Overview

Investment Objective

The Fund seeks to provide long-term capital appreciation along with some current income; it also seeks to mitigate adverse volatility in returns.

Strategy

The Fund invests primarily in the securities of companies located in developing countries. The Fund invests in several asset classes including dividend-paying common stocks, preferred stocks, and fixed-income securities.

The performance data quoted represents past performance and does not guarantee future results. Future returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. View the Fund’s most recent month-end performance.

Sources: ALPS Fund Services, Inc., Bloomberg, Morningstar, Seafarer.

Portfolio holdings are subject to change.

1. Seafarer Capital Partners, LLC has agreed contractually to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiver / Expense Reimbursements (inclusive of acquired fund fees and expenses, and exclusive of brokerage expenses, interest expenses, taxes and extraordinary expenses) to 1.15% and 1.05% of the Fund’s average daily net assets for the Investor and Institutional share classes, respectively. This agreement shall continue at least through August 31, 2024.
2. Shareholders who sign up for an Automatic Investment Plan can request a waiver of the Institutional Class investment minimum. View the waiver program criteria.
3. Calculated as a harmonic average of the underlying portfolio holdings.
4. Based on consensus earnings estimates for next year. Excludes securities for which consensus earnings estimates are not available.
5. © Morningstar, Inc. All rights reserved. The Active Share data is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Performance

• Total Returns
• Return Characteristics

Total Returns

As of (Prior Month)

32	NAV / Index Level ()					Annualized					Cumulative	Inception Date	Net Expense Ratio1	Gross Expense Ratio1
		YTD	1 Mo	3 Mo	1 Yr	3 Yr	5 Yr	7 Yr	10 Yr	Since Inception	Since Inception

As of (Prior Quarter)

32	NAV / Index Level ()					Annualized					Cumulative	Inception Date	Net Expense Ratio1	Gross Expense Ratio1
		YTD	1 Mo	3 Mo	1 Yr	3 Yr	5 Yr	7 Yr	10 Yr	Since Inception	Since Inception

The rates of return are hypothetical and do not represent the returns of any particular investment.

Fund performance is presented in U.S. dollar terms, with U.S. jurisdiction distributions reinvested on a gross (pre-tax) basis. For the Bloomberg and Morningstar indices, performance is calculated to reflect the reinvestment of dividends, capital gains, and other corporate actions net of foreign jurisdiction withholding taxes. The performance data quoted represents past performance and does not guarantee future results. Future returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

Source: ALPS Fund Services, Inc.

1. Seafarer Capital Partners, LLC has agreed contractually to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waiver / Expense Reimbursements (inclusive of acquired fund fees and expenses, and exclusive of brokerage expenses, interest expenses, taxes and extraordinary expenses) to 1.15% and 1.05% of the Fund’s average daily net assets for the Investor and Institutional share classes, respectively. This agreement shall continue at least through August 31, 2024.
2. Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
3. The Seafarer Funds are not sponsored, endorsed, sold, or promoted by Morningstar, Inc. Morningstar, Inc. makes no representation or warranty, express or implied, to the shareholders of the Funds or any member of the public regarding the advisability of investing in the Funds or the ability of the Morningstar Emerging Markets Net Return U.S. Dollar Index to track general equity market performance of emerging markets.
4. As of 3/1/12.  The Fund’s inception date is 2/15/12 but Morningstar data is only available as of the beginning of the following month.
5. © Morningstar, Inc. All rights reserved. The data in the Return Characteristics table is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Composition

30-Day SEC Yield: subsidized SFGIX ; SIVLX / unsubsidized SFGIX ; SIGIX ()

The performance data quoted represents past performance and does not guarantee future results. Future returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. View the Fund’s most recent month-end performance.

Due to rounding, percentage values may not sum to 100%. Values less than 0.5% may be rounded to 0%.

1. The Growth and Income Fund selects a range of securities by employing distinct research capabilities across three investment styles.

