• This paper examines the Seafarer Value team’s investment experience over the past eight years. It recounts both the investment outcomes and the lessons learned while in pursuit of the seven sources of value, as first identified by Paul Espinosa in 2016.
• The team’s focus has not just been on finding low-priced stocks, but on finding businesses with sustainable competitive advantages that will enable them to earn a positive spread between their return on equity (ROE) and cost of equity (COE) over long holding periods. Such companies offer us greater confidence in our assessment of intrinsic worth and may help us avoid value traps.
• Thoughtful capital allocation is important to unlock latent balance sheet value. Management teams that think critically about the cost of growth and carefully steward corporate capital are scarce and valuable in an asset class where family and state control remain common.
• Value investing is not a short-term trading strategy for the team: 37% of positions held by the Seafarer Overseas Value Fund as of September 30, 2024 were held seven or more years.

Value investing and emerging markets are not often associated with one another. Conventional wisdom says that emerging markets, with their rapidly developing economies and rising consumer classes, are naturally the hunting ground of growth-oriented investors. Likewise, value investing is often simplified to investing in stocks trading at low multiples as well as low-quality, cyclical businesses. One might assume that forgoing the former (growth in emerging markets) while pursuing the latter (higher business risk) is a recipe for risk without commensurate upside . To others, it may appear an investment approach at the whims of investor preferences for cyclicality and risk requiring one to reliably “time the cycle.” Perhaps not surprisingly, there are few self-identified value-oriented emerging markets mutual funds (Seafarer notes only 13 such value-named funds in the U.S., based on Morningstar data).¹

In January 2016, Seafarer published the paper On Value in the Emerging Markets that defined prospective opportunities for value investment within the emerging markets. It noted that while there is no universal definition for “value investing,” to Seafarer it is an investment approach that seeks to purchase a security at a discount to its intrinsic worth. Acknowledging the complexity of assessing this intrinsic value, the paper eschewed simplistic characterizations of value as stocks trading at “cheap multiples” (i.e., low stock prices relative to their earnings, equity book values, or dividends). Low multiples can be one signal of potential value among others, but the paper posited that they are not determinant of total returns in and of themselves. In practice, an investment approach focused on such criteria in emerging markets would likely result in a portfolio that is overconcentrated in correlated, cyclical industries such as the materials, energy, and industrial sectors as well as low-quality state-owned enterprises and companies facing financial distress.

Instead, the paper offered practical definitions for a variety of value opportunities within the emerging markets. It detailed an approach to identifying and analyzing potential opportunities as well as the risks associated with each “source” of value. Seven distinct sources of value were identified where stocks may be systematically underpriced compared to their intrinsic values. Each source offered unique risk characteristics and avenues for prospective return generation, which provided a means of portfolio diversification that eluded strategies dependent on low multiples and overloaded with depressed cyclicals and commodities.²

That paper ultimately served as the strategic basis for the investment strategy that underpins the Seafarer Overseas Value Fund (“the Fund”), launched on May 31, 2016. As the Fund now has over eight years of operating history, we would like to analyze our practical experience in pursuit of the seven sources of value. This paper candidly examines which categories have been productive, and which less so. It also presents some of the lessons Seafarer’s Value team has gleaned along the way: nuances learned pursuing each opportunity set; risks to which we have become more attuned; and commonalities in the types of stocks we have pursued and how their value has been realized that cut across all seven sources of value.

1. Balance Sheet Liquidity

How Value Has Manifested in Practice

Balance Sheet Liquidity – companies with high levels of cash or highly liquid assets undervalued by the market – has largely disappointed in terms of the number of actionable investments and subsequent returns. Portfolio holdings exhibiting this source of value have centered around cash-generative businesses with low reinvestment needs in physical assets such as plants and equipment. These included service-based businesses reliant on human capital, consumer companies with established brands, and companies benefiting from regulatory barriers to new entrants such as a casino company operating in a licensed duopoly.

