Bernard Horn’s Polaris Global Value Fund letter to shareholder.
Dear Fellow Shareholder,
The Polaris Global Value Fund (the “Fund”) outperformed the benchmark, MSCI World Index (the “Index”), for the six- month period ended June 30, 2014. The Fund returned 6.73% versus the Index, which was up 6.18%. We believe that the outperformance year-to-date and over longer annualized periods is attributable to Polaris’ value philosophy, global investment universe and fundamental stock analysis conducted by an experienced investment research team.
Recent accolades have included a four-star Morningstar Overall Rating™ for risk-adjusted performance among 825 World Stock funds for the period ended June 30, 2014. Additionally, the Polaris Global Value Fund received two 2014 Lipper Fund Awards in the global multi-cap value fund category, as the Fund posted strong returns for the 3- and 5-year periods through December 31, 2013. In the Lipper Universe, a total of 60 funds over a three-year period, and 47 funds over a five-year period, were eligible for this category distinction. Polaris Global Value Fund has been recognized by Lipper many times in the past for its performance during 3-, 5- and 10-year periods.
*Inception-to-date (Inception 7/31/1989)
Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Returns for more than one year are annualized. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost.
For the most recent month end performance, please call (888) 263-5594. As stated in the current prospectus, Polaris Global Value Fund’s total annual operating expense ratio is 1.32%. However, the Adviser has agreed to waive its fee and/or reimburse expenses to limit Total Annual Fund Operating Expenses (excluding all taxes, interest, portfolio transaction expenses, dividend and interest expense on short sales, acquired fund fees and expenses, proxy expenses and extraordinary expenses) to 0.99% through April 30, 2015. Shares redeemed or exchanged within 180 days of purchase will be charged a 1.00% fee. Fund performance returns shown do not reflect this fee; if reflected, the returns would have been lower. Past performance is no guarantee of the Fund’s future performance, and an investment should not be made based solely on returns.
Polaris Global Value Fund: Six month performance analysis
Polaris Global Value Fund’s continued success against the benchmark was attributed to positive absolute performance in all sectors, led by health care, consumer discretionary and materials. More than 30% of Polaris Global Value Fund’s holdings posted double-digit returns with notable contributions from Forest Laboratories, Inc. (NYSE:FRX), Greencore Group plc (LON:GNC), Duni AB (STO:DUNI) and Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) (TLV:TEVA). Smallest sector contributors included information technology and industrials, with companies GTECH SpA (BIT:GTK) (OTCMKTS:GTKYY), Wincor Nixdorf AG (ETR:WIN) (OTCMKTS:WNXDY) and Marathon Petroleum Corp (NYSE:MPC) detracting.
Nearly one third of Polaris Global Value Fund performance was due to holdings in the health care sector, with all seven companies in positive territory. Pharmaceutical maker Forest Laboratories, Inc. (NYSE:FRX) had double digit returns on news of its acquisition by Actavis plc (NYSE:ACT), the world’s second largest generic drug maker. Prior to this transaction, Forest Labs conducted a company restructuring, increased its product pipeline and initiated a stock buyback, all of which helped boost the stock valuation at the time of Actavis’ $25 billion acquisition bid. The aggressive bid by Actavis also boosted the stock price of Teva Pharmaceutical, another large generic drug maker in the Fund’s portfolio.
Performance in consumer staples holdings was spearheaded by Irish convenience food producer Greencore Group. Greencore made a strategic acquisition of Lettieri’s, a U.S. manufacturer of food-to-go products for convenience stores like 7-Eleven. The company also announced plans to build a greenfield sandwich manufacturing facility in Rhode Island, which is expected to service New England and New York. Japan’s Asahi Group Holdings Ltd (TYO:2502) (OTCMKTS:ASBRY) and MEIJI Holdings Co Ltd (TYO:2269) (FRA:3M0)also added to sector gains. Asahi Group is capturing market share for beer in Japan and its soft drink margins continue to improve.
Strong results in the materials sector included German flavors and fragrance maker, Symrise AG (ETR:SY1) (OTCMKTS:SYIEY), and specialty crop fertilizer company, Yara International. Symrise (XTER:SY1) was up after announcing stable results from each of its divisions worldwide, with notable sales in emerging countries. Subsequently, the company completed a capital raise to finance its acquisition of French food ingredient maker Diana Group. An early 2014 purchase, Norway-based Yara International (STO:YARO) (OTCMKTS:YARIY) reported strong earnings, with better operating margins, while announcing record deliveries and an impressive order book through 2014. Lanxess AG (ETR:LXS) (OTCMKTS:LNXSF), a specialty chemical company engaged in synthetic rubber and tire durability products, was another material purchase during the first quarter of 2014.
The share price for Duni AB, a Swedish table napkin maker, rose admirably during the six-month period, which helped offset subpar performance among other consumer discretionary holdings. In an earnings release, Duni highlighted improved operating profitability and European market share gains. The company also announced the acquisition of Paper+Design Group, a German company with a dominant position in designer napkins sold in consumer markets throughout Europe. British homebuilders added to sector performance, benefiting from rising home prices and volumes, as well as the extension of the U.K. government home buying scheme. The main consumer discretionary detractor was Italian lottery/gaming operator GTECH, which dropped after rumors emerged of a potentially expensive acquisition of a casino machine equipment manufacturer. Investors were concerned that the proposed transaction would add more debt to GTECH’s balance sheet.
Only one consumer discretionary stock was sold during the six-month period. Valassis Communications, Inc. (NYSE:VCI), a U.S. direct mail/geography targeted advertising company, was originally added to Polaris Global Value Fund in October 2013. By mid-February 2014, the company was acquired by Harland Clarke Holdings Corp. at a 20% premium over Valassis’ closing price as of December 17, 2013.
Financials were led by Swedish investment holding company Investor AB (STO:INVE-B), as its net asset value increased by 11% during the six-month period on the back of good core investment returns from Skandinaviska Enskilda Banken AB (STO:SEB-A), Atlas Copco AB (STO:ATCO-A), AstraZeneca plc (ADR) (NYSE:AZN) (LON:AZN) and others. German reinsurers MUNICH RE (BIT:MUV2): and Hannover Re: also contributed. U.S. bank Southwest Bancorp, Inc. (NASDAQ:OKSB) reported positive fourth quarter and annual 2013 earnings and reinstated quarterly common stock dividends. The company’s optimism extended to the hiring of professionals tasked with building Southwest’s loan portfolio. Texas-based International Bancshares Corp (NASDAQ:IBOC) reported healthy first quarter 2014 results. The banking institution pointed to rising net interest margins, attributable to higher net interest income from its investment portfolio, an increase in outstanding high quality loans, and a decrease in interest expense on securities sold under repurchase agreements. The main sector detractor was Standard Chartered (LSE:STAN), which announced slower growth in emerging markets and a write-down on its South Korean business. During the six-month period, we purchased Norwegian savings bank Sparebank 1 SR, which has low loan losses and improving net interest margins, and N.Y.-based Dime Community Bancshares.
Polaris Global Value Fund’s utility holdings were led by double-digit returns in Hong Kong water utility Guangdong Investment and U.S. clean energy company NextEra Energy Inc (NYSE:NEE). Guangdong Xnbo Elctl Applns Hldgs Co Ltd (SHE:002705) instituted quarterly reporting, signaling greater transparency for investors, and announced wastewater expansion initiatives. Water