Overview

Investment Objective

The Fund seeks to provide long-term capital appreciation.

Strategy

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

The Fund’s portfolio is comprised of securities identified through a bottom-up security selection process based on fundamental research. The Fund seeks to produce a minimum long-term rate of return by investing in securities priced at a discount to their intrinsic value.

Seafarer Overseas Value Fund

A Value Approach to Emerging Markets

Paul Espinosa describes the structural changes that have made it possible to realize a value strategy in emerging markets. He explains how the strategy’s research process is based on Seafarer’s framework of seven distinct sources of value in emerging markets.

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Gross expense ratio: ¹

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 1.05%, 1.15%, and 1.35% of the Fund’s average daily net assets for the Institutional, Investor, and Retail share classes, respectively. This agreement shall continue at least through August 31, 2025.
2. The 12b-1 Fee is included in the Gross Expense Ratio for SFVRX.
3. Shareholders who sign up for an Automatic Investment Plan can request a waiver of the Institutional Class investment minimum. View the waiver program criteria.
4. Calculated as a harmonic average of the underlying portfolio holdings.
5. Based on consensus earnings estimates for next year. Excludes securities for which consensus earnings estimates are not available.
6. © 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)

43	NAV / Index Level ()					Annualized					Cumulative	Inception Date	Net Expense Ratio2	Gross Expense Ratio2
		YTD	1 Mo	3 Mo	1 Yr	3 Yr	5 Yr	7 Yr	10 Yr	Since Inception1	Since Inception1

Gross expense ratio: ²

As of (Prior Quarter)

43	NAV / Index Level ()					Annualized					Cumulative	Inception Date	Net Expense Ratio2	Gross Expense Ratio2
		YTD	1 Mo	3 Mo	1 Yr	3 Yr	5 Yr	7 Yr	10 Yr	Since Inception1	Since Inception1

Gross expense ratio: ²

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. “Since Inception” returns for the Bloomberg and Morningstar indices are as of the inception date of the Fund’s Institutional and Investor share classes.
2. 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 1.05%, 1.15%, and 1.35% of the Fund’s average daily net assets for the Institutional, Investor, and Retail share classes, respectively. This agreement shall continue at least through August 31, 2025.
3. 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.
4. 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.
5. As of 5/31/16.
6. © 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: ()

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. Yield = dividend yield for common and preferred stocks and yield to maturity for bonds.
2. Based on consensus earnings estimates for next year.
3. EPS Growth is not meaningful for this security.
4. Calculated as a harmonic average of the underlying portfolio holdings.
5. Based on consensus earnings estimates. Excludes securities for which consensus earnings estimates are not available.
6. The pronounced EPS Growth forecast for the Consumer Discretionary sector for this year is influenced by a single constituent company. That company’s earnings have recently been negative. Consensus forecasts (produced by research arms of investment banks) suggest that the company's earnings will improve, leading to substantial percentage growth in profits for the sector; however, such consensus forecasts are subject to a very high degree of uncertainty.

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 third quarter of 2024, the Seafarer Overseas Value Fund returned 6.75%.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 9.62% and 8.06%, respectively. By way of broader comparison, the S&P 500 Index returned 5.89%.

The Fund began the quarter with a net asset value of $13.63 per share. It paid no distributions during the quarter and finished the period with a value of $14.55 per share.³

Performance

A surge in Chinese equities in the final two and a half weeks of September whipsawed the performance of the Value Fund and its benchmarks in the quarter. From June 30 through September 11, 2024, the Fund returned 1.69% while the Bloomberg Emerging Markets benchmark was in negative territory, down -1.90%. Then, in the final 13 trading days of the quarter ending on September 30, 2024, the Fund advanced an additional 4.98% while the Bloomberg index rose 11.74%.⁴

China’s stock rally accelerated in the final days of September following a string of policy announcements. On September 24, China’s central bank reduced interest rates and announced various measures to support the property sector, banks, and the stock market. This was followed two days later by a range of stimulus announcements from China’s Politburo with the aim of boosting consumption, stabilizing the property market, and supporting the private sector. Chinese shares soared in the wake of these unexpected announcements. Hong Kong’s Hang Seng Index and the Shanghai Shenzhen CSI 300 Index returned 24.24% and 27.99%, respectively, in U.S. dollar-terms from September 11 to September 30, 2024.⁴