Lessons Learned

This category of value has proven more prone to value traps than originally anticipated. Unencumbered net cash representing a significant percentage of a company’s market capitalization or total assets can be a sign of latent value, but can also be a sign of poor capital allocation or weak corporate governance. Likewise, shareholder activism remains in its nascency in emerging markets with slimmer prospects for cash being liberated through proxy or legal challenge compared to developed markets.

Where we retain greater optimism in this source of value is in companies with high returns on their non-cash assets. Such ongoing value-creation affords patience for idle cash resources to be deployed in more productive uses like capital expenditures, mergers and acquisitions, or capital returns to shareholders. However, such patience must be complemented by incremental signs of change – not blind hope.

By contrast, the Fund has rightfully avoided investing in shorter-term Balance Sheet Liquidity realization events in low-quality companies that it would not own for the long term. As an example, we met a telecommunications company in Asia in 2018 that was to pay a large special dividend from selling its fixed line division, but whose remaining business showed middling profitability in an unattractive competitive landscape. The stock has had a negative total return since then despite its sizeable one-time capital return. The unlocking of value on the short-term portion of a company’s balance sheet might not offset the detriment of sub-par assets on the long-term portion of the balance sheet.

Emblematic Stock: Innocean Worldwide

Innocean is a South Korea-based marketing and advertising company operating globally. Close to 70% of its gross profit currently comes from Hyundai Motor and Kia Motors.³ While an independent company, it shares common ownership with Hyundai and Kia’s controlling family. We saw value driven by Innocean’s vast marketing experience and knowhow that was being increasingly utilized outside of its core clientele; and by its large net cash position earmarked for future acquisitions and investment, which represented 51% of its market capitalization when the stock was added to the Fund in December 2019.⁴

Disappointingly, as of June 30, 2024, Innocean’s net cash was equal to 62% of its market capitalization, as a 23% reduction in net cash was offset by a 36% decrease in the stock’s market capitalization in Korean won (KRW)-terms.⁵ The stock returned -31% in U.S. dollar-terms net of dividends from December 12, 2019 (first purchase date) to June 30, 2024.⁶

This poor stock performance aside, there are some incremental positives that afford patience. The dividend payout ratio increased from an average of 28% from 2014 to 2018 to an average of 52% from 2019 to 2023 – a step in the right direction. Likewise, through June 30, 2024 , the company made acquisitions and investments in fixed and intangible assets totaling roughly 67% of its net cash from September 30, 2019.⁷ The company’s ongoing free cash flow generation replenished much of this investment spending – a good problem to have. The company held an investor event for analysts in October 2023 which declared a goal of investing 500 billion Korean won, a sum equal to 95% of its net cash on June 30, 2024, in acquisitions, new business competencies, and global network expansion through 2026.⁸ Its persistently high historical net cash balance may give rise to skepticism for such a goal. Successful deployment of its liquid cash resources towards productive uses may yet dispel such skepticism and unlock the value of its Balance Sheet Liquidity.

2. Breakup Value

How Value Has Manifested in Practice

Breakup Value – assets whose liquidation value exceeds their market capitalization – has proven to be a prolific category, presenting numerous opportunities for investment. The lion’s share of these Fund holdings has been conglomerates trading at discounts to their net asset values (NAV) and property-related firms that own their physical assets but whose earnings have been under pressure. This category of value is home to one of the Fund’s best performing stocks since inception, Samsung SDI, a conglomerate originally known for making television displays, but whose electric vehicle battery business has turned out to be a “hidden” gem on its balance sheet. However, the success rate of this category of value has been mixed with some names that have not fully lived up to their potential for company-specific as well as exogenous reasons.

Lessons Learned

Realizing Breakup Value has not been as simple as identifying stocks that trade at a discount to book value or NAV. Such discounts can persist and deepen, and one should not expect a spontaneous or arbitrary reversal. The discount may be a necessary condition, but it is not sufficient on its own. Improved capital allocation stands at the crux of realizing Breakup Value as past capital allocation mistakes, whether self-inflicted or exogenous in nature, often explain the discount.

