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Tara Hannigan: Thank you. Good afternoon and welcome to the semi-annual IVA Funds update call. We thank you for joining us. My name is Tara Hannigan. I’m the Director of Mutual Fund Distribution.
The purpose of this call is to update you on the Funds and share our current investment thinking. Our portfolio managers, Charles de Vaulx and Chuck de Lardemelle, will give prepared remarks on the portfolio and describe what they’re seeing around the world today and then we’ll open up the call to questions.
As a reminder, both Funds are open to all investors. Though there has been lots going on currently in the markets, we are required to provide performance information through the most recent quarter end.
As of December 31, 2019, the IVA Worldwide Fund Class I returned 12.68% for the one-year period while the MSCI All Country World Index returned 26.60% over the same period. For the five-year period on an annualized basis, the IVA Worldwide Fund Class I returned 4.36% versus the MSCI All Country World Index return of 8.41%. Since the Fund’s October 1, 2008 inception, it has returned 7.87% on an annualized basis while MSCI All Country World Index returned 8.20% over the same period.
As of December 31, 2019, the IVA International Fund Class I returned 14.61% for the one-year period, while the MSCI All Country World ex-U.S. Index returned 21.51% over the same period. For the five-year period on an annualized basis, the IVA International Fund Class I returned 4.05% versus the MSCI All Country World ex-U.S. Index of 5.51%. Since that Fund’s October 1, 2008 inception, it has returned 7.39% on an annualized basis while the MSCI All Country World ex-U.S. Index returned 5.28% over the same period.
Year to date, through yesterday, Tuesday, March 17, the IVA Worldwide Fund Class I returned -20.11% versus the MSCI All Country World Index return of -24.71%. The International Fund Class I returned -24.23% versus the MSCI All Country World ex-U.S. Index return of -28.39%.
Just a quick note about IVA’s current operations as we face this challenging time. As of right now, we’ve activated provisions of our business continuity plan with a majority of our employees working remotely and critical staff working on site. All employees have the ability to work remotely if deemed necessary. We have put in place travel and visitor restrictions and are committed to employee protection. Our business continuity plan is well-thought out and tested and ensures investment operations will not be disrupted. We are committed to protecting the health of our employees while providing uninterrupted service to our clients.
I will now make some necessary brief legal disclosures before we begin the call. There are risks associated with investing in funds that are invested in securities of foreign countries, such as erratic market conditions, economic and political instability and fluctuations in currency exchange rates. Value-based investments are subject to the risks that the broad market may not recognize their intrinsic value and investors should read and consider the fund’s 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 visiting our web site at www.ivafunds.com. And now, I will hand the call over to Charles and Chuck.
Charles de Vaulx: Perfect. Thank you, Tara. Little did we know when we scheduled this conference call many months ago that we would be in the midst of an unprecedented global pandemic and economic and financial crisis.
Two points to begin. 1) We have navigated many crises before, both at IVA and the firm where many of us worked together before at the SoGen Funds or First Eagle Funds. Each crisis, obviously, is different than the other one and this one is sure novel and most violent, but we do have some experience. 2) Both Funds were well positioned ahead of this crisis with a total equity weighting of 51.4% as of February 29th in the Worldwide Fund, down from 55.7% late January (we did sell quite a bit through February), and a 69.5% equity position in International down from 71.2% late January. We had a gold weighting of 4.4% in the Worldwide Fund, (2.3% in gold bullion and 2.1% in mining stocks), and 5.3% in gold in the International Fund, (3.1% in bullion, 2.2% in a few gold mining shares). Also, the cash weighting was 42% in Worldwide at the end of February and 23.1% in the International Fund. As you know, the International Fund is used by advisors and clients who typically like to do their own asset allocation, so that Fund tends to be quite a bit more fully invested than the Worldwide Fund, while the Worldwide Fund tries to be much more absolute return oriented than the International Fund.
Cash (and Chuck, hopefully, later will explain what cash means for us these days), as we have argued before, is not only a buffer in times of crisis, like today, but it’s also the very precious ammunition that allows us to pounce when we identify genuine bargains.
So, despite the enormous uncertainties, we believe that we, the firm, and the Funds are in a healthy position to tackle this unprecedented crisis.
Today we’ll discuss: 1. Performance year-to-date, the recent highs in the MSCI All Country World Index which were around February 20. 2. Our understanding of this virus, the likely path and possible impact on the global economy, on equity and credit markets, on currency and commodity markets, but also discuss briefly possible political and geopolitical ramifications. 3. What we have done since the onset of this crisis, especially over the past three weeks in terms of portfolio positioning.
1. Performance year-to-date and the recent index highs:
What is remarkable is that this crisis started while stocks and bonds were trading at nosebleed valuation levels courtesy of ultra-low interest rates, aggressive buybacks and capital structures. Last year, equity markets, in particular, were up enormously, as you all know. So, year-to-date, the only point I want to make is that this fair value pricing yesterday (we have done so many days over the past couple of weeks) helped a little bit. Year-to-date our numbers improved to the tune of roughly 30 basis points for the Worldwide, while the actual performance was down -24.7%. If you want to do an apples-to-apples comparison with the benchmark, it was closer to -25%, likewise while the NAV of the IVA International Fund is down -24.23%; apples-to-apples, without fair value pricing with the index, it’s down -24.8%, so just minor differences. Basically if you look at the numbers that we’ve described, both Funds are down 4% - 5% less than their respective benchmarks.
If you wonder why that is, why we were not more resilient, it has simply to do with the fact that, again, value is down – has been doing far worse than growth. As of last night, the MSCI ACWI Value was down -29.15%, while the MSCI ACWI Growth was down -20.34%. And then, to add insult to injury the MSCI ACWI SMID Value was down -35.6%; same thing on the international side, the MSCI ACWI ex-U.S. Value was down -32.98%, while the MSCI ACWI ex-U.S. Growth was down only -23.86%, and MSCI ACWI ex-U.S. SMID Value was down -35.52%. So, based on the weightings we’ve had year-to-date in equities in both strategies, you will see that our stocks performed in line in the Worldwide Fund and slightly better in the International Fund, compared to some of these value indices. Gold has been quite volatile year-to-date and the contribution to return is basically nil in both Funds. Twice we did reduce that allocation to gold over the last few weeks while gold prices were hitting new highs.