It may not be surprising that the Fund’s China holdings collectively were the largest positive contributor to quarterly performance, accounting for roughly half of its quarterly gain. However, positive contributions to the Fund’s return were broad-based across the portfolio with approximately 80% of the Fund’s holdings generating a positive return.⁴ China’s late-September rally served to increase this percentage as several China holdings had been a drag on performance earlier in the quarter. Interestingly, the largest individual contributors to the Fund’s quarterly performance were, for the most part, non-China companies and China-based companies with sizeable overseas subsidiaries.

The single largest positive contributor to performance during the quarter was WH Group (Management Change and Breakup Value sources of value; the “source of value” for a Fund holding is hereafter referenced in parentheses), a Chinese pork processor and owner of Smithfield Foods in the U.S. Its share price appreciation pre-dated the broader China rally in late September. Its shares jumped in August following two company-specific events. First, the company announced that it had submitted an application to the Hong Kong Stock Exchange for a potential listing in the U.S. of a stake in Smithfield Foods. Should such a listing occur, it may serve to unlock the balance sheet value of this subsidiary. Second, the company announced its operating results for the first half of 2024, which showed an earnings recovery driven by its U.S. and Mexico business (Smithfield), which overshadowed weak demand in its China business.

The other largest positive contributors to Fund performance were more geographically varied. First Pacific (Breakup Value), a conglomerate, is listed and headquartered in Hong Kong, but its businesses are focused in Southeast Asia. It announced record high profits (excluding the effects of foreign exchange, derivatives, and non-recurring items) in the first half of 2024, driven by its Indonesian noodle business and its Philippines infrastructure company. The Fund also saw gains in Salik (Segregated Market and Management Change), a United Arab Emirates-based toll road operator with a long-term monopoly concession in Dubai. Salik announced details regarding two new toll gates that are expected to begin operation later in the year. The company increased its revenue and EBITDA margin guidance for 2024 in light of the new toll gates.

The Fund also saw strong gains in its Latin America banking sector holdings. Credicorp (Asset Productivity), Peru’s largest bank, rose following its second quarter earnings release. While earnings came in slightly below sell-side analyst consensus estimates, as calculated by Bloomberg, the company’s disciplined approach to capital allocation was reiterated to investors in its earnings call. The company lowered its loan growth guidance for the year due to its caution on asset quality and lower than expected loan growth in the first half of 2024. In line with its policy of returning excess capital to shareholders, it announced a special dividend in the quarter. Itaú Unibanco (Asset Productivity), Brazil’s largest private bank, also appreciated following its second quarter earnings announcement in August. In contrast to Credicorp, Itaú showed accelerating loan growth in its second quarter results. In its earnings call, Itaú management also discussed the possibility of returning excess capital on its balance sheet to shareholders via an extraordinary dividend, but noted a desire to re-assess its capital ratios at the end of the year before doing so.

Detractors from the Fund’s quarterly performance were few in number and marginal in their negative impacts. The three largest detractors were Innocean Worldwide (Balance Sheet Liquidity), a South Korean advertising and marketing company, Qatar Gas Transport (Deleveraging and Segregated Market), a liquefied natural gas transportation company, and Arcos Dorados (Asset Productivity), a Latin America-focused restaurant operator and McDonald’s franchisee, which was added to the Fund during the quarter (discussed further in the Allocation section below). All three companies released quarterly earnings that fell slightly short of Bloomberg’s consensus analysts’ expectations, which may help explain the modest declines in their share prices. Arcos Dorados’ intra-quarter volatility may have also been influenced by a lack of details regarding the ongoing negotiations over its Master Franchise Agreement renewal with McDonald’s. After the quarter ended, on October 1, Arcos Dorados shares rose after it announced the expected royalty rate structure for a new 20-year agreement with a renewal option for an additional 20 years.

Allocation

During the quarter, the Fund added one position, Arcos Dorados, and exited one position, HRnetGroup.