   Style	Characteristics of Holdings
   Balanced	Moderately underappreciated growth	Typically moderately elevated current yield
   Growth	Higher growth potential	Typically lower current yield; sometimes no yield (dividend policy not yet established)
   Value	Lower growth potential	Typically higher current yield; sometimes no yield (dividends canceled under financial stress)

   Please note that the classification of a given security within one of three investment styles (Balanced, Growth, Value) is not driven by observable security characteristics (e.g., price/earnings or price/book ratios, or estimated growth rates) but rather by the specialist Seafarer research team that discovered, researched, and introduced the security to the portfolio. In other words, the provenance of the security's introduction to the portfolio determines its classification rather than any observable characteristics or descriptive statistics. A security's characteristics might change or fluctuate over time, but its “style” will typically remain fixed throughout.

2. Yield = dividend yield for common and preferred stocks and yield to maturity for bonds.
3. Based on consensus earnings estimates for next year.
4. The Fund has two distinct holdings in the stock of Samsung Electronics: a larger position in the company’s preferred shares (as seen in the Top 10 Holdings table) and a smaller position in the company’s ordinary common shares. While the two securities are distinct (different prices, different dividends, etc.), if the two securities were aggregated, Samsung Electronics would comprise the second largest holding in the Fund as of 6/30/24.
5. Calculated as a harmonic average of the underlying portfolio holdings.
6. Based on consensus earnings estimates. Excludes securities for which consensus earnings estimates are not available.

Distributions

For more information on the Fund’s distribution policies, please see the “Dividends and Distributions” section of the Prospectus.

Past performance is no guarantee of future results. There is no guarantee that the Fund will pay or continue to pay distributions.

Portfolio Review

During the second quarter of 2024, the Seafarer Overseas Growth and Income Fund returned -2.50%.¹² The Fund’s benchmark indices, the Bloomberg Emerging Markets Large, Mid, and Small Cap Net Return USD Index and the Morningstar Emerging Markets Net Return USD Index returned 3.96% and 5.16%, respectively. By way of broader comparison, the S&P 500 Index returned 4.28%.

The Fund began the quarter with a net asset value of $12.64 per share. During the quarter the Fund paid a semi-annual distribution of approximately $0.193 per share. This payment brought the cumulative distribution, as measured from the Fund’s inception, to $5.302 per share.³ The Fund finished the quarter with a value of $12.13 per share.⁴

Performance

During the second quarter, investors around the world tightened their embrace of technology shares, particularly those linked (however ephemerally) to the theme of artificial intelligence (AI). The emerging markets were no different from the NASDAQ in that respect: investors focused on a narrow set of stocks, the gains accrued rapidly, and the price swings were outsized. The Bloomberg Emerging Markets benchmark⁵ rose 3.96% during the quarter; slightly less than half⁶ of that gain was due to technology shares, even though the sector accounts for only 19% of the index.⁷ Within the tech sector, the gains were further concentrated: nearly all of the sector’s gains arose from Taiwan-based companies⁸; and a single stock accounted for three quarters of the gains from all Taiwan tech stocks.⁹ To put it plainly: Taiwanese tech was very “hot,” and a handful of stocks within Taiwan were really “hot.” Likewise, Indian equities enjoyed a roaring quarter, accounting for about half of the benchmark’s gains during the period.¹⁰ But apart from the heat enjoyed by Taiwan tech and Indian shares, most everything else was tepid.

Amid such conditions, in which narrow concentration paid handsomely, the Growth and Income Fund’s broad geographical and industrial diversification worked to its disadvantage. Indeed, the Fund sank marginally during the quarter – though the decline was primarily due to currency movements rather than falling stock prices. During the quarter, emerging currencies fell versus the U.S. dollar, weighing on both the benchmark and the Fund. The Fund lost approximately -1.5% in currencies, accounting for well over half of the period’s -2.5% return. Stripping out that currency impact – and the drag imposed by fees and other miscellaneous effects (about -0.4% during the quarter) – the Fund’s holdings were collectively down about -0.6%.⁷

What happened? The obvious fact is that the Fund experienced a poor quarter. The more complicated truth is that the Fund’s broad-based stock selections didn’t lose much money (-0.6%), but rather they failed to produce the gains that were concentrated among Indian and Taiwan tech stocks. This suggests to me that the stock-picking was not so much “negative” or “counterproductive” as it was “relatively unproductive” when measured over a short period. Emerging market investors aggressively chased stocks the Fund did not own, with pronounced results over the three months; and meanwhile the stocks the Fund did own moved mostly sideways and a little bit down – hardly encouraging, but not in my view indicative of a pervasive, structural problem with selection.