Now, let’s talk briefly about our performance since the recent peak, February 20, the onset of the crisis as far as equity markets are concerned. From the NAV at the end of February 20 until last night, the Worldwide I share is down -18.7%, our benchmark, the MSCI ACWI, is down -26.72%, while the MSCI ACWI Value is down -28.42% and the MSCI ACWI SMID Value down -34.59%. Again, our performance is totally understandable and in line based on those numbers and we believe we have shown some resiliency, not only because of the cash and gold. The stocks in the International Fund, for those same dates since February 20, the International I share is down -22.17%, the benchmark, MSCI ACWI ex-U.S. is down -27.97% (almost -28%), the MSCI ACWI ex-U.S. Value is down -31.01%, the MSCI ACWI ex-U.S. Growth is down -25.12% and the MSCI ACWI ex-U.S. SMID Value is down -33.37%.
2. Our understanding of this virus, the likely path and possible impact on the global economy, on equity and traded markets, on currency and commodity markets, and possible political and geopolitical ramifications:
Well, we know it is exceedingly contagious. But we believe the examples of China, South Korea and even Italy perhaps suggest that it can be contained through drastic measures of suppression; this aims to reduce the rate of transmission so dramatically that each case generates less of one additional infection and the disease is stopped in its tracks, in contrast to less drastic measures of mitigation in which the aim is not to entirely disrupt the transmission, but to slow its impact. The risk and problem with mitigation is that it’s likely to overwhelm the health care systems and result in many deaths. Suppression, conversely, involves a lot more draconian measures including social distancing of the entire population, strict isolation of infected cases, household quarantines, school and university closures and severe restrictions on travel, especially by plane and trains. Suppression causes an enormous economic downturn and we may have to wait until a vaccine is found or if the so-called herd immunity is finally achieved. There are some encouraging signs in China; the abatement in daily case growth started 17 days after public interventions. In South Korea, that same abatement in daily case growth began 16 days, I believe, after public intervention. In Italy, the data is less reliable, but it seems that abatement began 24 days after public intervention. I don’t have the data for Japan.
The other observation is that this virus, as has been the case with virtually all previous viruses and coronaviruses from the past, seems to propagate significantly less quickly in warm weather. So, hopefully, it may become dormant in the northern hemisphere starting in May or June.
In terms of our analysts trying to formulate a best case and worst case, we typically use for our best case scenario a severe interruption of the global economy for three months or so, followed by some recovery. In a worst case, we assume six to nine months of extreme difficult economic times. Chuck later will give a few examples of individual companies and walk us through what kind of analysis and stress testing is being done. Both economic scenarios outlined above, the best case and the worst case, are very painful, but finally, the policymakers have woken up, be they President Donald Trump, Boris Johnson and Angela Merkel, so quite a few as of now. More and more commentators have also endorsed the view that quote, “Budget deficits do not matter, especially in an ultra-low interest rate environment,”. So even right-wing parties in the world are willing to accept very large deficits. This time it seems that Central Banks may not need to adopt more and more negative interest rates, but rather will have to make sure that the plumbing of the financial markets, the repo market, Commercial Paper issuance, that the plumbing resists the shock, and they’ll have to showcase that they are willing to act as lender of last resort to make sure that liquidity remains available to avoid this liquidity crisis leading to a solvency crisis. We are encouraged that this is happening as we speak in terms of policy response. This week is when political coordination has started to take shape on a global basis on a massive scale, and the willingness to do what it takes “bazooka-style” seems to be there.
We are keeping and will keep a close eye on the credit markets as so many of the excesses have taken place over the last few years around the world at the corporate level. Now, credit spreads have, of course, widened significantly albeit last time I checked they were not quite as high as they reached in late ’08 during the financial crisis. That’s possibly encouraging. Commodity markets will also give us exceedingly precious signals as to what is happening to actual demand, whether it’s copper or lead or many other things. And in the case of oil, it’s going to be a combination of what’s happening to the demand plus the sharp increase in supply, courtesy of the Russians and the Saudis.
Europe will have to make huge decisions politically regarding Italy. No wonder that the U.S. dollar has been so strong against the euro, but also against the British pound, I think the pound was down -2.5% or -3% just today. The Brexit negotiations in the midst of this crisis will be very difficult. Currencies have reacted in a pretty orderly fashion so far, although we have seen a few big hits to some EM currencies such as the Brazilian real and even the Mexican peso.
Buybacks are bound to disappear in the U.S. for a while, which is a negative for the market as it has been a big support of the market for two and a half to three years now. It will be interesting though to see conversely the Korean companies and Japanese companies, at least those with vast amounts of cash will be finally willing to be more aggressive with their buybacks.
Among the medium-term political consequences of this virus, it seems to us that the chances of Joe Biden becoming the democratic candidate and actually beating Donald Trump are now pretty high. I’m not sure how things may shake out regarding the composition of Congress here in the U.S., a headwind for U.S. stocks, but hopefully just a minor one.
3. What we have done since the onset of this crisis, especially over the past three weeks in terms of portfolio positioning:
Both of our Funds have been net buyers since the onset of the crisis especially the Worldwide Fund, nibbling at first two weeks ago, and then the buying accelerated later last week and earlier this week. Equities are approximately 60% of the Worldwide (technically, there was 62% as of last night, but with the market down, it’s 60% of the Worldwide) up from 51.4% as of February 29, and 70% in the International Fund, up very marginally from the 69.5% on February 29. It has been a combination of adding to existing names, as well as adding new ones. There is no specific theme, as we have been adding in certain cyclical names, be they in the automobile industry, advertising, aerospace, banking and even an integrated energy company, one we think has a phenomenal balance sheet and is truly among the lowest cost producers. But we’ve also added to less cyclical names like in the beverage industry, be it a beer company or a co-bottler, health care, education, software, especially when there are large recurring subscription revenues. We have been buyers in the U.S., Europe, Japan and some EM countries like Mexico and Thailand. In virtually every instance, the balance sheet is strong – very strong – in the case of one of the beverage companies I mentioned, it is strong enough, we believe, and they are still investment grade.
Why have we not bought more?
