Dear Fellow Shareholders of the Seafarer Funds,

We are honored to address you on behalf of Seafarer Capital Partners (“Seafarer”), the adviser to the Seafarer Funds (the “Funds”), upon the tenth anniversary of the Seafarer Overseas Growth and Income Fund. This annual report covers the Funds’ 2021-2022 fiscal year (May 1, 2021 to April 30, 2022).

Unfortunately, we write amid disheartening circumstances. Russia has instigated a war with Ukraine at the behest of a despot; the Communist Party in China has deployed its massive security and surveillance apparatus to sequester and control its citizenry under the pretense of quashing an epidemic; and the emerging market asset class has been mired in a “lost decade,” after ten years of poor economic and corporate performance that have resulted in disappointing returns for investors. When Seafarer launched a decade ago, the promise of the “BRIC” nations (Brazil, Russia, India, and China) was touted by prominent investment banks and asset managers, and U.S. financial media broadcast from the beaches of Rio de Janeiro. Now the emerging market asset class lies in tatters.

Yet neither Seafarer nor the Funds are in tatters. Indeed, Seafarer and the Funds are as strong as they have ever been, in our estimation. In recognizing Seafarer’s strength, we do not wish to overlook the challenges and human suffering that are now prevalent in the developing world. Nor do we wish to trivialize the patience that shareholders have exhibited amid trying conditions. Nonetheless, we are proud of Seafarer’s achievement over the past decade, and we will use this letter to share that with you, as your trust and confidence in Seafarer have made such achievement possible.

Seafarer Capital Partners launched on March 31, 2011. The Seafarer Overseas Growth and Income Fund launched nearly one year later, on February 15, 2012. At launch, the firm was comprised of four individuals, three of whom remain with the organization today: Andrew Foster, co-founder and Chief Investment Officer; Michelle Foster, co-founder and CEO; and Kate Jaquet, Co-Manager of the Growth and Income Fund. The Fund launched with just over $1 million under management. We were confident about Seafarer’s future, but its origin was humble.

During the intervening decade, the Growth and Income Fund attracted shareholders and grew in scale, such that its net asset value at the end of the 2021-2022 fiscal year (April 30, 2022) was $1.9 billion. In 2016, the firm launched a second fund – the Seafarer Overseas Value Fund – which had net assets of $42 million at the close of the fiscal year. At the end of April 2022, the Growth and Income Fund’s performance ranked within the top 15%, 38% and 5% of its peers over the preceding three, five and ten years, respectively, as assessed by the fund rating agency, Morningstar. The Value Fund’s performance ranked within the top 10% and 18% of its peers over the preceding three and five years, respectively.¹

We are pleased to report that the Growth and Income Fund has outperformed its benchmark indices by a substantial margin over most longer-term investment horizons. The Fund’s performance since inception is summarized in Figure 1: Return Characteristics and Figure 2: Growth of a $10,000 Investment Since Inception.² It is essential to note that past performance is neither a predictor of nor an indicator of future performance: every day is a new day, and Seafarer must every day earn its keep anew.

The Fund’s inception date is February 15, 2012.

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

Source: ALPS Fund Services, Inc.

Figures 1 and 2 indicate that the Growth and Income Fund has outperformed its Morningstar benchmark over the past decade and since inception, and it has done so with materially less risk than the benchmark index (as measured in terms of volatility in returns). Not only has the Fund produced such returns with lower manifest risk, it has also produced substantial investment income throughout its existence. From inception to the end of the 2021-22 fiscal year, the Growth and Income Fund has cumulatively produced $2.03 in net income per share, paid in regular semi-annual installments. This income accounts for approximately 27% of the Fund’s 75.26% cumulative return since inception.³⁴

Expense Ratios and Economies of Scale

As described in the Letter to Shareholders as of April 30, 2017, Seafarer has committed to reduce expenses for the Funds, particularly as time and scale afford greater efficiency.

We are pleased to announce that, consistent with that commitment, the Growth and Income Fund experienced a reduction in its operating expense ratios during the fiscal year ended April 30, 2022. The ratios declined to 0.91% and 1.00% for the Institutional and Investor classes, respectively. For reference, the expense ratios were 0.92% and 1.02% for the respective classes during the preceding fiscal year.⁵ The expense improvement can be traced to two underlying causes: Seafarer’s ongoing efforts to control Fund costs, and an increase in the Growth and Income Fund’s average assets under management.