Arcos Dorados (which translates to “Golden Arches” in English) is the world’s largest independent McDonald’s franchisee. Headquartered in Uruguay, it operates throughout the Latin America and Caribbean region. It reports being the largest player in the region’s quick service restaurant industry with a share of customer visits at least twice that of its next largest competitor in its key markets.

After listing in the U.S. in 2011, the company had uneven operating results over its first decade as a public company. Currency weakness in Brazil and Mexico, its two most important markets, lowered its profitability in U.S. dollar terms. Hyperinflation and macroeconomic instability in Venezuela were a drag on consolidated earnings in the mid-2010s. Likewise, competitive and operational challenges in Arcos Dorados’ Northern Latin America segment resulted in thin operating profit margins that also pressured consolidated results. Reflective of its disappointment to investors, its market capitalization on September 30, 2024 was approximately half what it was in 2011.⁴

Since 2020, the company appears to have turned a corner with these past issues largely behind it. It steadily asserted its pricing power to restore its U.S. dollar profitability. While a handful of restaurants still operate in Venezuela, their financial impact is minute. Likewise, through steady operational execution and investment, the company has expanded the profitability of its Northern Latin America segment. Arcos Dorados also seems to have benefited from changes in consumer behavior following the pandemic as customers increasingly favored mobile ordering, delivery, and drive-thru service. Its freestanding restaurants, accounting for over half of its store footprint in 2023, were well-equipped for this shift and benefited from incremental sales. Management has focused on increasing the digitization of its offering through its mobile app and loyalty program to utilize data to better understand its customer base, send targeted promotions, and improve its operational efficiency. The company’s improving asset productivity stands at odds with its inexpensive valuation. There seems to be more than cheap calories in Arcos Dorados.

The Fund exited HRnetGroup (Balance Sheet Liquidity and Segregated Market), a human resources service provider headquartered in Singapore with operations in business centers throughout Asia. The Fund invested in HRnetGroup in 2018 and held the stock for nearly six years. The stock delivered a flat total return (slightly positive) in U.S. dollar terms over its holding period and a small positive contribution to the Fund’s performance (accounting for subsequent trades in the stock).⁴ Operationally, the company showed resilience throughout the disruptions to hiring and staffing during the pandemic. It generated positive free cash flow each year the Fund held it. Our disappointment, however, came from the company’s capital allocation. It maintained a substantial balance of unencumbered cash on its balance sheet over the years. We had hoped this would be used to expand its business in the region or, alternatively, that it would be returned to shareholders. Insufficient efforts to do so suggested it was time to quit the position. The proceeds were redeployed towards Arcos Dorados.

Outlook

The market has changed its tune towards China in astonishing speed. The rally in September, which saw the biggest weekly uptick in the CSI 300 Index since November 2008, is a reminder of the unpredictability of financial markets.⁵ Trying to predict if, when, and how China would announce further policy measures to address its economic ills, let alone how the market would react, was anyone’s guess. Paul Espinosa, Value Fund Portfolio Manager, and I traveled to Shanghai in May to look for value opportunities in this out-of-favor market. Our trip happened to come on the heels of an announcement of a range of policies to address the slumping property sector including a 300 billion renminbi (RMB) lending facility for banks to lend to state-owned enterprises (SOEs) to buy unsold apartments.⁶ The reaction from analysts and companies we met was muted: a positive step but insufficient to tackle the scale of the issues plaguing the sector. Several speculated that more support was to come – this couldn’t be everything. Yet, the CSI 300 Index drifted lower in the following months leading into September. There seemed to be a general market indifference to the low stock valuations on offer.

Clearly, the September policy announcements gave market participants more to sink their teeth into. Some commentators have drawn parallels between these announcements and former European Central Bank President Mario Draghi’s commitment to “do whatever it takes” to save the euro in 2012.⁷ The market rally seems to suggest such a turning point. However, there remains much ambiguity surrounding the exact details of the stimulus and its scale. More policy announcements are expected. Will these be sufficient to restore confidence in the property sector? Time will tell. Absent the signal sent from soaring stock prices, I do wonder whether Beijing’s “commitment” to addressing its economic woes has really changed from May to September.