One, because Chuck and I are struck by the fact that high-quality stocks - the likes of Expeditors International, Amazon, Costco - have not come down that much and are not that cheap, certainly not as cheap as they have been during previous crises. Forget that so far sell-side analysts have reduced their earnings expectations by a mere 3% since February 19, which I do not find laughable, I think it’s grotesque and farcical, but forget about that. If you look at price to sales for the S&P 500, it’s still 50% more expensive than during the dot-com low and 150% more expensive than during the lows of the financial crisis based on an article I read this morning on Bloomberg. Now, the flip side is that if you strip out all the fancy darlings – Amazon, Netflix, Tesla, Invidia and a few others – the valuation of all the others look much closer to previous bottoms. That’s very encouraging. And, of course, if you look at foreign markets, when values have beaten up for many years now, the valuation seems pretty rock bottom. Our friends at FPA Crescent have had some good data points, I think, posted yesterday, showing the Shiller P/E ratio showing how expensive the market still remains in the U.S. courtesy of some of these fancy stocks. A very bifurcated market, indeed. Now, the early 2000’s did show that it’s possible – I’m not predicting that will be the case – it’s possible for value stocks to slowly rebound as they did in 2000, 2001, 2002 was rougher, while the rest of the market may still fall sharply. So, we think that more than ever individual stock picking and balance sheet strength is the key.
Two, because the “bazooka” that has been used so far may have to be far larger than what has been discussed. In the U.S., I think now they’re talking about $1.3 trillion of aid. Now, that’s humongous. That’s very encouraging, but please compare that with an economy where, on an annual basis, personal consumption is $13.3 trillion. So, it’s basically just more than one-month worth of personal consumption.
Three – why have we been measured in our buying? Because we are keenly aware of Pascal, the French theologian and mathematician, Pascal and his wager. Pascal understood clearly that it is not enough to weigh the odds of certain outcomes happening in the worst-case scenario that I talked about, for instance, but the consequences. Maybe the likelihood of this worst-case scenario I outlined may be 10% or 20%, maybe less, I don’t know. But then, the consequences would be quite negative even for your Funds as it may take a few years to recover unrealized losses that a worst case scenario may trigger.
Before I let Chuck carry on, let me reiterate that IVA is ready to tackle the crisis, the Funds with their cash, the firm with the measures taken that Tara talked about. We also have some experience, precious experience, dealing with extreme uncertainty. We have a lot of cash in both Funds. And finally, we fully and totally understand that the potential rewards for any investment has to be commensurate with the risks taken. We understand that the risks are exceedingly high today, at least for the next three to six months. And so, valuation has to be exceedingly enticing for us to become more aggressive. No Fed model thinking here at IVA. Chuck, the floor is yours.
Chuck de Lardemelle: Thank you, Charles. I’d like to start my remarks by addressing the cash position in your Funds. Over the last few days, we did notice a concerning lack of liquidity in the Commercial Paper market with difficulties to resell Commercial Paper when needed. And we traditionally invest cash for the Funds into short-term Commercial Paper of some companies and we do not buy Commercial Paper of financial companies. We are now sweeping excess cash, when our CP matures, into a Treasury securities cash management fund yielding less than 1%. Over the next 5 trading days, between Commercial Paper maturing and the amounts currently placed in this institutional money market fund, we have access to $700 million for the Worldwide Fund (close to 20% of assets) versus $4 billion in total assets, and $200 million for the International Fund (10% of assets). So, we remain extremely liquid at all times. Additionally, the Fed is opening a facility to help finance dealers who did not want to take Commercial Paper on their books. The facility should be operational on March 20.
We are putting these emergency cash procedures in place for the Funds as an abundance of precaution, but we believe that the lack of liquidity is only temporary. We do note, however, that the U.S. dollar continues to surge which indicates that financial actors are still acutely looking for liquidity.
Moving on to our portfolios, the vast majority of our companies are well capitalized. Our top five positions currently, excluding gold, are Berkshire Hathaway, Astellas Pharma, Richemont, Sodexo and BMW for the Worldwide Fund and account for roughly 17% of the assets with the largest equity position being over 6% in Berkshire Hathaway, a fortress able to withstand even a global depression.
For the International Fund, the top positions ex-gold are Astellas Pharma, Bureau Veritas, Richemont, Sodexo and Nestle, accounting for roughly 15% of assets. All these companies are blue chips that we are confident will survive any depression. Some are unduly depressed, we believe, while others, such as Nestle, provide liquidity and relative security, but moderate discounts.
As for gold, our other sizable position, it is currently roughly flat year to date. It was the same in 2009 when lack of liquidity in financial markets pressured gold momentarily. We note, however, that politicians, at least in the U.S., are now discussing moving to the next phase of currency debasement and considering depositing money directly into the accounts of the citizens, so-called helicopter money. While this policy may well be needed today and appropriate in our opinion under the current circumstances, it begs the question as to whether the door has been permanently opened for the demise of paper currencies. In any case, we view these policies as much more likely to trigger inflation in contrast to regular QE, if the handouts are to be repetitive and sizable in a healthier economy. We believe that this development is supportive of gold prices and of gold at a hedge in the medium term. Back in 2011, the value of all gold above ground peaked at 15% of global GDP. Such a repeat would propel gold towards the $2,000 per ounce.
It is interesting to note that in Europe today, suddenly the long-term government yields have spiked up sharply perhaps recognizing the vastly developed nature of this stimulus, which is potentially inflationary down the road if used aggressively in less dire circumstances.
While the current times are extremely challenging for policymakers, for the working population and for investors, we believe that prices of securities today are starting to incorporate the deep global recession we believe is coming and are likely to provide decent returns over the next few years. Of course, panic selling and margin calls can lead the market lower temporarily, as well as continuous negative news flow, particularly in the U.S. where the country appears to be ill-prepared for this pandemic. In addition, no bear market has taken place since algorithmic trading and ETFs have become so prevalent. We do not know what consequences this may have on short-term security prices as fundamental investors and active managers account for such a small share of trading today.
We are currently focusing on buying good businesses at attractive prices. We note that the very high quality U.S. tech companies or software companies have not been hit hard yet and continue to be quite expensive. In the recent days, however, we started doing more work on a couple cyclical software companies involving travel booking, which have derated very substantially. Exciting stuff as these seem to be superior businesses, albeit cyclical. We believe, eventually, travel will come back and thrive. Another software company in health care reached intriguing levels today. We are also in the process of building a position in a well-capitalized airport company which we believe will break even if flights are down 50% over each of the next 12 months. To put things in perspective, this could be more than nine months of traffic down 25% and three months of no traffic at all, and all that would be necessary for this company to lose 50% of its revenues and still break even. At the lows last Monday, the equity was down 50 % from its peak, which we estimate was roughly its intrinsic value prior to the outbreak of the disease. Our view is that roughly two years may be necessary for traffic to go back to the 2019 levels as tourism and business travel may remain affected by the economic contraction even when the pandemic is over. To give you a sense, currently in Korea, where the outbreak is present but seems to be under control, domestic passengers are down 40% year over year in February and close to 60% year over year so far in March.
