Download Click to download IMVA Opportunity July 2015

Hereford Funds-IMVA Opportunity Fund
July 2015
Investment Review (a), (b)
July was obviously a difficult month. The Fund does not own the large capitalization internet and new media companies that have driven most the S&P 500’s performance this year. In addition, the Fund suffered from its
materials and energy exposure as oil prices had one of the largest monthly drops in several years; commodities, in general, were weak across the board. The Fund’s overall energy sector performance was down about
20% during the month. Among individual names in the Fund, Anacor Pharmaceuticals (ANAC) enjoyed a tremendous run when the company announced a successful drug trial. On the other hand, 3D Systems (DDD)
has continued its descent and was a standout on the downside.
The Fund’s energy exposure has been a millstone on performance for the past twelve months, and many portfolio managers have given up on energy names entirely. The Fund’s energy positions have been
progressively high graded as the sector has weakened. Some might describe this as risk management; I describe it as being wrong but trying to stay with an out-of-favor sector that has attractive rebound potential.
Ideally, I would have been underweight energy, and concentrated in blue chip names for any energy exposure, a year ago in order to better withstand the volatility in commodities over the past twelve months. But that is
old news, and I have to look at where we are today. I see a hated sector and widespread bearishness on commodity prices. I believe there is some value and potentially even protection within energy names due to this
scenario. A recent Reuters article described the futility of projecting current oil price trends into the future and, consequently, the opportunity for a “regression to the mean” investment/position in energy.
(Given the historic volatility in oil prices), “ It follows that any attempt to predict where prices will go in the medium term (two to five years) or long term (beyond five years) based on current prices or recent changes
is bound to fail. The cyclical, unpredictable nature of prices has not stopped an army of prognosticators from trying to guess where they will go, but most forecasts have an endearing backward-looking quality.
When prices are high and have been rising, most forecasts predict they will rise even further on increasing scarcity. When they are low and have been falling, most forecasts predict a further slide on continued
oversupply”.1
As mentioned above, ANAC has become the homerun for the ages. During July, I reduced the position dramatically, but I kept a bit in hopes of an eventual “take out” of the company. On the other hand, DDD’s price
drop appears to be pre-ordained at this point. There is little to no good news in the sector, and the lack of forward guidance from both Stratasys and 3D Systems gives the bears a “free fire zone” on both of these
companies. As I mentioned in last month’s update, there is no telling where DDD’s free fall will stop, but, at this point, the stock appears to have made a full transition from momentum darling to value stock. My bullish
thesis remains in place and is based on the following: $170 million net cash on the balance sheet, improving prospects for free cash generation, a leadership position within a secular growth industry, important product
launches over the next 6 months, high insider ownership, and a large short position. I suspect the stock is selling at 12 to 15x its 2016 earnings and believe it should be bought and held.
1
“Oil Industry Frets About Another Lost Decade”, John Kemp, Reuters, 8/4/15
Investment Objective
The investment objective of the Hereford Funds-IMVA Opportunity Fund is to provide capital appreciation over a multi-year investment horizon by investing primarily in a diversified
portfolio of publicly traded equity securities of US-based companies, which hold unique opportunities in the opinion of the Investment Manager. Potential investments comprise small,
mid, and large capitalization companies; growth and value companies; and special situations, including non US-based companies, which are listed on a US exchange. The strategy
is highly concentrated and appropriate only for risk-tolerant, long-term investors who can accept the potential for materially greater volatility than the broad market indices.
The indicative benchmarks are the S&P 1500 and the S&P 500 Indices.
