes to the portfolio during the month. Aside from some poor performances amongst our limited SE Asian and interest rate-sensitive exposure, other portfolio holdings moved with end June results announcements. Generalising somewhat, the message from companies remains the same as it has been in the last couple of quarters: revenue growth is difficult to achieve and cost pressures persist. Separately, we have three holdings which have some exposure to cash flows and net assets denominated in Australian dollars, a currency which has weakened against both the Singapore and Hong Kong dollars so far this year. In recent weeks the financial media has been replete with comment on structural economic problems in Indonesia and India. Their weaknesses have long been known, but perhaps the bull market has been an obstacle to discussion and resolution. We can add our own anecdotes too. In recent days a custodian bank notified us that they had experienced difficulties pricing sales of Indonesian currency for US dollars. This is an illustration of the risks arising from the country’s (and region’s) acute and persistent dependence on US dollar capital flows. In India, we have applied for a foreign institutional investor licence to enable one of our accounts to invest directly in Indian stocks. The application process was started more than six months ago and we expect it to take another six months. Opening brokerage accounts can take another couple of months in addition. Such red tape and bureaucratic delay is hard to understand in the context of India’s apparent need for outside capital. Two years ago 17% of the portfolio was exposed to the developing SE Asian markets (Indonesia, Malaysia, Philippines and Thailand). Maintaining our value discipline and preference for sound balance sheet structures has resulted in that exposure falling to 7% in the intervening period. Similarly, as a firm we have been able to invest in India since early 2012 but until very recently we were unable to find companies that met our criteria. Of course, our approach also meant that we missed some of the very strong returns from SE Asian stocks. But going forward we are alert to the opportunities created by market weakness and macro-economic change. Both Indonesia and India will have general elections in 2014, providing at least the opportunity for a change in direction. Key Information Hereford Funds – Firth Asian Value Fund NAV A Shares (30/08/13): Total Fund Size: Strategy Assets: Fund Launch Date: $107.35 $59 million $168 million (a) 31/05/11 Performance (%) (net of fees and expenses) Jan Feb Mar HFFAVF1 2 Small Cap Asia ex Japan HFFAVF1 2 Small Cap Asia ex Japan HFFAVF1 3 3 2 Small Cap Asia ex Japan3 - - - 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 0.9 0.8 1.8 HFFAVF1 Small Cap2 Asia ex Japan3 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 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 -1.9 -2.5 -1.5 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 3.2 -1.3 -5.5 Since Launch 7.3 -10.7 -7.6 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 40 1 1 8 4 1 10 11 1 5 19 Sectoral breakdown Consumer Discretionary Consumer Staples Financials Health Care Industrials Information Technology Materials Others Cash % of assets 45 8 3 0 9 7 3 5 19 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% 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.
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