Some may ask, “Well, where is the bottom?” And we, obviously, do not know. Temporary staffing companies (we do not own any at this juncture) such as Adecco, Randstad and Manpower are trading close to their 2009 lows in terms of EBIT to sales, especially Adecco and Randstad. We estimate that for Manpower this would take the stock into the mid-$50s. The low on Manpower so far in this route was around 65 a few days ago. Temporary staffing companies tend to trough around the same time as industrials, perhaps providing a clue as to when to step up a bit more aggressively. Staffing stocks also tend to trough when the temporary staffing employees trough. We’re not even close to that today as the last number on February 29 in the U.S. was close to 3 million temps versus 2.2 million in 2002, which was a mild recession and 1.8 million temps in 2009. Temporary staffing numbers for the U.S. for March will be released on April 4. It promises to be interesting.
Some cyclicals like BMW trade well below their ’09 valuation levels despite a better balance sheet. In fact, at today’s price just a net industrial cash of $17 billion and leasing arm at 70% of book cover more than the market cap. You get the automobile and manufacturing for free including the China joint venture. We also note that, contrary to many car manufacturers worldwide, the working capital is around zero days at BMW, which would mitigate pressure on cash flow as sales, of course, dry up for a quarter or so. So a lot seems to be priced into stock, we believe. In fact this morning, BMW issued guidance that the company still expects to be profitable in the automotive division to the tune of 2% - 4% of EBIT margin for 2020. We believe this is already optimistic and assume a zero EBIT margin in that division and conservatively project a sizable cash burn for 2020 in the worst case. Yet our worst case, after coming down, remains above the current share price of BMW and the upside over two years appears extremely attractive to us.
We try to incorporate the world economy entering a nasty global recession in our scenarios, but not a depression. Depressions are triggered by massive bank failures as was potentially the case in 2009. At the time, Central Banks’ interventions to provide liquidity were very effective in turning the situation around. This time, the bear market is fueled by substantial fears around personal consumption, capital expenditures and corporate earnings, and questions around the resilience of business models in such a crisis. In a word, it’s an earnings depression question more than a liquidity crisis for now for most companies and industries with, perhaps, the notable exception of airlines and oil and gas. Loose fiscal policy will help and we believe is coming quickly.
There are still a few potential issues to keep an eye on that could make this situation worse, for instance, the spread between 30-year German government bonds and 30-year Italian government yields. For now, this spread is widening from 200 basis points before the outbreak towards 300 basis points, but still well below the highs of around 450 basis points reached in 2011-2012 at the height of the European double deep depression. And of course, who knows how much damage was inflicted on the Chinese economy by the virus and whether the Chinese government will once again be able to rekindle growth, despite massive corporate debt, without triggering a devaluation of the Chinese currency or credit crisis. Finally, the high-yield bond market is likely to suffer large defaults in the coming months especially in energy.
For Europe, however, this crisis may finally be the opportunity to ramp up fiscal spending rather than destroying banks and the economy by pushing interest rates further down into negative territory. We shall see if the European politicians seize this opportunity. I note with interest that Lagarde, the new head of the European Central Banks, has refused so far to cut interest rates further into negative territory.
So, how can you pick stocks in such an uncertain environment? Let me give you an example of the stress test we are conducting for the companies in our portfolio with the help of our analysts, with the simple goal of figuring out whether they survive unscathed.
Both Funds have a sizable position in Sodexo. As you may know, Sodexo is a global catering company with over 400,000 employees worldwide. The firm also operates in facilities management, such as landscaping, cleaning, equipment maintenance and often as a general contractor. Lastly, Sodexo is one of the largest meal vouchers issuers in the world; such vouchers are mandated by law mostly in Europe and South America for large corporations to pay for lunch of their employees. Slightly less than two-thirds of total revenues of the business is food service. Assume all clients (businesses, universities and schools), except for health care facilities, closed for eight weeks; this yields a 15% reduction in revenue for the year in that division. That does not account for potential contracts with minimum payments or some of these businesses remaining open. Additionally, Sodexo operates globally with a portion of revenues out of remote sites (mining, oil and gas) as well as in Asia and Latin America. So, we believe these assumptions are on the conservative side.
Slightly less than a third of revenues is facilities management. Assume half of services not needed for eight weeks, so an 8% reduction revenue. We assume there is a 35% flow-through of lost revenues to profit into those divisions, which is large compared to the recent warning of the U.K. Competitor Compass. Compass estimates its flow-through at only 25% - 30%. Compass is all food service; 40% of costs are food or materials, the rest is mostly labor, a large part of which is flexible with hourly workers. Additionally, in a number of countries, governments are shouldering the costs of short-term unemployment and payroll taxes. So, for all these reasons, the impact is likely, in our opinion, to be less than 35% flow-through to EBIT, but we choose to be already conservative for this exercise.
For the vouchers segment, which is 5% of revenues and 20% of EBIT, we assume no change as vouchers are still issued by employers to employees working remotely, we believe. In fact, since employees cannot spend those vouchers currently, because restaurants are closed in a number of geographies where Sodexo operates, there could be a large cash inflow for Sodexo as the vouchers are paid for by the corporations, but cannot be redeemed for weeks. We are not factoring any of this in our worst case. These numbers do not reflect any of the measures taken or to be taken by governments around the world. Such measures are likely to be meaningful, such as cutting payroll taxes, making short-term suspension of wages by corporations easier, having part of salaries paid by governments, delaying of payment of corporate taxes and perhaps other measures as well. In such a conservative and difficult scenario, total annual EBIT for the firm declined 60% from €1.2 billion euros to €450 million euros, from 5.2% operating margin to 1.4% operating margin. So, the company remains solidly profitable by our estimate in a drastic worst-case scenario and without any relief by global governments. Clients are larger corporations less likely to default or receivables. So, this fiscal year 2020 is very tough, but profitable still and we believe reflects a very temporary situation. The point of the exercise is simply to make sure that the company has no liquidity issue and survives this extremely sharp downturn.
