IVA Funds - Five Years in Review
Additionally, as of September 30, 2013, both Funds performed well on a Morningstar risk-adjusted return basis and compared to their peers as defined by Morningstar. The IVA Worldwide Fund Class A (NAV) delivered a 10.33% risk-adjusted return for the five year period, ranking 2 out of 303 Funds (IVA Worldwide Fund Class I ranked 1 out of 303 Funds) in the Morningstar world allocation category. The IVA International Fund Class A (NAV) delivered a 10.04% risk-adjusted return over the same period, ranking 6 out of 64 Funds (IVA International Fund Class I ranked 5 out of 64 Funds) in the Morningstar foreign small/mid blend category.
Our ability to protect on the downside was a large contributor to our relative outperformance over this five year period. Minimizing losses is mathematically one of the surest and best ways to compound wealth. As Charles de Vaulx says, "If we succeed at minimizing losses, hopefully the gains will take care of themselves." To illustrate this concept, the largest drawdown for the MSCI All Country World Index over the past five years occurred from October 2, 2008 through March 9, 2009. Over this period, the Index fell -40.95% yet the IVA Worldwide Fund Class A (NAV) fell by only -8.80%. The Index has to gain 69.36% to get back to where it was on October 2, 2008 while the IVA Worldwide Fund Class A (NAV) only has to gain 9.65%. Furthermore, since inception through September 30, 2013, the IVA Worldwide Fund captured 39.55% of the downside yet 65.19% of the upside, and the IVA International Fund captured 32.55% of the downside and 58.35% of the upside.
We know that good stock picking is a crucial part of achieving our goals. Because of our emphasis on capital preservation, we have a bias towards investing in what we view as quality businesses and look for those with strong balance sheets, good competitive positioning, and those with quality management who are good capital allocators. Since we live in such an uncertain world with so many "unknown unknowns," we always ask ourselves "what can go wrong," which is why we not only calculate an intrinsic value but also a worst case scenario. Even though we seek to outperform an equity benchmark over the long-term, it is our multi- asset class approach that helped mitigate overall portfolio volatility and helped protect the portfolio on the downside, especially over the short-term. We like the flexibility to invest across different asset classes, and also sectors and geographies, depending on the opportunity set. To us, constructing a well-diversified portfolio is a risk management tool and we pay very close attention to individual position size as well as overall country and sector exposures. We have the advantage of being flexible in our approach and view cash as a valid asset class that is derived from the bottom up when we can't find enough securities that offer a sufficient "margin of safety." Additionally, cash acts as the ammunition to buy future bargains, in addition to helping to protect the portfolio in down markets.
We also hold gold bullion, at times, which serves an important purpose in our portfolio by acting as a hedge against extreme outcomes, inflation or deflation. Since inception, gold bullion has contributed nicely to both Funds' returns.
At times, we find opportunities in fixed income that can offer us "equity-like returns" while at the same time helping to minimize volatility. In 2008/2009, we found a number of corporate bonds yielding, on average, over 10% and at their peak they comprised 34.2% of the IVA Worldwide Fund on March 31, 2009 and 22.6% of the IVA International Fund on June 30, 2009.
An important pillar of our investment strategy is the willingness to make big negative bets, i.e. have nothing or little of what has become big in the benchmark. Two examples of this over the past five years would be our avoidance of emerging markets, particularly the BRICs (Brazil, Russia, India, China), and financials. For years now, we viewed most emerging markets as overvalued and we could not get comfortable with the corporate governance in these countries. And as we have seen, high economic growth does not always translate to good stock market performance. We have also, for the most part, avoided financials as one thing we learned from 2008 is that a stock needs to be what we think is "safe and cheap," not just cheap. One can't ignore the big picture and the strength of the balance sheet matters.