Key Information
as of July 31, 2015
NAV A Shares:
Total Fund Size:
$61.78
$1.88 mil
$138.32 mil(c)
January 31, 2014(d)
Strategy Assets:
Fund Launch Date:
Monthly Performance (%)
as of July 31, 2015
Jan-15 Feb-15 Mar-15 Apr-15 May-15
Hereford Funds-IMVA Opportunity Fund
(8.6)
7.4
0.0
2.3
(1.0)
S&P 1500 Index(f)
(2.9)
5.7
(1.3)
0.7
1.3
S&P 500 Index(f)
(3.0)
5.8
(1.6)
1.0
1.3
Jun-15
(0.7)
(1.8)
(1.9)
Jul-15
(4.2)
1.8
2.1
5 yr
7.8
16.3
16.2
10 yr
7.5
7.9
7.7
Period Performance (%)
YTD
(5.5)
3.4
3.4
Since Inception (March 31, 1999 - July 31, 2015)
YTD
(5.5)
3.4
3.4
IMVA Opportunity Portfolio(e)
S&P 1500 Index(f)
S&P 500 Index(f)
1 yr
(33.4)
11.2
11.2
2 yr
(17.3)
13.8
14.0
3 yr
(1.2)
17.7
17.6
4 yr
1.2
15.3
15.4
Cumulative
124.1
143.2
122.2
Value of a Dollar
Annualized
5.1
5.6
5.0
Past Ten Years (July 1, 2005 - July 31, 2015)
IMVA Opportunity Portfolio(e) vs. S&P 1500(f) & S&P 500(f)
450
Start of Hereford FundsIMVA Opportunity Fund
31-Jan-14
KEY
IMVA Opportunity Portfolio
S&P 1500
S&P 500
410
370
330
290
250
210
170
130
90
50
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Hereford Funds-IMVA Opportunity Fund
July 2015
Portfolio
as of July 31, 2015
Sector Breakdown
%
Consumer Discretionary
6.2
Consumer Staples
0.0
Energy
14.4
Financials
16.6
Health Care
16.8
Industrials
4.0
Information Technology
23.7
Materials
4.7
Telecommunication Services
0.0
Utilities
0.0
[Cash]
13.6
Total
100.0
Ten Largest Holdings
Luminex Corp.
McDermott International, Inc.
3D Systems Corp.
KVH Industries, Inc.
Montpelier RE Holdings, Ltd.
BWX Technologies, Inc.
T. Rowe Price Group, Inc.
Altisource Ptfl Solns Reg Shs
Cree, Inc.
Intrepid Potash, Inc.
Total
%
9.0
6.9
5.9
5.2
4.4
4.0
3.6
3.6
3.5
3.4
Since Inception (March 31, 1999 - June 30, 2015)
Risk Statistics(g)
Volatility
Sharpe Ratio
Information Ratio
Tracking Error
Beta
Alpha
IMVA Opportunity Fund
28.16
0.17
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
(listed below benchmark)
S&P 1500
17.05
0.20
0.08
18.52
1.27
1.97
S&P 500
16.86
0.16
0.11
18.69
1.28
2.72
49.5
Fund Details
Bloomberg:
ISIN:
Reuters:
Sedol:
Valoren:
WKN:
HFIMVOALX*
LU1022309220
N/A
BJ625V8
23467814
A1XCJ3
* Share Class A
Investors:
Dealing day:
Dividends:
Investment Manager:
Management Company:
Custodian:
Legal Advisers:
Auditor:
Open to Non-U.S. investors only
Daily
None (income accumulated within the fund)
Investment Management of Virginia, LLC, 919 E. Main Street, Suite 1600, Richmond, VA, 23219, USA
BSI Fund Management S.A., 44F rue de la Vallée, L-2661 Luxembourg
BSI Europe S.A., 122 rue Adolphe Fischer, L-1521 Luxembourg
Elvinger, Hoss & Prussen, 2 Place Winston Churchill, L-1340 Luxembourg
Deloitte Audit S.à.r.l.
Annual Management Charge
Minimum Investment
Share Class A(h)
Share Class A
1.25%
$100,000 initial; $10,000 subsequent
Order Transmission / Information
Original Applications to:
UBS Fund Services
Attn: Transfer Agent
33a, avenue J.F. Kennedy
L-1855 Luxembourg
Subsequent Applications only via Facsimile:
UBS Fund Services
Attn: Transfer Agent
Fax: (+352) 4410106417
Tel: (+352) 4410106404
Email: [email protected]
(a) The securities discussed are based on their contribution to or detraction from the entire performance of the Portfolio. A complete description of the performance calculation methodology, including a complete list of
each security that contributed to the performance of the Portfolio highlighted above, is available upon request.
