Charles De Vaulx IVA Worldwide Fund 2014 Letter To Investors

The IVA Worldwide Fund Class A (NAV) (“the Fund”) ended the quarter on December 31, 2014 with a return of -0.81% versus the MSCI All Country World Index (“Index”) return of 0.41%. This brings our year-to-date return to 3.20% versus the Index return of 4.16% for the same period.

Global equities continued their selloff from September through mid-October and fell again in the first half of December as expectations for global growth and inflation fell, but markets rebounded at the end of December to deliver a modest quarterly return. The International Monetary Fund cut its outlook for global growth citing persistent weakness in the eurozone and a slowdown in several emerging markets, including China. Japan fell into a recession in November and we continued to see oil prices decline and the U.S. dollar strengthen against all major currencies throughout the quarter. With so many imbalances and unknowns across the globe, our portfolio has remained cautiously positioned. A number of our international stocks and bonds were hurt by weakness in their local currency, especially in Japan, however, the Fund benefited from being partially hedged as our currency hedges added 0.7% to our return. As of December 31, 2014 our currency hedges were: 61.6% euro, 60.4% Japanese yen, 40.3% Australian dollar, and 30.7% South Korean won. We increased our hedge against the euro this quarter, from 45.0% to 61.6%.

Our exposure to energy stocks muted our performance this quarter. Our energy stocks detracted -1.1% from our return, however, we held up better than those in the Index which detracted -1.4%. We have a concentrated position in U.S. oil and gas exploration and production (E&P) companies, a mix of small, mid, and large-cap stocks, which experienced a loss as the price of crude oil declined substantially over the past two quarters due to excess supply, slowing demand and the U.S. shale oil fast-growing production. We trimmed our energy exposure across the board in July as a number of stocks were close to intrinsic value, which helped mitigate the effect of the decline in oil prices on the performance of our energy stocks year-to- date. They only detracted -0.2% from our return this year while those in the Index detracted -1.1%, which we believe shows good risk control, discipline, and active management. Our energy exposure totaled 4.7% at quarter-end compared to 6.8% at the beginning of July. We increased our weighting of Cimarex Energy (XEC) (a top 10 position) over the quarter, while simultaneously trimming exposure to and selling some other E&P companies. We favor Cimarex Energy for its strong balance sheet, solid management team, and we believe it is trading at a larger discount than other exploration and production companies.

Over the quarter our equities averaged a return of -1.7% while those in the Index* averaged a gain of 0.5%. Our underweight exposure to U.S. stocks along with stock selection in the consumer discretionary and consumer staples sectors, mostly in South Korea, weighed on relative results. U.S. stocks added the most to our return, 0.7%, led by gains from Oracle (ORCL) Corporation, Berkshire Hathaway Inc. Class (BRK.A)(BRK.B) A and Class B, and DeVry Education Group Inc. (DV), however, we would have benefited from a larger allocation to this region since it added 2.4% to the benchmark’s return. Our stocks in Hong Kong marginally added to our return, 0.03%. Conversely, our stocks in Japan underperformed those in the Index. We tend to own small and mid-cap local companies in Japan which suffered this quarter from a weak yen compared to the exporters, which the Index mostly owns and benefit from a strong USD. Our Japanese stocks averaged a return of -7.0% versus -2.5%, respectively, and detracted -0.6% from our return in USD led by poor performance from Astellas Pharma Inc., which was significantly hurt by a weak yen. However, stock picking is still alive and kicking in Japan and on a year-to-date basis, our Japanese stocks averaged a gain of 8.8% versus the Index which was down -4.1%, and added 0.7% to our return in USD. Our stocks in South Korea detracted -0.4% from our return in USD this quarter due to poor performance from a few food and beverage stocks, and our stocks in France detracted -0.4% from our return in USD, as a couple industrials stocks weighed on performance. We used this opportunity to increase our exposure to a French industrials stock whose share price was hit by a pending transaction. We believe it was trading at a large discount and we have full confidence in the management, particularly their asset allocation skills. By sector, our technology stocks added 0.6% to our return due to good stock picking, especially in the U.S., as our tech names averaged a gain of 5.5% versus those in the Index at 3.6%. Our holding company and financials stocks collectively added 0.5% to our return versus those in the Index adding 0.3%. On the other hand, stocks in the industrials and consumer staples sectors detracted from our return, together -0.6%. As mentioned above, a few positions in the consumer discretionary sector worked against us, namely News Corp Class A and Class B, partly due to a weak Australian dollar and their large acquisition of Move Inc., however, we took advantage of the share price weakness to add to the position.

We increased our exposure to gold this quarter, from 2.8% to 3.4%, when the price of gold fell below $1,200/ounce. We still view gold as a reasonable hedge against extreme outcomes, inflation or deflation, and it averaged a return of -2.2% this quarter, detracting -0.1% from our return.

It remains difficult to find attractive opportunities in bonds, thus our fixed income exposure was relatively unchanged over the quarter with 5.0% allocated to corporate bonds and 3.3% allocated to sovereign bonds. This period, our corporate bonds averaged a return of -2.4% and detracted -0.1% from our return as our Wendel bonds tempered gains due to a weak euro. Our sovereign bonds, mostly of Singapore, averaged a return of -3.6% and detracted -0.1% from our return this quarter as they were negatively impacted by the strength of the U.S. dollar.

On the plus side, the market volatility this quarter presented a few new investment opportunities. We invested in what we consider a high quality company in France that provides a range of consulting services, a copper related stock, and a stock of a hotel manager and property investor in Hong Kong. Conversely, we trimmed and sold some stocks in the U.S. and Japan that were close to or at intrinsic value. We believe the easy money has been made in Japan and we are now looking for stocks in highly fragmented industries with the hope that the labor shortage may encourage greater consolidation and merger activity. Our equity and cash exposures were both relatively unchanged at quarter-end, 52.2% and 35.8%, respectively.

In conclusion, we firmly believe that stock picking around the world is still alive and when markets correct, we take that opportunity to invest in new stocks and add to existing positions. Despite the many volatile periods this year, we remain cautiously positioned as we are still

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