To be sure, there were pockets of weakness among the Fund’s positions. The Fund’s holdings in consumer stocks weighed heavily on the Fund (both companies associated with “staples” and “discretionary” items). Consumers around the world appear to be struggling with the twin impacts of higher prices (from latent inflation) and elevated interest rates. Some of the Fund’s industrial and technology stocks also weighed on the Fund’s performance, albeit to a lesser extent. Yet losses in these categories were offset by financials, energy, and materials stocks that fared better, such that the net loss – excluding the impacts from currencies and fees – would have been modest. Thus, the absence of gains rather than outright losses produced the Fund’s poor relative performance.

Even though I have suggested the Fund’s currency losses should be assessed separately from stock performance, I do not dismiss their net impact: currencies produced a material, negative return for the Fund during the period. We never manage currencies for gain. Rather, we perceive the Fund’s currency exposures solely as a source of risk and potential downside – a risk that accumulates from the exposures intrinsic to the securities held by the Fund. We manage currency risk first and foremost through individual security selection (we sort for companies with operations that are not particularly susceptible to currency risk) and secondarily through careful portfolio diversification (we avoid excessive concentrations, overriding our individual selection tendencies if they result in large exposures to individual currencies). During the second quarter, diversification did not pay off. Most currencies sank versus the dollar, apart from the Indian rupee. The Fund’s exposures to the Mexican peso, the Brazilian real, and the South Korean won drove the bulk of the Fund’s -1.5% loss.

To sum up: despite the Fund’s efforts to diversify its exposures, currencies weighed on performance; and the Fund’s stocks moved mostly sideways and a bit lower, even as a few narrow parts of the market roared (enough to offset the benchmark’s own currency losses, and then some). As frustrated as I am by that outcome, I see a silver lining in these events: I think the negative currency movements will ultimately prove transitory, and in the meantime, the currencies’ poor performance provides a clue as to what has been going on in the stock markets lately.

Why did emerging currencies fall nearly en masse during the quarter? While I believe that currencies are the least predictable or knowable of all major asset classes, I will hazard an informed guess: I think the U.S. Federal Reserve’s struggle to contain inflation – and the resulting postponement of a long-expected interest rate cut – put emerging currencies on the backfoot, at least temporarily. Indeed, emerging currencies surged in the fourth quarter of 2023, collectively finishing the year just shy of multi-decade highs versus the dollar. That surge was seemingly based on widespread anticipation of forthcoming Fed cuts which were supposed to materialize in early 2024. When they did not, emerging currencies promptly gave up a portion of their previous gains.

I think this setback will prove to be temporary, because the Fed simply is not all that important to emerging currencies anymore. In the short term, the Fed’s pronouncements still cause knee-jerk reactions among traders, and thereby induce some temporary volatility. But in the medium term and beyond, central banks in the developing world increasingly set their monetary policies independently of the Fed, and their financial systems are no longer terribly dependent on the dollar. Two decades ago, the Fed’s policies ruled interest rates everywhere, particularly in the developing world. Today, the Fed can still make some modest waves, but it no longer drives the financial tides.

The Fed’s actions may have affected more than just currencies during the quarter. I think the Fed’s policies may have discernibly shifted investors’ behavior – inducing them to concentrate their focus on a handful of stocks (India, Taiwan tech) and ignore most others. To explain, I must first offer some context. During the past two years (2022 and 2023), the emerging markets produced abysmal growth, resulting in a contraction of earnings. Indeed, while the past two years were very poor, the emerging markets have been challenged for a longer period still: growth has been weak and fallen short of expectation for the past decade. As such, investors have ample reason to be wary about growth prospects for 2024. I think the Fed’s “higher for longer” policy prompted further skepticism: how can the emerging markets grow – disappointing as they have been – when rates are stuck at high levels?