(b) The transactions/securities discussed in this section are generally portfolio-wide transactions for the accounts in this Portfolio and have not been selected by any performance criteria. It should not be assumed that all
accounts in the Portfolio had the same transactions or that transactions in the future will be as profitable or will equal the performance of the securities mentioned.
(c) This figure refers to the approximate total assets invested in the reference strategy as of 31/7/15. The figure includes $1.88 million in assets (Hereford Funds-IMVA Opportunity Fund), $130.76 million in assets
managed directly by Investment Management of Virginia, LLC ("IMVA" or "the Investment Manager"), and $5.68 million in assets managed by other firms based upon models provided by the Investment Manager. The
$130.76 million managed directly by IMVA comprise those accounts in the Opportunity Portfolio composite (see www.imva.net), as well as "Special" Opportunity Portfolio accounts, which are excluded from the composite
for reasons/variances, including but not limited to these: they have different weightings; client restrictions have been imposed; they are wrap accounts; they do not own all Opportunity Portfolio positions; or they own
additional positions. Model assets have been excluded from the definition of the firm for GIPS purposes.
(d) The Hereford Funds-IMVA Opportunity Fund was funded on 31/1/14. The first trades were executed on 3/2/14.
(e) Data and graph depict IMVA Opportunity Portfolio composite returns through January of 2014 and Hereford Funds-IMVA Opportunity Fund Class A thereafter (net basis). Historical net performance of the IMVA
Opportunity Portfolio composite (the Reference Strategy) reflects modeled fees and expenses typical of Hereford Funds-IMVA Opportunity Fund Class A (1.25% fee + 0.25% expense). Fund follows substantially the
same parameters as the Reference Strategy, although the Fund has a 10% constraint for individual positions and a 40% limit for the top five names (IMVA's Opportunity Portfolio has no such constraints). Performance
presentation is incomplete without accompanying footnotes as shown at www.imva.net. Past performance is no guarantee of future results, and no representation is made that results similar to those shown can be
achieved.
(f) Total return including dividends.
(g) Source: eVestment Analytics – All numbers are presented gross of fees and expenses.
(h) Share Class A is tax transparent in Germany and has been granted Reporting Status by HMRC as of 31 January 2014.
This document is for information purposes and internal use only. It is neither an advice nor a recommendation to enter into any investment.
Investment suitability must be determined individually for each investor, and the financial instruments described above may not be suitable for all investors. This information does not provide any accounting, legal,
regulatory, or tax advice. Please consult your own professional advisers in order to evaluate and judge the matters referred to herein.
An investment should be made only on the basis of the prospectus, the annual, and any subsequent semi-annual-reports of HEREFORD FUNDS (the "Fund"), a société d'investissement à capital variable, established in
Luxembourg and registered under Part I of Luxembourg law of 20 December, approved by the Commission de Surveillance du Secteur Financier (CSSF). These can be obtained from [the Fund, 44F, rue de la Vallée, L2661 Luxembourg or from BSI Fund Management S.A., 44F, rue de la Vallée, L-2661 Luxembourg and any distributor or intermediary appointed by the Fund].
No warranty is given, in whole or in part, regarding performance of the Fund. There is no guarantee that its investment objectives will be achieved. Potential investors shall be aware that the value of investments can fall
as well as rise and that they may not get back the full amount invested. Past performance is no guide to future performance.
The information provided in this document may be subject to change without any warning or prior notice and should be read in conjunction with the most recent publication of the prospectus of the Fund. Whilst great
care is taken to ensure that information contained herein is accurate, no responsibility can be accepted for any errors, mistakes, or omission or for future returns.
This document is intended for the use of the addressee or recipient only and may not be reproduced, redistributed, passed on, or published, in whole or in part, for any purpose, without the prior written consent of