Hereford Funds – Firth Asian Value Fund
September 2013
September 2013 Investment Review
In September 2013 the total return of the Fund after deducting all fees and expenses was 2.9%. By comparison the total return of the MSCI AC
Asia ex Japan Small Cap index was 6.2% and the total return of the MSCI AC Asia ex Japan index was 5.4%.
September was most notable for the US Federal Reserve’s decision not to begin reducing quantitative easing. The Fund is obviously sensitive to
such policy shifts but much less so than the market as a whole. This is partly due to the profile of our holdings and partly due to current cash
levels. Therefore, what was gained in June on news of likely tapering, in terms of relative performance as markets turned down, was largely given
back in September as it was announced that a change to US policy direction would not occur.
Key Information Hereford Funds – Firth Asian Value Fund
NAV A Shares (30/09/13):
Total Fund Size:
Strategy Assets:
Fund Launch Date:
$110.47
$61 million
$173 million (a)
31/05/11
Performance (%) (net of fees and expenses)
Jan
Feb
Mar
HFFAVF1
2
Small Cap
Asia ex Japan
HFFAVF1
3
2
Small Cap
Asia ex Japan3
HFFAVF1
Small Cap2
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 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
-1.9
-2.5
-1.5
Sep
Sep
2.9
6.2
5.4
-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
6.2
4.8
-0.3
Since Launch
10.5
-5.2
-2.6
3. MSCI AC Asia ex Japan USD Net Index (large and mid cap)
Stepping back from the short term reaction to policy announcements, the trend in Asian small cap markets over the past several months shows
the outperformance of the export oriented countries. Taiwan, Korea, and Hong Kong/ China have fared much better than most of Southeast Asia.
MSCI AC Asia ex Japan small cap country indices
Source: Bloomberg, Firth Investment Management
Besides a potential recovery in western export markets another factor to note as regards Asian country performance is the long term trend in real
effective exchange rates. Countries which have enjoyed long periods of low and relatively stable inflation such as Taiwan look increasingly
competitive in the chart below. The chart also helps explain why Chinese export manufacturers in particular have struggled although if we could
extend the chart to before yuan devaluation in 1994 the trend would be more gradual.
Real effective exchange rates
Source: Bloomberg, Firth Investment Management
Turning to more recent currency movements, Asian currencies generally strengthened in September. In India measures from the new central
bank governor, including a 25bp policy rate increase, helped the rupee recover. Indonesia also raised policy interest rates but notably this seems
to have little effect on the currency which was one of the weakest in the region in September.
There were a few changes to the portfolio in September.
We completed the sale of our holding in Aeon, an operator of general merchandise stores and shopping malls in Malaysia. It is a subsidiary of the
Aeon retail and consumer finance business in Japan. The original investment opportunity fell into the “underappreciated quality” category. Over a
three and a half year holding period the stock performed very well (a total return of about +112%) and we could no longer justify its valuation. We
also exited Apex Healthcare, a Malaysian manufacturer and distributor of mainly over the counter pharmaceuticals, having made about 23% over
our 10 month holding period. We caught the latter part of the company’s rerating since 2008 but now struggle to see how much further this can
continue.
Masterskill provides training for nurses and related healthcare science qualifications in Malaysia. It has been a very poor investment (a total
return of about -76%). We first purchased the stock in mid-2011, about a year after its IPO. However, we failed to understand fully the threats to
its business that resulted from changes in government policy. Initially government promotion of the education and training sector had sucked in
much new competition and capital. Then the government reversed course by enforcing stricter quality standards and restricting access to student
loans. As the challenges in turning the business around became evident we stopped further purchases and allowed the position to be diluted as
the Fund’s size increased. Ultimately we concluded that the company could breach its borrowing covenants and face administration or
receivership and so we exited completely. Our experiences with this investment have led to a few changes in the way we assess new and existing
investments.
The Fund’s activity in Malaysia is coincidental to the announcement of Prime Minister Najib’s Bumiputera Economic Empowerment plan. This
apparent reversal of policy direction seems likely to entrench further a race based political and economic system. Following Unmo’s poor
performance in the recent general election the plan seems designed to placate party members in advance of the Unmo leadership elections due
in October.
We’ve begun to build a position in a Korean advertising agency, which is part of the LG Group. International agency WPP has a substantial
minority stake. The stock seems cheap, especially considering the high levels of net cash. There is a decent chance that LG Group exports
improve over the next 2-3 years in line with a global economic recovery. This and the 2014 FIFA World Cup and Winter Olympics could help drive
more advertising spend by this captive customer.
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
42
1
1
10
3
0
10
11
1
4
16
Sectoral breakdown
Consumer Discretionary
Consumer Staples
Financials
Health Care
Industrials
Information Technology
Materials
Others
Cash
% of assets
48
8
3
0
11
8
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. 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.