A possibly counterintuitive lesson from this category of value has been that publicly listing assets or subsidiaries does not seem to necessarily unlock Breakup Value. While it does create a market-based price, it also may divert stock liquidity across multiple listings. Emaar Properties, a United Arab Emirates (UAE)-based real estate company, and Georgia Capital, a conglomerate in the Republic of Georgia, both took private previously listed assets that were languishing as standalone entities in public markets. Both transactions appeared attractively valued to us and both stocks have appreciated since – the market may have noticed the merits of such capital allocation decisions as well.

Emblematic Stock: First Pacific

First Pacific, a Hong Kong-listed conglomerate with assets throughout Southeast Asia, showcases these lessons learned. The company built out a diversified asset base of listed and unlisted businesses over the years, which coincided with a widening discount to its NAV as well as a rising debt profile. First Pacific traded at a 46% discount to its NAV when the Fund first purchased shares in June 2016.⁹ That the company again traded at a 46% discount to NAV on June 30, 2024, returning close to -4% in U.S. dollar-terms net of dividends over this period belies a more nuanced and mixed eight-year capital allocation story.¹⁰

On the negative side, the company appears to have prioritized paying dividends over deleveraging, likely due to a preference for dividends by its largest shareholder and control party. Likewise, a subsidiary made a large acquisition of an asset owned by this shareholder in 2020. While the acquisition appeared reasonably valued and strategic to us when put to a shareholder vote, its related party nature may have still cast doubt over the company’s governance.

On a positive note, in 2019, First Pacific sold its stake in an Australian consumer foods business, freeing up capital for more productive uses. Likewise, in October 2023, the company participated in a take-private transaction of its Philippines-listed infrastructure subsidiary, which appeared highly undervalued as a listed entity. First Pacific returned 54% in U.S. dollar-terms net of dividends from the first announcement of this tender offer on April 27, 2023 through June 30, 2024.⁶ The attractive price paid for this asset and greater flexibility it may afford in repatriating dividends and cash from asset sales highlights that context is important in assessing capital allocation actions. Privatizing an undervalued asset may make sense whereas divesting a more highly valued asset may be prudent elsewhere.

3. Management Change

How Value Has Manifested in Practice

Management Change – assets that could become substantially more productive (and therefore more valuable) under a new owner or operator – has been a smaller opportunity set in terms of actionable investments. Privatizations of state-owned enterprises have been rare and generational shifts in family-owned companies have not been accompanied by a relinquishment of control to professional management teams as often as we had hoped. Where the Fund did invest in this category of value, the returns were generally strong. Their success, however, appears to be driven more by incremental change in operational performance and capital allocation by new management teams rather than by major changes in corporate ownership. In some cases, such incremental changes were difficult to discern from broader operating conditions facing the companies. More frequently than on a standalone basis, Management Change has served as complementary to other drivers of value.

For two of the Fund’s better-performing Management Change positions, a Vietnamese fertilizer company and a Vietnamese oilfield services company, no formal changes in control of the companies occurred. The government has continued to retain majority ownership stakes and appoint management teams from within the national energy company. While these new management teams still answer to the same government owner, we suspect they have influenced both companies’ commitments to generous dividend payments throughout volatile operating cycles. Both companies had dividend payout ratios in excess of 90% in various years since the Fund purchased shares in June 2016 and dividends accounted for a sizeable share of both stocks’ total returns to the Fund.⁶ However, an eightfold increase in stock liquidity for both stocks, as measured by the trailing three-month average daily trading value from first purchase in June 2016 to June 2024, may suggest the Segregated Market source of value also played a role in their success.¹³

Lessons Learned

The main takeaway from this category of value relates to timescale. Change in management is not a guarantee in the short term for underperforming companies – nor is it a panacea for turning them around. Likewise, it may take longer than expected for new management to implement meaningful operational changes or to demonstrate improvements in capital allocation. Patience over multiple years is essential. Seafarer’s 2016 paper focused on operationally underperforming companies facing prospective Management Change; going forward, Seafarer’s Value team will look to expand the search to instances of actual Management Change and where sufficient time has elapsed to assess ongoing operational improvements.

