IVA International Fund 2nd Quarter Letter

Overview of holdings and outlook

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Jul 25, 2017
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The IVA International Fund (Trades, Portfolio) Class A (NAV) ("the Fund") ended the quarter on June 30, 2017 with a return of 3.76% versus the MSCI All Country World Index (ex-U.S.) (Net) ("Index") return of 5.78%, bringing YTD performance to 10.27% versus the Index return of 14.10% for the same period.

Global markets continued to rise this quarter and volatility remained low. The only notable exception came at the end of the quarter when remarks by the European Central Bank and the Bank of England signaled an eventual end to quantitative easing. This, along with recent interest rate rises in the U.S. and "hawkish" statements by the U.S. Federal Reserve, served as a reminder to markets that the historically accommodative monetary policy buoying global equities may not last forever.

Performance was diluted by the Fund's elevated cash position this quarter. However, our equities outperformed, up 6.4%, compared to those in the Index* which were up 5.8%. This was led by our names in Continental Europe, Hong Kong and South Korea, which contributed a total of 3.2% to performance. A few top 10 names that contributed the most in these regions were Nestle S.A. (Switzerland, Consumer Staples), Bureau Veritas (France, Industrials) and Samsung (South Korea, Technology). Our names in South Africa and Thailand detracted a total of -0.2%. Bermuda and China each detracted -0.01%. Astellas Pharma (Japan, Healthcare) was the largest detractor in the Fund this quarter, taking away -0.3%. Like most other pharma companies, Astellas is facing the challenge of multiple patents expiring within the next 2-3 years. However, we still believe this is a great company that trades at a discount to our intrinsic value estimate.

Fixed income contributed 0.1% to performance this quarter. Our fixed income exposure decreased from 3.3% to 3.1% over the quarter. Our currency hedges detracted -0.02%. Our hedges were unchanged this quarter, remaining at: 40% Australian dollar; 10% euro; 35% Japanese yen; 30% Korean won.

Gold was down -0.5% this quarter and detracted -0.03% from performance. As of June 30, our gold exposure was 6.8%. We continue to believe that gold acts as a prudent hedge in our portfolio against unforeseen extreme market events.

As markets rose this quarter, on top of already stretched valuations, it remained difficult to find undervalued securities. We initiated a new position in Europe, but at the same time trimmed names in multiple regions as prices approached our intrinsic value estimates. Our equity exposure decreased from 61.4% to 60.2% and cash increased from 28.4% to 29.8%.

The elevated cash level of our portfolio is the consequence of the very elevated valuations (and the resulting dearth of genuine bargains) of most financial assets worldwide. Our willingness to hold cash during periods in which we believe that global assets are overvalued is crucial to our investment approach, not only in our efforts to preserve our clients' capital but to supply us with dry powder when genuine bargains surface.

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