The bonds maturing 2022 are yielding around 20 basis points on the bid side. The 2028 bonds are yielding roughly 2.5%. Net cash balance as of August 31, 2020 was €1.8 billion euros, undrawn bank lines are €1.3 billion euros, and there are zero debt maturities in 2020.
On normalized 2019 earnings, the company trades around 45% of revenues, 10-11x earnings and EV/ EBIT of 9x. We believe it may take 18 - 24 months to get back to these 2019 levels of profitability as we anticipate the recovery of the global economy to be sharp coming out of the pandemic, but still weaker than pre COVID-19. The stock trades around €54 euros, it’s now down roughly 50% from December 2019 in line with projected trough EBIT and we estimate will earn €4 - €5 euros a share 18 months to two years out, depending on how strongly the world economy comes back. For now, and probably until the European outbreak is under control, investors seem to be completely unwilling to look through the valley.
So, we are conducting similar stress tests throughout our holdings and finding that most appear to trade at quite attractive valuations today and would survive in the doomsday scenario. One area where we have had to revise our intrinsic value substantially is oil and gas, especially on two names, Cimarex and Schlumberger.
It is entirely possible that we are still early buying some cyclical names. Our position in cash and gold should hopefully mitigate the short-term volatility. I do note that active managers and value investors are now a rare breed and only account for a tiny portion of volumes traded. Which algo is going to run these scenarios? As Charles mentioned earlier, the sell side has barely started updating any financial model publicly; perhaps they’re waiting for guidance by companies? We believe it’s a broken system. And finally, what ETF will distinguish between Company A and Company B? I view most of these ETFs as a sort of a socialist way to invest; everyone gets the same results and as Chris Wood, an extremely talented strategist at Jefferies quipped recently, “yes, ETFs are cheap, but so is fast food.” Hopefully, these instruments won’t trigger unexpected and painful market events down the road. We shall see.
In closing, let me note that the last decade has been extremely demanding for value investors. In my opinion, either these super prime quality companies such as Costco and others and large software and tech businesses crack and their valuations come down, or cyclical value stocks are bound to outperform strongly when the pandemic is over and the economy recovers. Only time will tell. It is interesting that more cyclical yet high quality travel-related software companies are now down very substantially.
While this is a difficult moment for value investors, this is a time to be a selective buyer rather than a seller, I believe. It will be a few long months until the summer, but this is likely also the time when investors will be able to load up on bargains. So, despite the fact that the Funds are down this year, I’m quite excited by the opportunities we’re finding in this market and by the overall discounts to our updated intrinsic values. I do not believe these extreme anomalies in valuations will last forever. When the tide finally turns, I believe this will be quite beneficial to our shareholders.
All of us at IVA are extremely grateful for your continued support. This concludes my prepared remarks and I’d like to turn the call back over to the operator to open up the call for questions. Thank you.
Question: We own the IVA Funds for capital preservation on the downside. Not that you’re not going to lose any money, but significant preservation relative to what’s going on in the market. And when I hear comments in the beginning like we came in well prepared, but then, we’re getting – if I’m calculating right – about 85% of the downside of the market. Even though we only have either 60% or 75% stock within the Fund, it certainly doesn’t feel to me like we’re getting any capital preservation type of features in addition to the fact that, in 2018 – and I think you guys wrote about this – you’re disappointed with the capital preservation as well.
So, we’re very frustrated because we feel like we missed the whole up over the last 10 years, or not the whole up, but a good portion of the up by being in cash or gold or whatever we’re in. But then, now that the market’s coming down, we’re catching the vast majority of the decline.
Charles de Vaulx: OK. Let me try to answer your good question now. In my formal remarks, I did give numbers showing that, again, value and small and midcap value stocks are doing far worse than growth stocks. And so, if you do the math our conclusion is that, based on the respective weightings we have in equities versus cash and gold, we are in line with the value stocks.
Now, in the fullness of time, we have shown that we’re able to do far better than value stocks. But in an economic crisis that leads to a huge cyclical downturn, value stocks, many of which are cyclically sensitive, be they banks or energy, automobile, tend to fall a lot more than growth stocks.
What’s interesting – I think Chuck alluded to the fact that interest rates are starting to rise, probably because of the understanding that all those efforts by policymakers may lead to inflation down the road. If that were to happen, there’s no way, in my opinion, that the valuation of these super quality and growth stocks can be maintained. So, I will let Chuck add comments of his own.
Chuck de Lardemelle: Yes. I think it’s obviously quite frustrating and it is for us as well since we eat our own cooking. By the way, I did invest a couple of million more into the Funds a couple of days ago.
It’s frustrating because it’s not easy to understand these numbers. We came into this well prepared in terms of how much cash we had, but also lagging the index on the first few months of the year substantially. So, from the peak on Feb. 20, the Worldwide I to March 17 was down -18.7%, the ACWI was down -26% and the ACWI Value was down -28%, so very substantial over performance. Yes, it’s relative and, yes, it’s down. But I think the key will be to take advantage of what are now large discounts and be able to invest the cash at the right time.
Second – and that’s very new. But I believe that in this cycle, we’ve seen something very different than in the past in terms of where the growth was coming from. In the past, you had growth companies that were manufacturing or service companies, they needed logistics to grow, they needed CAPEX, they needed people on the ground. It was difficult to expand outside of the U.S. They needed infrastructure. They became unwieldy, too large, and they were attracting competition that would suppress the margins, growth would slow and these growth companies would derate substantially.
Since 2000 and the software revolution, you’ve seen a growth model that is quite different where it’s mainly software and internet-related companies, where scale and size gives you a very substantial advantage, where you don’t need a large infrastructure, where you don’t need CAPEX to grow the business. And even though we’ve owned, and we still own, Google and we own MasterCard and we’ve owned Microsoft in the past, I think we failed to recognize the quality of these businesses and we failed to, in some cases, hold on to our investments long enough. As I said, we’ve owned MasterCard for a long time and we still own Google. We certainly hope that, in this bear market, we’ll have opportunities to participate in these businesses. We remain confident that the absolute extreme bifurcated market that you see today with some of these value indices having gone nowhere for more than five years and, in fact, outside the U.S. being down substantially in the last five years, that eventually it provides substantial opportunity in a sense. Whereas the S&P may be making new highs, if you look at just international or value indices, those markets were far less bloated than valuations on tech in the U.S.
