Hereford Funds – Firth Asian Value Fund
December 2013
December 2013 Investment Review
In December 2013 the total return of the Fund after deducting all fees and expenses was 0.7%. By comparison the total return of the MSCI AC
Asia ex Japan Small Cap index was 0.2% and the total return of the MSCI AC Asia ex Japan index was -1.1%. Total returns in 2013 for the Fund
and the two indices respectively were 8.7%, 6.9% and 3.1%.
Key Information Hereford Funds – Firth Asian Value Fund
NAV A Shares (31/12/13):
Total Fund Size:
Strategy Assets:
Fund Launch Date:
$113.12
$69 million
$187 million (a)
31/05/11
Performance (%) (net of fees and expenses)
Jan
Feb
Mar
HFFAVF1
Small Cap2
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
2.9
6.2
5.4
1.0
2.7
4.4
-5.9
-8.7
-8.3
-0.2
2.9
2.8
0.7
-0.9
0.2
Dec
0.8
-1.2
0.6
2011
-19.7
-26.1
-20.2
Dec
2012
Dec
2013
3.3
3.5
3.1
0.7
0.2
-1.1
29.6
22.4
22.4
8.7
6.9
3.1
Since Launch
13.1
-3.3
0.7
3. MSCI AC Asia ex Japan USD Net Index (large and mid cap)
There were no significant changes to the portfolio during the month. The long-standing holdings in Allianz Malaysia and Daegu Department Store
boosted returns.
The India small cap index, up 9% during the month, continued to recover strongly from summer lows. Conversely the Thailand small cap index fell
8%. Confidence is growing in India that a general election in 2014 heralds a change in government and improvements in economic policy.
Meanwhile an early general election has been called in Thailand in the wake of demonstrations in Bangkok against the ruling party. The portfolio
holds one stock in Thailand, an IT manufacturer which, other things equal, benefits from a weaker local currency.
Looking back at 2013, the regional small cap index outperformed large and mid-cap during the year, although after a very good start to the year,
small cap lagged behind in the second half. Small cap in Indonesia, the Philippines, India and Thailand delivered very poor US dollar returns.
Local currency weakness against the US dollar exacerbated the negative returns. The Indonesian and Indian currencies were the worst
performers. Conversely, small cap in Hong Kong, Taiwan and China delivered strong positive returns. Interestingly, there was a divergence in the
performance of cyclical sectors, so IT and consumer discretionary stocks delivered the best returns while energy and materials delivered the
worst.
MSCI AC Asia ex Japan small cap country indices
Source: Bloomberg, Firth Investment Management
Asia ex Japan vs. USD exchange rates
Source: Bloomberg, Firth Investment Management
MSCI AC Asia ex Japan sector indices
Source: Bloomberg, Firth Investment Management
Our investment approach does not try to pick countries or sectors, but “value” is very important to us. MSCI style indices for the region indicate
that “growth” materially outperformed “value” during the year. Such market preference was a headwind against the Fund’s returns.
MSCI AC Asia ex Japan small growth index vs. MSCI AC Asia ex Japan small value index
Source: Bloomberg, Firth Investment Management
As usual the portfolio evolved gradually through the year and turnover remained relatively low (about 23%). 15 new holdings were purchased
while 13 stocks were sold completely. The cash position remained relatively high throughout the year. It has been important to have the flexibility,
within reason, to invest, divest and reinvest deliberately, maintaining our focus on what we pay for what we receive in return.
During the year the portfolio’s exposure to the developing economies of Southeast Asia, namely Indonesia, Malaysia, the Philippines and
Thailand fell from 15% to 5%. For the most part such stocks were sold because they had become expensive. Meanwhile the portfolio invested in
India for the first time and by the end of the year held two stocks in that market.
A strong view on what happens next in terms of market direction is something we try to avoid, preferring instead to follow signals in valuations and
changing company fundamentals. In the case of Thailand this led us to have just a very small exposure for over two years before its market peak
earlier in 2013. But we do monitor regional and country-specific macro-economic and market indicators to understand the business environment
for companies in the portfolio. As mentioned before, the region remains sensitive to US dollar capital flows and is thus linked to monetary policy
conditions in the United States. This link is illustrated in the chart below which shows the co-movement between the US dollar index and the
mainstream Asia ex-Japan equity index going back to the early 1990s. It can be observed that when the US dollar is strengthening (typically as
the US economy is recovering and monetary conditions are tightening), Asia ex-Japan equity markets struggle.
USD index vs. MSCI Asia ex Japan index
Source: Bloomberg, Firth Investment Management
We don’t know what will happen next in Asia ex-Japan’s equity markets but it could be argued that the answer lies in the sustainability of the
recovery in US growth, how the Federal Reserve reacts to that, or indeed whether Asia’s macro-economic structure has changed enough to
erode the link.
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
0
3
11
3
0
11
11
1
4
14
Sectoral breakdown
Consumer Discretionary
Consumer Staples
Financials
Health Care
Industrials
Information Technology
Materials
Others
Cash
% of assets
47
8
3
0
11
10
3
4
14
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.