For an overview of China’s stimulus announcements from September and October of 2024, please view this Ask Seafarer post by my colleague, Nicholas Borst: What Does China’s Stimulus Mean for its Economy?

What does this all mean for your Fund’s China holdings? The Fund has maintained its largest country weighting to China throughout the various swings in sentiment in recent years. This was not driven by a top-down macro call on China nor a speculative bet on stimulus. The Fund’s China weighting has been a function of the value we see in individual stocks across Seafarer’s seven sources of value. As noted in the Value Fund’s second quarter 2024 portfolio review, the Fund added a new China position in the second quarter: Hongkong Land, a property investment, development, and management company with assets located primarily in Hong Kong and mainland China. Our excitement in this name was driven by its company-specific prospects and valuation; it was not a macro call on the broader Chinese property market. Interestingly, its shares, which are listed in Singapore, traded down -1.08% from September 11 to September 30 while mainland China property stocks surged. Hongkong Land’s return, like that of the aforementioned WH Group, came earlier in the quarter: it rose 16.80% from June 30 through September 11 in U.S. dollar terms. Its dividend yield of 6.0% as of September 30, 2024 is backed by income-generating properties and looks sustainable irrespective of the latest stimulus announcements.⁴

The great irony of the quarter was that the Fund was overweight China relative to the Bloomberg Emerging Markets Index at the start of the quarter, outperformed the index through September 11, and yet underperformed the index by the end of the quarter. Its China holdings failed to keep pace with that of the index. While disappointing, the quality of a return matters. The biggest drivers of the index’s quarterly returns in China were its large technology firms: Alibaba, Meituan, JD.com, and Tencent. The first three of these were up more than 50% in the quarter in U.S. dollar terms.⁴ Perhaps the market correctly read the tea leaves of the recent policy announcements and their possible impact on each company’s business prospects: their repricing could be justified. Or perhaps speculative animal spirits have run wild. In either case, such names seem to reflect a high beta to the stimulus announcements. In other words, the market seems to be tying their fates closely to that of the policies out of Beijing. By contrast, we think your Fund holdings in China are less reliant on the stimulus for their value to be realized.

There may be more volatility ahead as the market digests Beijing’s policy initiatives. The Fund’s China holdings may see their shares swing up and down as well, but we think the primary driver of their returns in the long term will come from company-specific developments. Stocks that sing to their own tune – now that’s music to our ears.

Thank you for entrusting us with your capital. We are honored to serve as your investment adviser in 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 September 30, 2024, securities mentioned in the portfolio review comprised the following weights in the Seafarer Overseas Value Fund: WH Group, Ltd. (3.3%), First Pacific Co., Ltd. (3.0%), Salik Co. PJSC (2.8%), Credicorp, Ltd. (3.3%), Itaú Unibanco Holding SA (2.8%), Innocean Worldwide, Inc. (2.3%), Qatar Gas Transport Co., Ltd (2.5%), Arcos Dorados Holdings, Inc. ADR (1.7%), and Hongkong Land Holdings, Ltd. (2.7%). The Fund did not own shares in McDonald’s, HRnetGroup, Smithfield Foods, Alibaba, Meituan, JD.com, or Tencent. 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: SIVLX). The Investor share class (ticker: SFVLX) returned 6.70% during the quarter. The Retail share class (ticker: SFVRX) returned 3.65% between its inception on August 30, 2024 and the end of 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 Investor share class began the quarter with a net asset value of $13.58 per share, and it finished the quarter with a value of $14.49 per share. The Fund’s Retail share class launched on August 30, 2024 with a net asset value of $13.98 per share, and it finished the quarter with a value of $14.49 per share.
4. Source: Bloomberg.
5. Bradsher, Keith. “China Stocks Soar in Biggest Single-Week Jump Since 2008.” The New York Times, September 27, 2024.
6. Cheng, Evelyn. “China Pledges $42 Billion in a Slew of Measures to Support the Struggling Property Sector.” CNBC, May 17, 2024.
7. Xie, Ye. “Dalio Says China’s Leaders Face ‘Whatever-It-Takes’ Moment.” Yahoo!, October 1, 2024.