Question: Just one more quick thing and then I’ll let you guys move on. So, I think it was Charles that taught me probably 15 years, 20 years ago that growth is a part of value – value is growth, so to stick things in a style box doesn’t make any sense. So, the whole idea of this growth/value thing– it’s just a company, right, and it has its own characteristics?
Charles de Vaulx: You’re right. To me, there is a difference between growth and value. To me, the key is whether it’s deemed value stocks or growth stocks is to understand the qualitative aspects of the business. Some quality stocks are cyclical, others are not. So, even though for value investors we were early on 10 years, 15 years, 20 years ago, even longer to understand that book value, tangible book value was becoming less and less relevant. I remember we started investing in software back in the early ‘90s, if I recall, at our predecessor firm. We have still made some mistakes in terms of when we own some high-quality names we have had the tendency to sometimes trim them a little too early, the MasterCards, the Nestles and others. And then, we’ve also owned some quality businesses, an example would be satellite operators, where the quality of the business changed – disappeared. So, to me, the real question is not so much is something growth or value- it’s understanding the qualitative aspects of the business.
And you can tell that even Warren Buffet who is so gifted and so good at doing this has been struggling simply because so many businesses are in the midst of phenomenal technological upheaval, many businesses are being disrupted.
So, it’s very hard to understand where a business might be 5-10 years down the road, which doesn’t mean that you should not own any of these stocks. It means to me that one should make sure that there’s enough of a margin of safety to own these stocks, make sure that the balance sheet is strong enough.
Question: Good afternoon, Charles and Chuck. Hope you’re doing OK, taking care of yourselves, being safe. I was just wondering if you could comment about the market that we’re in as far as market periods in the past that you’ve seen. And what do you think has to happen from a fiscal standpoint in Washington to keep the airline industry flying? Thank you.
Chuck de Lardemelle: On the airline industry, I think there was a good article not too long ago. These guys have bought back stock like crazy. Billions and billions and billions. I think 90% of the free cash flow of the large airlines have been used to buy back stock. And now, they are going hat in hand to Washington asking for a bailout.
I think the appropriate way to do this is with a convertible preferred that has a high coupon and that you can call at a premium to par and that basically hits the shareholders extremely hard, but makes sure that these companies can continue to operate. And I’m fairly confident that the Treasury secretary understands that. In order to not have moral hazards, shareholders need to be punished in this downturn for airlines. If they had not spent all that cash on buybacks, obviously, it would be a very different situation.
As for the fiscal aspect of things, the government is doing or seems to be willing to do as much as possible. Unfortunately, the country was not well prepared. We are barely starting to test people and look at what’s been happening in Europe, this disease tends to spread extremely rapidly. So, I don’t think there is a way to avoid a recession. But again, I find it extremely interesting that they are finally doing what I think is necessary to achieve what the Central Bankers have always wanted, which was inflation. With QE, all it created was a bubble in financial assets and at least here with the idea of, say, $1,000 per person, everybody gets treated the same. I’m assuming that I’ll be taxed 50% on this. But for households that make less than $40,000 a year, and there are many of those in the U.S., $1,000 will make a difference and will get spent. Now, again, this is another nail in the coffin of paper money and I don’t know how fast the confidence in paper money decays, but that’s for another day. For now, I think this policy is appropriate and what nobody knows is how quickly the economy comes back when the virus is cured which, hopefully, happens at the latest by the summer.
Question: As far as Berkshire goes, when you’re looking at the insurance companies, how do you take into account the impact of the bond portfolios and the value of the float when you have super low interest rates like this? Does the float have as much value or, to me, the float can’t with super low interest rates. How do you support really super low interest rates when you’re looking at that?
Chuck de Lardemelle: Yes. So, the way we do it is, first, we look at the cost of float. And, obviously, the float doesn’t cost anything, but it used to yield about 3% underwriting income. Now, it’s a lot less, about 1%-1.5% and it’s likely to continue to be a lot less because Ajit Jain has done a number of very large retroactive insurance deals which yields a real cost on float. That’s automatic. And the biggest deal was with General Re, so you have to take that into account. So, let’s say the cost or the benefit on float was 3%, now it’s 1%-1.5%, so, on the 1%-1.5%, we put a multiple, so flat which should be a liability actually has a small positive value for income – underwriting income, basically. Then, obviously, we put the $20 billion that Buffet wants at all times on the side, we take it out of cash. And then, we simply look at what the cash is yielding and– we take the cash and bonds at face value period.
I think part of the answer is because interest rates are so low your cost of float or the income of your float, for most companies is going up, i.e. the underwriting standards are getting better. For Berkshire Hathaway, it doesn’t necessarily show now because, again, you’ve had the change in the structure of the float and a large part of the float comes from Ajit and retroactive interest yields deals which have an underwriting cost.
Charles de Vaulx: There is no duration mismatch as might be the case with other insurance companies. I mean, they at the insurance level and many of the Berkshire businesses would benefit greatly if interest rates go up.
Chuck de Lardemelle: Correct. I think if interest rate is up, it really helps the intrinsic value of the insurance company for sure, yes.
Question: A few years ago you had talked about picking up things like Bank of America and American Express because they had gotten a lot cheaper. American Express, they’ve got the Delta Card that they’ve rolled out over the years. And how is American Express impacted by the economic downturn for Delta? Does that significantly reduce the value of American Express?
Chuck de Lardemelle: So, we don’t own American Express anymore because as you may know American Express takes credit risk when they extend receivables or short-term loans, basically, to the card holders. And we had always adjusted the earnings for a normalized default rate on those receivables. So, we do not own American Express anymore, but there is a point that which we may want to revisit and be in a better situation to answer your question. What I remember about this is these were very large contracts that are very beneficial to the airlines. And we value those streams at low multiples because the competition were extremely fierce.
In fact, if I remember correctly, we invested in the company precisely because they lost one of those big contracts, if I remember correctly, with Costco that depressed the American Express price substantially and that was our entry point. This is a great question. Thank you.
Question: When you have outperformed others the way that you have in this downturn the demand for redemptions will likely increase as people need cash flow and will look to the fund that has dropped the least. How do you expect redemptions to affect the portfolio and your investment decisions?