At IVA, we want our interests to be as aligned as possible with our clients. We have demonstrated this in two ways. First, our partners and employees have a significant amount of their net worth invested in the products we manage - we eat our own cooking. Next, since launching IVA, we were extremely vocal that asset size matters, which is why we closed the Funds to new investors in February 2011. This has allowed us to remain nimble and flexible, such as buying some small cap stocks where the float is low or investing in high-yield bonds. We want the flexibility to go wherever we want, whenever we find value.
We want to thank our shareholders and clients for entrusting us with your money over the past five years. We believe we have some of the most sophisticated clients, those who truly understand how important it is to limit the downside and focus on capital preservation. We look forward to the next five years!
The below graphs represent the IVA Worldwide Fund and IVA International Fund return % and standard deviation from October 1, 2008 to September 30, 2013 compared to their peer group as defined by Morningstar.
[ Enlarge Image ]
Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. Returns are shown net of fees and expenses and assume reinvestment of dividends and other income. 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. To obtain performance information current to the most recent month-end, please call (866) 941-4482.
[ Enlarge Image ]
Past performance does not guarantee future results. Maximum sales charge for the A shares is 5.00%. C shares include a 1% CDSC Fee for the first year only. The expense ratios for the funds are as follows: IVA Worldwide Fund Class A (1.28%) and IVA International Fund Class A (1.27%).
MSCI All Country World Index (Net) - MSCI ACWI NR USD is an unmanaged index comprised of 45 country indices comprising 24 developed and 21 emerging market country indices and is calculated with dividends reinvested after deduction of withholding tax. The Index is a trademark of Morgan Stanley Capital International and is not available for direct investment.
MSCI All Country World Index (ex-U.S.) (Net) - MSCI ACWI Ex USA NR USD is an unmanaged index comprised of 44 country indices comprising 23 developed and 21 emerging market country indices and is calculated with dividends reinvested after deduction of withholding tax. The Index is a trademark of Morgan Stanley Capital International and is not available for direct investment.
Past performance is no guarantee of future results. Morningstar rankings are based on Risk- Adjusted Returns measure. Morningstar data for the period ending 09/30/13 for the IVA Worldwide Fund Class A (NAV) Fund ranked, against other funds within the World Allocation category, 51 out of 592 funds in the last year, 99 out of 395 funds in the last three years, and 2 out of 303 funds in the last five years. The IVA Worldwide Fund Class I Fund ranked, against other funds within the World Allocation category, 49 out of 592 funds in the last year, 79 out of 395 funds in the last three years, and 1 out of 303 funds in the last five years The IVA International Fund Class A (NAV) Fund was ranked, against the other funds within the Foreign Small/Mid Blend funds over the following time periods: 66 out of 77 funds in the last year, 24 out of 68 funds in the last three years, and 6 out of 64 funds in the last five years. The IVA International Fund Class I Fund was ranked, against the other funds within the Foreign Small/Mid Blend funds over the following time periods: 65 out of 77 funds in the last year, 22 out of 68 funds in the last three years, and 5 out of 64 funds in the last five years.
Standard Deviation is a risk measure that shows how widely an individual data point varies from that of the average. A low standard deviation indicates that the data points tend to be closer to the average whereas a high standard deviation indicates the data points have greater variation from the average. The views expressed in this document reflect those of the portfolio manager(s) only through the end of the period as stated on the cover and do not necessarily represent the views of IVA or any other person in the IVA organization. Any such views are subject to change at any time based upon market or other conditions and IVA disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for an IVA fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any IVA fund. The securities mentioned are not necessarily holdings invested in by the portfolio manager(s) or IVA. References to specific company securities should not be construed as recommendations or investment advice. An investor should read and consider the funds' investment objectives, risks, charges and expenses carefully before investing. This and other important information are detailed in our prospectus and summary prospectus, which can be obtained by calling (866) 941-4482 or visiting www.ivafunds.com.
The IVA Funds are offered by IVA Funds Distributors, LLC. The IVA Funds are closed to new investors