I suspect the resulting skepticism prompted investors to focus their attention only on narrow segments of the market that had clear and obvious growth potential – either because of recent earnings momentum (i.e., India) or because the stocks will clearly benefit from an obvious mega-trend like AI (i.e., Taiwan tech stocks). Investors have crowded into narrow segments of the market where growth seemed both obvious and impervious to global interest rates. Why own anything else when doubt otherwise abounds? My answer: investors should own far more than just India and Taiwan tech, because a broad-based earnings recovery is likely underway – a recovery that will favor most stocks and most sectors, not just the “obvious” sources of growth (more on this topic in the Outlook section below).

Allocation

During the quarter, the Fund executed one major change with respect to its construction: it exited its position in Emaar, a commercial landlord based in Dubai, and used the proceeds to enter a new position in Hongkong Land, a subsidiary of Jardine Matheson group that specializes in letting office and retail space in both mainland China and Hong Kong. Both holdings are considered constituents of the Fund’s value-oriented selections.

Hongkong Land is presently priced at a distressed valuation. Its stock price at the quarter’s end is equivalent to 0.2 times its stated book value.⁷ The real estate sector is under tremendous financial stress within China, and while the stress is most acute within the residential property sector (i.e. homes and apartments), strain has also surfaced in the office sector (due to sluggish economic growth) and in the retail sector (due to weak consumer demand). Hongkong Land has been impacted by this same stress, yet its prime assets remain productive, generating income such that the company has been able to maintain an impressive dividend yield to date (approximately 6.8% at the quarter’s end).⁷ In addition, Hongkong Land appears to have substantial growth ahead: over the next five years, the company’s leasable area will expand by 61% – although a good portion of this expansion will come at the latter portion of those five years, and thus perhaps the stock’s price reflects more of the industry’s present distress than its future potential.⁷

In some respects, and despite being located at opposite ends of the earth, Emaar and Hongkong Land are similar: both are commercial property landlords, and both have experienced difficult operating conditions recently. In the second half of 2021, when the Fund added Emaar, its operations were beginning to recover from a downturn induced by the global pandemic, and the company was simultaneously engaged in unwinding a misguided attempt at corporate restructuring. Approximately three years later, the company’s operations recovered, and so did its share price, prompting the Fund to exit with healthy gains. In like fashion, Hongkong Land is under stress today, not wholly unlike Emaar three years ago; and just like Emaar then, Hongkong Land offers the Fund tangible, income-producing assets with a substantial yield, available at a distressed price. In addition, Hongkong Land offers much greater growth potential at the margin, given the projected growth in its leasable space. Swapping Emaar for Hongkong Land at this juncture allows the Fund to maintain a similar risk/return profile, but at a much cheaper price.

Outlook

So, what is happening in the emerging markets, and what is the outlook for your Fund? I think a substantive, broad-based earnings recovery is underway across the asset class – for the first time in a decade. This recovery is presently most evident among technology stocks, especially semiconductor stocks. They had an abysmal year in 2023, but earnings are already on the uptrend again, driven by demand that has been super-charged by AI. Yet the recovery I perceive is not limited to technology or semiconductor stocks. Growth appears pronounced and positive across nearly every sector, and it appears to be spreading to most geographies across the developing world.¹¹ Accordingly, earnings growth is forecast to pick up to 18% this year, and it is forecast to continue at a 15% clip next year.¹¹ In my opinion, investors might be missing the breadth of this recovery, particularly if the Fed’s inaction has “spooked” them into a narrow set of stocks with the most obvious growth prospects.

Meanwhile, even as your Fund’s relative price performance was poor during the second quarter, the fundamentals of its holdings were strong, going by results published after the first quarter. The Fund holds 52 securities, issued by 51 unique companies; 41 of those companies appear poised to maintain or expand their earnings this year.⁷ Consequently, growth for the Fund appears to be accelerating. I estimated it at 14% for 2024 at the outset of this year. I now estimate it at 16% – a 2% increase, based mainly on the strength of results published during the first quarter.¹² A few reports for the second quarter have trickled in as I write this report in late July – and those results look impressive. I am typically skeptical about growth, particularly whether it will be realized at all, and if so, whether it will be as robust as forecast. While 2024 is still young, it looks like the year will not disappoint.