Emblematic Stock: Coca-Cola Femsa

Coca-Cola Femsa, a Latin American soft drink bottler, highlights the time that may be required to demonstrate improvements in capital allocation. The controlling family behind the company long ago recognized the benefits of separating ownership from corporate management. However, when the Fund first purchased the stock in May 2021, its low market valuation suggested it may be a serially poor capital allocator. Its balance sheet was bloated by goodwill and intangible assets from expensive acquisitions in its past, which dragged down return on equity. This raised questions as to whether the company could earn a return above its cost of capital. A new management team took over in 2014, providing a seven-year track record over which we could assess whether discernable improvement in capital allocation had occurred. The lack of pricey acquisitions under this new regime, a decision to exercise a divestment put option on an underperforming subsidiary, and reinvestment in low-risk tangible assets to boost asset productivity all suggested a new discipline in capital allocation. This is beginning to bear out in fundamentals: return on equity, below 10% in six out of seven years through 2020, increased to 15% in 2022 and 2023 and to 17% in the trailing 12 months ending June 30, 2024.⁶

4. Deleveraging

How Value Has Manifested in Practice

Deleveraging – a shift of cash flow accrual from debt holders to equity holders – has, as a source of value, driven some of the better performing stocks in the Fund’s history, despite the rise in global interest rates. However, actionable opportunities have been relatively rare given the greater risks if things go wrong for levered companies. Our most successful Deleveraging holdings have been in companies with high operational visibility and cash flow stability, such as companies with revenue under long-term contracts in U.S. dollar-pegged currencies.

Lessons Learned

Many investors shy away from the perceived risk in highly levered companies. While some of such companies may be deservedly cheap, the Deleveraging opportunity lies in the details. We are attracted to companies in stable industries with recurring cash flows that may allow them to more reliably manage their debt obligations: in our view, their higher financial risk is offset by lower operational risk. In such cases, debt can be used as a recurring tool for managing asset growth. By contrast, Deleveraging concurrent with an operational restructuring or a cyclical earning stream seems to magnify risk and can manifest in wild stock price swings.

For some Deleveraging companies, dividend payments may be a sign of confidence in the sustainability of a debt profile. However, this must be understood through the lens of control party analysis. First Pacific’s preference for dividend payments, as discussed above, may be an example of sub-optimal capital allocation for a Deleveraging company.

Emblematic Stock: National Central Cooling Co. (Tabreed)

Tabreed, a UAE-based provider of district cooling services, was added to the Fund in January 2017. The company develops and operates district cooling facilities, which pump chilled water to buildings through a network of insulated underground pipes to cool them more efficiently than traditional air conditioners. High operating margins and revenue contracts of typically 25 years with inflation pass-through clauses provide cash flow visibility for Tabreed to manage its debt load and cover interest expenses, which are matched with cash flows in Arab Emirates dirhams (AED), the country’s currency (pegged to the U.S. dollar). The company’s net debt to EBITDA ratio stood at 5.7x in 2016. This ratio progressively fell to 4.2x in 2018 as debt was paid down. It then increased to 6.3x in 2020 as the company took on additional debt for an acquisition. The ratio fell yet again by June 30, 2024 to 4.5x. This process coincided with Tabreed’s dividend per share increasing 150% from 0.062 AED in 2016 to 0.155 AED in 2023.⁶ Given its low-risk operating model, Tabreed appears to have recognized that debt can be repeatedly used in a measured way to grow its asset base and take advantage of the long runway of demand for its cooling solutions in the Middle East.

5. Asset Productivity

How Value Has Manifested in Practice

Asset Productivity – a cyclical downturn following a period of asset expansion – has been one of the more fruitful categories in terms of the number of opportunities as well as the returns achieved. Our search for value in this category has focused on companies that are lowest-cost, highest-margin operators within their industries. This has included industrial companies affected by global supply and demand cycles as well as banks and consumer companies impacted by asset expansions and subsequent downturns that were more country or company-specific in nature.

