IVA International Fund 2Q15 Commentary

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The IVA International Fund Class A (NAV) (“the Fund”) ended the quarter on June 30, 2015 with a return of 1.95% versus the MSCI All Country World Index (ex-U.S.)(“Index”) return of 0.53%, bringing YTD performance to 5.24% versus the Index return of 4.03% for the same period.

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IVA International Fund: Greece uncertainty led to volatility in global markets

The quarter was marked by bouts of volatility in global markets caused by political uncertainty in Greece, anxiousness over future interest rate increases in the U.S. and turbulence in the Chinese stock market.  We continue to see stretched market valuations globally, driven by ultra-low interest rates as investors focus more on relatives than fundamentals in their search for yield.  As bottom-up, fundamental investors, it remains difficult for us to find quality opportunities in this environment.

Stock picking continued to drive the Fund’s outperformance this quarter.  Our equity names averaged a gain of 3.4% versus those in the Index* which were up 0.5%.  China, France and South Africa contributed the most to return this quarter, adding a total of 1.6%.  Our technology names in all 3 of those countries did well, making technology the top contributing sector, adding 0.6% to performance, followed by consumer staples and consumer discretionary which each contributed 0.4%.  Healthcare detracted the most from our return this quarter, -0.3%, brought down by a pullback in a top 10 name, Astellas Pharma Inc.  Utilities was the only other sector that detracted from absolute performance this quarter, taking away -0.03%.  Underperformance by another top 10 name, News Corporation, made the U.S. the biggest detractor by country for the quarter, taking away-0.3%, followed by Germany and Malaysia which detracted a total of -0.1%.

IVA International Fund: Portfolio review

Fixed income contributed 0.3% to return for the quarter.  Total fixed income exposure at the end of the quarter was 9.5%, unchanged from last quarter.  Currency hedges added 0.04% and ended the quarter at:  70.0% Japanese yen, 39.7% Australian dollar, 27.9% South Korean won, and 30.3% euro.  Gold was down -1.0%, detracting -0.1% from performance.  Our gold position was 5.1% at the end of the quarter, unchanged from last quarter.  We continue to believe it is important to hold gold in the portfolio as a hedge against extreme outcomes.

Our cash position was 30.9% at quarter end, up from 29.1% at the end of the first quarter.  We continue to focus on the optionality of the cash we hold.  Despite dilutive effects of cash on our short term performance, we believe that over the longer term it will benefit performance by allowing us to pounce when we see quality values become available.

Equity exposure was 54.8% at the end of the quarter, down from 56.0% at the end of the first quarter.  We began building a position in a consumer discretionary name in South Korea over the quarter.  We also added a small position in the UK and have been adding to a few existing names, mostly in Asia ex-Japan where we continue to find the most opportunities.  Markets tend to be less efficient in this area, giving us the opportunity to uncover some misunderstood and mispriced smaller names.  At the same time we trimmed some of our existing positions as they approached our intrinsic value estimates.  The majority of this selling was in Japan as the market extended its rally.

Overall, the portfolio remains conservatively positioned.  We believe that continued market manipulation by central bankers and uncertainties facing markets today necessitate caution.  In this environment, it is crucial to be adequately compensated for risk and we do not believe that is the case today.

At IVA International Fund  we focus on preserving our clients’ capital.  We will attempt to do this by remaining disciplined in our approach, exercising patience and searching for quality opportunities one name at a time.  We appreciate your continued confidence and thank you for your support.

*The benchmark equity return excludes gold mining stocks.

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