Charles de Vaulx: That’s a difficult question. On one hand, yes, it’s like a margin call, if people are desperate for cash, I would expect them to maybe try to redeem. But at the same time, if we can, on the relative basis, do better than most - if people understand that bonds might be at risk in the next 3-5 years, not only the treasury government bonds in the world, but spreads widening on corporate credit and other things - that could be phenomenal flows.
Also, on the institutional side, we saw many clients or former clients put more and more money into private equity. And I can’t wait to see the disaster that may happen will all these highly-levered companies that went through private equity. So, I don’t think we’ll see major gross inflows in the next 3-6 months as this crisis continues. But I’m very hopeful that, as we had seen late 2000 with the First Eagle Funds where we showcased our ability to deal with the bursting of the tech bubble well, by the end of the year we will have net inflows.
Question: If your equity portfolio has come down 30% - 40% and you’re generally comfortable with your intrinsic value calculations at least in the long-term, why still only 60% in equities? Why haven’t you added more to existing names?
Charles de Vaulx: Well, as I said, we went from, what, 52.2% equities to 60%. Now, of course, because the prices are down, our net buying was a lot higher than that. So, we have been doing some net buying. Going forward, if we have to revisit – and as we’re doing - every name in the portfolio along with new ones, stress test them even more than we have so far. Again, I am exceedingly disturbed by the fact that many of the large cap quality stocks out there have barely come down. Also, it’s nice that the government is giving trillions of dollars and I applaud them for that, but how about the inflationary expectations? What happens to the valuation and the P/E multiples if interest rates may be a lot higher down the road? What happens if Joe Biden gets elected president? And whatever happens to Congress, whatever happens to corporate taxes?
There’s still a lot of uncertainty for us to pounce more. But we are ready, we have done it. And if there’s some clarification in terms of the containment of this virus on one hand, more clarification as to how far the policymakers are willing to go, some clarifications as to how strong does the plumbing of the market hold, how much is there in terms of corporate defaults out there. Chuck seemed maybe a little more optimistic than me on that front. Think about all the private enterprises in Germany and in China.
Again, we are very happy to put more cash to work and we have. We just want to make sure that we understand the parameters, the risk profile, the valuation, and we have to be compensated adequately. Chuck?
Chuck de Lardemelle: I think usually bear markets don’t last one month. They can last six months to two years depending on the issue. The two-year bear markets are usually driven by the failure of the banking system, we don’t seem to be in that position. I am struck at the speed and how dysfunctional the market seems to be in terms of assessing values and unwilling to look beyond the valley. And I think, to me, it is a sign that we have a market without investors, that we have a market that is driven by computers, by models, where you buy an asset class and sell the other. I think the biggest stuff that’s going to blow up is risk parity at some point, especially now that money is being deposited directly into accounts of people.
We are trying to find signals that would make us more comfortable that we’re not just buying a falling knife that is going to go down another 20%-25%, and I have, given you in my remarks, something that I look at very closely which are the temporary staffing companies. Over the last few days, they have held up a little bit better and maybe starting to build a base, but they are still more expensive, I believe, than they were in ’09.
I was struck twice by the fact that when companies give guidance, even though usually it’s substantially or very much in line with our worst case scenarios as we have revised them, investors seem shocked. And I’d like to see how investors are going to react on April 3 when the temporary staffing numbers are out because I don’t think temporary staffing companies have ever seen a synchronized global situation where the floor drops out. Usually, these recessions take time, it’s in one region, not in the other, so you have a temporary staffing agency and you have four employees for your agency and you let go of one and then you let go of two. This is – I have four employees in the temporary staffing agency and my revenues are down to what, 20%, 30% or 40% in just a couple of months. I mean, it’s brutal. And there is a price at which we are absolutely willing to own these companies, but I want to see them retest the ’09 lows and certainly we want to keep some ammunition to potentially buy some of these great software companies if they come down.
So, I think obviously, most investors are frustrated with value investing, but I don’t think I’ve ever seen discrepancies like that that are so in the favor of value investors with a three-year to five-year view. I think if the Microsofts of the world, the Costcos of the world hold up very well from September on or maybe during the summer, the economy roars back and these value stocks are somewhat cyclical and, for the most part, high quality, they are going to outperform substantially in my opinion. And so, of course, with a 12-month view we are quite optimistic. But we’re trying to pick our spot in terms of putting that cash to work.
Question: So, can I understand that a little bit? If you’re super comfortable with what you own with the 3-5 year view, are you holding so much cash in a way to mitigate further short-term losses in case the market goes down further? I’m trying to understand the two comments.
Charles de Vaulx: Yes, it’s for that reason. The question earlier was are we expecting big redemptions. I am not, but if redemptions come, we have to be able to meet the redemptions. And, again, that large parts of the stock market are so, so pricy disturbs me immensely.
Chuck de Lardemelle: Additionally, what we would really like to do is add new positions so that we remain completely liquid in terms of potential redemptions down the road rather than sort of supporting the price of companies we already own. As you know, we also manage this by not having too large of positions. Our analysts are certainly working hard these days, updating work that they had done in the past where now the prices appear to be attractive. Re-working a number of our intrinsic values and updating the worst case scenarios, but I would expect that over the next couple of weeks we’ll continue to find a number of attractive investments that will allow us to deploy more cash.
Question: So, just to be clear, if you just had a portfolio fully invested in your existing names, you guys are really optimistic about that group of companies at these valuations over the next 3-5 years? Is that correct?
Charles de Vaulx: I mean, I would be OK with it, but I would not be super excited. I wrongly, probably, expect huge political ramifications as in Ray Dalio paradigm shift. I think the cult of shareholder value and all these things is over - optimizing balance sheets, optimizing everything, low interest rates. I fear all this will disappear, that’s a huge negative for shareholders. That’s my view, but I’m paranoid, as you know.
Chuck de Lardemelle: As I mentioned earlier in the call, I invested a couple of millions recently into our Funds. I’m a bit more optimistic and willing to tolerate the volatility personally, because I can afford to. So, yes, I think with the 3-5 year view, we’re likely to do quite well in terms of absolute returns.
One thing that is very different though, we’ve never been into a situation like this. This is not your garden variety recession. Usually, when you have a recession in one geography, another is doing OK. This is global, this is synchronized, this is after a substantial manipulation of financial markets and prices by Central Bankers and that makes me nervous. And second, I don’t know if the Italian government gets attacked in terms of its ability to fund. And that is where you go from a recession into a depression because if the Italian long-term bond yields blow up, then the banking system in Europe is impaired and that’s the definition of going into depression.