Lessons Learned

Structurally higher profitability can allow the strong to survive a downturn of unknown duration until the weak eventually exit the market. This rebalancing of supply and demand can take a very long time to occur, but cash flow ultimately normalizes higher for surviving companies. The exact timing of asset cycles is of little importance if the company can survive virtually indefinitely and with a valuation at odds with this underlying resiliency. Likewise, speculative forecasts for supply and demand, which fill the pages of many sell side research reports, are of little value, and worse, may breed overconfidence.

For this source of value, we have found that current dividend yield matters less than long-term dividend paying ability. Dividend payments for companies facing a severe downturn may prudently be reduced or halted. Long-term cash flow generation through the cycle matters much more to intrinsic value. Also, we have noticed several companies drive up their asset productivity independently of industry asset cycles via operational investments to better utilize their customer bases and distribution networks.

Emblematic Stock: Pacific Basin

While an outlier in terms of its extraordinary positive contribution to the Fund’s performance, Pacific Basin, an Asia-focused dry bulk shipping company, exemplifies the opportunity amid a cycle that might be self-correcting if given sufficient time. When the Fund first invested in June 2016, Pacific Basin had one of the lowest-cost fleets to operate globally as well as one of the least-levered balance sheets in an industry amidst a prolonged downturn. While the group reported negative earnings in 2014, 2015, and 2016, its operating cash flow remained positive these years, affording the company greater financial flexibility to weather the storm better than its distressed competitors. Seafarer realized the company was likely to survive the slump, and in so doing, that it would likely emerge with an enhanced competitive position. Yet, the stock was priced at 0.4x its equity book value and a sizable discount to Seafarer’s modeled calculation of intrinsic value.¹⁵

In the ensuing years, market forces restored industry profitability as supply side dynamics improved. Environmental rules, such as the International Maritime Organization (IMO) 2020 regulation, accelerated this process by reducing ship speeds and postponing new ship orders. Capital returns, too, have proven important: while dividend payments were halted in 2016 and 2017, Pacific Basin paid out $716 million in dividends during 2022 – higher than its nearly $480 million market capitalization on first purchase in 2016.⁶ Simplistic dividend yield screens in 2016 would have missed this value opportunity altogether.

6. Structural Shift

How Value Has Manifested in Practice

Structural Shift – highly cash-generative companies that have structurally shifted to a lower growth rate – has been another fruitful category, in terms of both the number of opportunities and the returns derived therein. In this category, the Fund focused on a mix of companies paying a high and sustainable dividend combined with former “investor darlings” that lost their luster when growth failed to live up to lofty expectations. Consumer-facing sectors were a common area of sectoral exposure. Likewise, China in 2016 and Brazil in 2020 offered multiple Structural Shift opportunities as corporate growth plateaued or fell and previously much touted “rising per capita consumption” growth stories fell short of historical rates of expansion.

Lessons Learned

The original paper focused on the capital return potential from cash generative businesses that have entered a slower growth phase. While the Fund has found success investing in such opportunities, it has also made productive investments in companies reinvesting in their own businesses and seeking to expand margins through operational efficiency. This has enabled some to overcome perceived destinies as ex-growth stocks, and has provided the Fund with a company-specific source of return largely independent of the broader macroeconomic backdrop. While many investors may fret economic volatility in emerging markets, the diversity of corporate growth slowdowns by geography and sector has yielded an ongoing source of Structural Shift opportunities.

Emblematic Stock: China Resources Beer (CRB)

China’s per capita beer consumption peaked in 2013 after two decades of rapid volume growth.¹⁶¹⁷ CRB emerged as the country’s largest brewer by volume during this period and saw its market capitalization soar as investors extrapolated continued revenue growth. As CRB’s volumes plateaued at close to 12 million kiloliters from 2013 to 2016, a Structural Shift value opportunity emerged. The Fund purchased the stock in June 2016, recognizing the durability of CRB’s underlying cash flow generation and the potential for the company to overcome its low margins. CRB did so through two means. First, it rationalized its excess factory capacity, a legacy of its state-owned enterprise origins, by closing over a quarter of its plants from 2016 to 2020. Second, it achieved pricing gains through product premiumization, aided by a 2019 partnership with Heineken. Operating margins expanded from close to 8% in 2016 to 12% in 2020 (the Fund exited CRB in July 2020) and increased to over 15% by 2022. CRB’s beer business reported operating margins of 19% in 2023, excluding the impact of a hard alcohol business it acquired. Even as its sales volume declined by 5% from 2016 to 2023, its beer business operating profits increased three-fold.¹⁸