Compared to the Growth and Income Fund, the Value Fund’s smaller scale does not yield an equivalent degree of cost efficiency. However, Seafarer has established the same underlying expense structure for both Funds. Should the Value Fund’s assets grow over time, it is expected to achieve similar economies of scale. In the meantime, Seafarer continues to limit the Fund’s operating expenses via a contractual commitment, such that its net expense ratios remain 1.05% and 1.15% for the Institutional and Investor classes, respectively.⁶

As the Funds enter a new fiscal year, Seafarer’s goal remains the same: to offer shareholders positive economies, over time and with scale.

Seafarer’s First Decade

Based on its historical record of capital appreciation, its income generation, its benchmark-relative performance, its manifestly lower risk, and its reduced fees, we are confident that the Growth and Income Fund has to date satisfied the two investment objectives described in its prospectus: the provision of long-term capital appreciation with some current income, and the mitigation of adverse volatility in returns. While we are pleased with the Fund’s achievement over its existence, we reiterate that past performance is neither a predictor of nor an indicator of future performance.

Even as the Growth and Income Fund has in our opinion achieved its investment objectives, we have never taken its performance or Seafarer’s existence for granted. When Seafarer launched the Fund a decade ago, the emerging market asset class was “hot” and replete with competing firms eager to capitalize on investors’ demand for exposure to the developing world. Much has changed in the interim. We have since watched many prominent and well-equipped investment managers fail, shuttering their funds due to lackluster performance and poor management decisions amid volatile markets. We are proud to persist where others have not been able – but we still take nothing for granted.

Seafarer’s team has grown steadily over time, and we now number 15 in total. Our research and portfolio management team is, in our opinion, among the most accomplished in the industry. It is supported by a world-class trading desk that operates 21 hours per day, six days per week. Seafarer’s talented client service and communication professionals ensure that Seafarer’s differentiated views on the developing world are shared with clients in a timely fashion and free of bias. The team is completed by dedicated compliance and executive personnel who ensure that our firm, while small of scale, is run according to the highest standards in the industry. We are proud of what Seafarer has become. The firm is no longer a “startup”: Seafarer is a well-established contender, capable of competing with the largest and most prominent investment managers in the world.

If we have one material regret, it is with the disappointing absolute returns from the emerging market asset class. The last decade has indeed been a “lost” one for the developing world, where promise and potential has ended in disruption and disappointment. While the Growth and Income Fund has materially improved upon the performance of its benchmarks, the absolute level of return has fallen short of the original expectation of many, ourselves included. We regret the fact that the decision to divert capital from U.S. equities toward the emerging markets over the past decade has delivered inferior returns. We are disheartened that the Fund’s patient shareholders have not been amply rewarded for the risks they have endured, nor the time they have spent. We are also concerned that the next decade will be no less difficult, and we are determined to steer your capital as carefully as ever given the challenges that lie ahead.

Nonetheless, we believe the emerging markets offer stocks and companies that can be worthy additions to a long-term investor’s global portfolio, and Seafarer remains intent to discover them and invest in them for the Funds’ benefit. For this reason, we will conclude this retrospective regarding Seafarer’s first decade now: it is time to get back to work and earn your trust anew.

Thank you for your investment. We are, as always, honored to serve as your investment adviser in the developing world.

Fund performance is presented in U.S. dollar terms, with U.S. jurisdiction distributions reinvested on a gross (pre-tax) basis. For the Morningstar Emerging Markets Net Return USD Index, performance is calculated to reflect the reinvestment of dividends, capital gains, and other corporate actions net of foreign jurisdiction withholding taxes. For the MSCI Emerging Markets Total Return USD Index, performance is calculated to reflect the reinvestment of dividends, capital gains, and other corporate actions gross of foreign jurisdiction withholding taxes (i.e., such taxes are ignored). 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.

Unless otherwise noted, the source for Fund performance and assets under management data is ALPS Fund Services, Inc.

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.

Michelle Foster is a Registered Representative of ALPS Distributors, Inc.

The MSCI Emerging Markets Total Return Index, Standard (Large+Mid Cap) Core, Gross (dividends reinvested), USD is a free float-adjusted market capitalization index designed to measure equity market performance of emerging markets. Index code: GDUEEGF. It is not possible to invest directly in an index.

For Morningstar Direct data referenced in this Letter: © 2022 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) 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.

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. Source: Morningstar Direct; Peer group: “Diversified Emerging Markets.”
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. References to the “Growth and Income Fund” pertain to the Fund’s Institutional share class (ticker: SIGIX). The Fund’s inception date is February 15, 2012.
4. Sources: ALPS Fund Services, Inc., Seafarer.
5. The Growth and Income Fund’s Prospectus dated August 31, 2021 states that the Fund’s expenses are 0.92% and 1.02% for the Institutional and Investor classes, respectively.
6. 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 each Fund’s average daily net assets for the Investor and Institutional share classes, respectively. This agreement shall continue at least through August 31, 2022.