I am encouraged by all the dividends: the Fund is replete with them at present. I estimate the gross portfolio yield (before fees and expenses) at 3.6% as of the quarter’s end.¹² Not only does this compare favorably with the gross yield available in the broader market (estimated at about 2.5%), but it is on the higher end of history over the past decade.⁷ The yield has surged because several of the Fund’s holdings have undertaken material increases to their dividends, thereby boosting the gross yield. This sort of sudden surge is nearly always a sign that companies feel they have plenty of cash resources on hand, thus they can afford to boost dividends. Sometimes this phenomenon is due to anticipation of an acceleration in earnings: companies recognize that good profits will boost cash over the next few years, so they are comfortable to return more of it to shareholders in anticipation of the trend. Only time will tell, but I suspect that is what is happening now.

Relative performance has been poor this year. Yet as best we can discern, the fundamentals for the Fund’s holdings are not only strong, they are also accelerating at the margin – underscored heavily by the recent and very tangible surge in dividends. Further, all our evidence suggests that stock prices are almost entirely a function of fundamentals over time (even as price momentum and volatile price movements dominate short-term returns). As such, we remain comfortable with the Fund’s construction, and believe that performance will eventually accrue to it commensurately.

Thank you for entrusting us with your capital, especially at present, when the Fund’s performance has been uneven. We are honored to serve, now and in the future, as your investment adviser for the emerging markets.

The performance data quoted represents past performance and does not guarantee future results. Future returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. View the Fund’s most recent month-end performance.

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 June 30, 2024, securities mentioned in the portfolio review comprised the following weights in the Seafarer Overseas Growth and Income Fund: Hongkong Land Holdings, Ltd. (1.7%), and Jardine Matheson Holdings, Ltd. (2.0%). The Fund did not own shares in Emaar Properties. View the Fund’s Top 10 Holdings. Holdings are subject to change.

Source: ALPS Fund Services, Inc.

Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

The Seafarer Funds are not sponsored, endorsed, sold, or promoted by Morningstar, Inc. Morningstar, Inc. makes no representation or warranty, express or implied, to the shareholders of the Funds or any member of the public regarding the advisability of investing in the Funds or the ability of the Morningstar Emerging Markets Net Return U.S. Dollar Index to track general equity market performance of emerging markets.

1. References to the “Fund” pertain to the Fund’s Institutional share class (ticker: SIGIX). The Investor share class (ticker: SFGIX) returned -2.53% during the quarter. All returns are measured inclusive of Fund distributions paid (in relation to Fund performance) or dividends paid (in relation to index performance), reinvested in full (exclusive of any U.S. taxation) on the pertinent ex-date.
2. The performance data quoted represents past performance and does not guarantee future results. Future returns may be lower or higher. The investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. View the Fund’s most recent month-end performance.
3. The Fund’s inception date is February 15, 2012.
4. The Fund’s Investor Share class began the quarter with a net asset value of $12.56 per share; it paid a semi-annual distribution of approximately $0.191 per share during the quarter; and it finished the quarter with a value of $12.05 per share.
5. The Seafarer Funds employ two benchmarks to gauge performance, the Bloomberg Emerging Markets Large, Mid, and Small Cap Net Return USD Index and the Morningstar Emerging Markets Net Return USD Index. Seafarer believes both benchmarks serve as robust, differentiated indicators of performance of the emerging market asset class. However, when discussing or analyzing performance, Seafarer favors the Bloomberg index. For further explanation, see Ask Seafarer.
6. Technology shares contributed 1.88% in gross returns to the 3.96% net gain produced by the benchmark (a 47% contribution to the benchmark’s gain). Sources: Bloomberg, Seafarer.
7. Source: Bloomberg.
8. Taiwan technology shares contributed 1.66% in gross returns to the 1.88% net gain produced by technology shares (an 88% contribution). Sources: Bloomberg, Seafarer.
9. Taiwan Semiconductor Manufacturing Company (TSMC) contributed 1.24% in gross returns to the 1.66% net gain produced by Taiwan technology shares (a 75% contribution). Sources: Bloomberg, Seafarer.
10. Indian equities contributed 2.21% in gross returns to the 3.96% net gain produced by the benchmark (a 55% contribution). Sources: Bloomberg, Seafarer.
11. Source: J.P. Morgan, “Emerging Markets Equity Strategy Steering Board.” June 24, 2024.
12. Sources: Bloomberg, Seafarer.