7. Segregated Market

How Value Has Manifested in Practice

The Segregated Market source of value – productive, cash-generative assets trading in less liquid public markets (i.e., side markets populated with overlooked assets, “segregated” from the mainstream of capital flows) – has been characterized by a fairly high number of opportunities, but generally as a complement to other types of value rather than as an independent source of return. The Fund invested in only a handful of stocks targeting this source of value as its primary driver.¹⁹ While limited in number, these Fund holdings have generally performed well.

The Fund has focused its Segregated Market investments (including instances where it was a complementary source of value) primarily in countries with stable currency regimes such as the UAE (pegged), Qatar (pegged), Vietnam (managed), and the Czech Republic (free floating but stable). The Fund has had more success with stocks with relatively more trading liquidity – typically trading over $1 million per day on average over the trailing three months prior to purchase. The track record of stocks trading below this level was more mixed.²⁰

Lessons Learned

Low liquidity is a double-edged sword when it comes to value investing. Low liquidity stocks may be objectively cheap but may remain inaccessible to many investors. Such stocks can also see liquidity deteriorate even further. Another takeaway is the importance of currency stability. We considered but avoided stocks listed in Segregated Markets where perceived currency risks were high, such as Turkey, Egypt, and Sri Lanka. We have become increasingly attuned to the potential value traps that illiquidity and currency risks present within this opportunity set. That said, there remains ample opportunity in this source of value – in particular, in stocks listed on smaller exchanges that still offer sufficient liquidity and where currency risks are more muted.

Emblematic Stock: Qatar Gas Transport Company (Nakilat)

Qatar Gas Transport Company, known as Nakilat in Arabic, is an owner and operator of liquified natural gas (LNG) carrier ships listed on the Qatar Stock Exchange. Its LNG fleet accounted for about 9.2% of the global LNG fleet carrying capacity in 2023.²¹ The company has long-term transportation contracts with Qatar’s national energy company, which provide a high degree of stability and predictability to the company’s cash flows and allows the company to utilize debt to grow its fleet as Qatar continues developing its vast natural gas reserves. While the Deleveraging source of value is part of Nakilat’s story, it has also been emblematic of the Segregated Market source of value. When the Fund first purchased Nakilat on June 2, 2016, its intrinsic value was likely overlooked in part due to the smaller, less liquid exchange it traded on; it traded that day at a trailing free cash flow yield of nearly 9%.⁶ Indicative of its isolation from mainstream investors, the average daily value traded for the entire Qatar Stock Exchange in 2016 was just $76 million with 44 listed companies traded. Nakilat’s daily trading value averaged $1.9 million that year, a low value compared to large emerging markets stocks, but sufficient for the Fund’s liquidity needs. Since 2016, the company’s business fundamentals have delivered with steady growth in its operating cash flows. Its average daily trading value more than doubled to $4.1 million in 2023.²² Both its strong fundamentals and improving stock liquidity have likely contributed to the stock’s 142% holding period total return in U.S. dollar-terms net of dividends as of June 30, 2024; this equates to an 11.6% annualized return.⁶

Common Threads Across All Sources of Value

Both latent balance sheet value and future value creation matter. Our focus has not just been on finding low-priced stocks, but on finding businesses that can sustainably generate value over the long term. It is the assessment of operational attributes and fundamentals that gives confidence to our assessment of intrinsic worth and helps us avoid value traps. More specifically, we have sought companies that possess sustainable competitive advantages that enable them to generate a positive spread between their return on equity and cost of equity – or that have a credible pathway to return to a positive spread.²⁴ Likewise, the Fund’s best investments have been in companies that it can (and has) held for numerous years: 37% of Fund positions as of June 30, 2024 were held seven or more years.²⁵ To us, value investing is not a short-term trading strategy.