So, I’m reasonably optimistic, but again, I’d like to see those temporary staffing companies troughing. I’d like to see, as Charles mentioned, some of these higher quality companies coming down to more reasonable levels and, hopefully, at that point, we’ll be able to deploy even more than we have recently.
Charles de Vaulx: And when I think about the alternative, when might we be fully invested, that sort of thing, I don’t know. But then, what are the alternatives? Do you want to do private equity? Do you want to do venture capital? Do you want to do bonds – municipal bonds? Do you want to do risk parity? Do you want to do hedge funds?
None of the alternatives, to me, feel better than value guys that yes, have made some mistakes in terms of understanding businesses and how they change, but people are very value conscious, people who have always paid attention to make sure that the balance sheet strength is there. Sometimes, it’s not always the case, the bonds on Cimarex traded 84 cents a dollar, for instance. And we are nimble, we have the whole world as our oyster. I think the fact that we get to look at – even though we’re predominantly equity investors - we look at credit, high-yield, currency markets, I think hopefully, looking at all these things will give us enough signals as to when to buy more. Do you have another follow up question?
Question: Just asking Chuck, when he invested his money recently, was that in the International or the Worldwide Fund? And why?
Chuck de Lardemelle: The Worldwide because you have the ability in the U.S. to participate in very unique companies, basically software and tech, and that ability does not exist outside the U.S. And so, that’s the primary reason why I picked Worldwide .
One last comment is also that given the size of our Funds, when we find a new company like this airport company where we get quite confident that the price makes no sense with the two-year view, it’s not as if we can put 1.5% to work over two days. It takes a little while to put that money to work. And that’s also why I would like to find more companies, if possible, because we’re already loaded with a number of very cheap cyclicals, if possible, away from cheap industrial companies that struggle to grow and are constantly under the threat of Chinese competition or whatever else. So, again, the fact that suddenly we’ve had three software companies pop up – in the last couple of days - I find that super exciting.
Charles de Vaulx: Well, thank you very much for your attendance in those exceedingly difficult times. As usual, within the few days we’ll have the replay of this call available on our website, and then in a week or two, the transcript of this call. Thanks again.
|Total Returns as of 6/30/20||1 Year||5 Year*||10 Year*||Since Inception* (10/1/08)|
|IVA Worldwide Fund A (no load)||-9.20%||1.26%||4.67%||6.07%|
|IVA Worldwide Fund A (with load)||-13.75%||0.24%||4.14%||5.61%|
|IVA Worldwide Fund I||-8.98%||1.51%||4.93%||6.33%|
|MSCI All Country World Index||2.11%||6.46%||9.16%||7.25%||IVA International Fund A (no load)||-11.86%||-0.64%||4.14%||5.30%|
|IVA International Fund A (with load)||-16.26%||-1.66%||3.61%||4.84%|
|IVA International Fund I||-11.62%||-0.39%||3.36%||5.56%|
|MSCI All Country World Index ex-U.S.||-4.80%||2.26%||4.97%||4.01%|
*Annualized; Inception Date 10/01/08
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 1-866-941-4482.The funds recently experienced significant negative short-term performance due to market volatility associated with the COVID-19 pandemic.
The expense ratios for the funds are as follows: IVA Worldwide Fund: 1.16% (A shares), 0.91% (I shares); IVA International Fund: 1.17% (A Shares), 0.92% (I shares). Maximum sales charge for the A shares is 5.00%. Amounts redeemed within 30 days of purchase are subject to a 2.00% fee.
As of June 30, 2020, the IVA Worldwide Fund’s top 10 holdings were: Berkshire Hathaway, Inc. Class A; Class B (5.6%); Astellas Pharma, Inc. (3.1%); Bayerische Motoren Werke AG (2.9%); LKQ Corp. (2.7%); Compagnie Financiere Richemont SA (2.4%); Newmont Corporation (2.3%); H.U. Group Holdings, Inc. (2.1%); Bureau Veritas SA (2.0%); Western Union Company (1.8%); Rohto Pharmaceutical Co., Ltd. (1.8%). As of June 30, 2020, the IVA International Fund’s top 10 holdings were: Astellas Pharma, Inc. (3.6%); Bayerische Motoren Werke AG (3.3%); Newmont Corporation (2.8%); H.U. Group Holdings, Inc. (2.6%); Bureau Veritas SA (2.4%); Compagnie Financiere Richemont SA (2.4%); Gold bullion (2.3%); Rohto Pharmaceutical Co., Ltd. (2.2%); Sodexo SA (2.1%); AIB Group PLC (1.8%).
MSCI All Country World Index is an unmanaged index consisting of 49 country indices comprised of 23 developed and 26 emerging market country indices and is calculated with dividends reinvested after deduction of withholding tax. Unlike the composite the index has no expenses. The Index is a trademark of MSCI Inc. and is not available for direct investment.
MSCI All Country World Index (ex-U.S.) is an unmanaged index consisting of 48 country indices comprised of 22 developed and 26 emerging market country indices and is calculated with dividends reinvested after deduction of withholding tax. Unlike the composite the index has no expenses. The Index is a trademark of MSCI Inc. and is not available for direct investment.
Economic and Market Events Risk:The impact of the outbreak of a novel coronavirus may be short term or may last for an extended period of time, result in a substantial economic downturn and could negatively affect the worldwide economy. Any such impact could adversely affect the Fund and may lead to losses on your investment in the Funds
Effective July 13, 2020, Chuck de Lardemelle is no longer portfolio manager of the IVA Funds. Charles de Vaulx is the sole portfolio manager of the funds and is the Chief Investment Officer of IVA, the funds’ adviser.
The views expressed herein reflect those of the portfolio managers through March 21, 2019 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.
Mutual fund investing involves risks including possible loss of principal. There are risks associated with investing in funds that invest in securities of foreign countries, such as erratic market conditions, economic and political instability and fluctuations in currency exchange rates. Value- based investments are subject to the risk that the broad market may not recognize their intrinsic value.
An investor should read and consider the fund’s 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 1-866-941-4482 or visiting www.ivafunds.com. Please read the prospectus and summary prospectus carefully before you invest. The IVA Funds are offered by IVA Funds Distributors, LLC.
EBIT: earnings before interest and taxes