Thoughtful capital allocation is important to unlock latent balance sheet value. Emerging markets are full of low multiple stocks that are deservedly “cheap” due to value-eroding capital allocation with little prospect for improvement. Control party analysis is a key tool we use to understand capital allocation priorities and assess if they are aligned with minority shareholders. Management teams that think critically about the cost of growth and carefully steward corporate capital are scarce and valuable in an asset class where family and state control remain common. Discretionary capital returns through special dividends and share buybacks by many Fund holdings may be evidence of such corporate maturity and minority shareholder friendliness and is an area we intend to explore further.

Lastly, we have been surprised by the recurrence of tender offers for companies held by the Fund. These include acquisitions of large non-controlling stakes in these stocks by other companies in the sector or strategic investors as well as full take-private offers often led by the controlling shareholder in the company. We cannot predict where such transactions will manifest, but their recurrence – initiated by seemingly informed parties – provides us with a validation that we are not alone in recognizing the latent value on offer. There may not be many looking for it, but there is value in the emerging markets. And seven good reasons to take note.

The views and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect Seafarer’s current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the portfolios or any securities or any sectors mentioned herein. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Seafarer does not accept any liability for losses either direct or consequential caused by the use of this information.

As of December 31, 2024, securities mentioned in this commentary comprised the following weights in the Seafarer Overseas Growth and Income Fund: Innocean Worldwide, Inc. (0.7%), Samsung SDI Co., Ltd. (1.7%), National Central Cooling Co. PJSC (Tabreed) (1.3%), Pacific Basin Shipping, Ltd. (1.4%), and Qatar Gas Transport Co., Ltd. (1.9%). As of December 31, 2024, securities mentioned in this commentary comprised the following weights in the Seafarer Overseas Value Fund: Innocean Worldwide, Inc. (2.4%), Samsung SDI Co., Ltd. (2.2%), Emaar Properties PJSC (3.9%), Georgia Capital PLC (3.5%), First Pacific Co., Ltd. (3.3%), Coca-Cola Femsa SAB de CV (1.9%), National Central Cooling Co. PJSC (Tabreed) (2.5%), Pacific Basin Shipping, Ltd. (2.2%), and Qatar Gas Transport Co., Ltd. (2.8%). As of December 31, 2024, the Seafarer Funds did not own shares in the other securities mentioned in this commentary. View the Top 10 Holdings for the Seafarer Overseas Growth and Income Fund and the Seafarer Overseas Value Fund. Holdings are subject to change.

1. Out of 221 funds in Morningstar’s “U.S. Fund Diversified Emerging Markets” category, there were 13 funds with “value” in their prospectus name as of August 6, 2024. From a Morningstar “Style Box” view of value based on the characteristics of underlying holdings, 24 out of the 221 funds in this category were noted in the Large, Mid, or Small Value boxes – still just 11% of the category total.
2. Seafarer’s sources of value are not mutually exclusive to individual stocks. In fact, about half of the Seafarer Overseas Value Fund’s historical holdings have had more than one source of value. Likewise, value drivers are not static for each company; rather, they can evolve and emerge over time as the companies themselves evolve.
3. Source: Company Reports. Note: gross profit is a more comparable financial statement figure than revenue period-to-period in the advertising and marketing industry given variant billing practices in different geographies.
4. Sources: Bloomberg, Company Reports, Seafarer. Based on net unrestricted cash excluding leases on September 30, 2019 and the company’s market capitalization on the date of first purchase on December 12, 2019.
5. Sources: Bloomberg, Company Reports, Seafarer. Based on net unrestricted cash excluding leases on June 30, 2024 and the company’s market capitalization on June 30, 2024.
6. Source: Bloomberg.
7. Sources: Bloomberg, Company Reports, Seafarer. Innocean had net unrestricted cash excluding leases of 1,348 billion KRW on September 30, 2019 and spent 458 billion KRW on acquisitions and investments in fixed and intangible assets through June 30, 2024.
8. Sources: Company Reports, Bloomberg.
9. Based on First Pacific’s 2015 year-end NAV. Sources: Company Reports, Bloomberg.
10. Sources: Company Reports, Bloomberg. Total return measured from June 1, 2016 to June 30, 2024.
11. Based on the aggregated market values of the invested portfolio holdings (stocks, preferred stocks, and depositary receipts) of the Seafarer Overseas Value Fund as of each calendar year ending on December 31. All weightings exclude cash and other assets and liabilities. A portfolio holding’s primary source of value is defined as the intended driver of value we were targeting over the majority of a position’s holding period. Sources: ALPS Fund Services, Inc., Bloomberg, Seafarer.
12. For the purposes of this chart and the other charts in this paper, a primary source of value was assigned to each holding based on the intended primary driver of value we were targeting over the majority of a position’s holding period. In practice, many holdings, including several of the stock examples discussed in this paper, have more than one driver of value.
13. Source: Bloomberg. The Fund exited the fertilizer company, Petrovietnam Fertilizer & Chemicals JSC, in April 2024. Its three-month average daily value traded when the position was exited was close to 7x what it was when first acquired in June 2016.
14. Percentages are based on the aggregate contribution to total return for portfolio holdings in each primary source of value divided by the aggregate contribution to total return of all portfolio holdings from the inception of the Fund on May 31, 2016 through September 30, 2024. They exclude cash and other assets and liabilities held by the Fund. A portfolio holding’s primary source of value is defined as the intended driver of value we were targeting over the majority of a position’s holding period. Sources: Bloomberg, Seafarer.
15. Sources: Bloomberg, Company Reports, Seafarer.
16. “Beer Consumption Per Capita in China.” Helgi Library, October 29, 2023.
17. “Around the World, Beer Consumption Is Falling.” The Economist, June 13, 2017.
18. Source: Company Reports. Based on reported earnings before interest and taxes (EBIT) excluding impacts from impairments, disposals, and special items.
19. A Fund holding’s primary source of value refers to the intended primary driver of value we were targeting over the majority of a position’s holding period. In practice, many holdings, including several of the stock examples discussed in this paper, have had more than one driver of value.
20. Based on the broader Segregated Markets opportunity set including companies with Segregated Markets as a secondary, complementary source of value.
21. “Qatar Gas Transport Company 2023 Annual Report.” page 4.
22. Sources: Bloomberg; “Qatar Stock Exchange Annual Report 2016.” page 15.
23. These estimated internal rates of return were based on the estimated cash outlays and inflows to and from each portfolio holding (including dividends) from the month-end of first purchase through last sale or September 30, 2024, aggregated by primary source of value. A portfolio holding’s primary source of value is defined as the intended driver of value we were targeting over the majority of a position’s holding period. Initial cash outlays were estimated based on the closing price of the position’s first purchase date in U.S. dollars multiplied by the total shares accumulated during the first month of holding. The cash inflows from the final sale of a position were estimated by the closing price of the position on the final exit date of the position in U.S. dollars multiplied by the total shares sold in that month. For positions held by the Fund on September 30, 2024, a cash inflow was assumed on September 30, 2024 equal to the market values of the positions on this date in U.S. dollars. All other cash outlays and inflows from the buying and selling of shares in each position were estimated by the monthly change in share count for each position multiplied by the corresponding month-end share price in U.S. dollars. Dividend inflows were estimated based on the number of shares held in each position at each month-end multiplied by the dividends per share paid by each company during that month net of withholding taxes. All estimated internal rates of return are calculated excluding fees, commissions, and other tax expenses and credits that may impact individual shareholders of the Fund. Likewise, they do not include cash and other assets and liabilities held by the Fund. These estimated returns are presented for illustrative purposes only. They do not represent actual returns achieved by shareholders of the Fund.
24. For more on ROE-COE spreads please read Seafarer’s commentary How the Value Team Finds “Gems” in Emerging Markets.
25. Sources: Bloomberg, Seafarer.