DuPont Capital Emerging Markets Fund (DCMEX) Quarterly Report - March 31, 2015

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1 Equity Market Review Nearly all major equity markets rose during the period, led by Europe and Japan. Global equity markets benefited from the continuation of easy monetary policy by the world s largest central banks. The U.S. Federal Reserve made supportive statements regarding the ultimate withdrawal of financial stimulus, while Europe appears poised to increase its use of monetary policy to aid growth. In addition, the Chinese central bank has taken credit easing steps due to slower economic growth. The U.S. Dollar continued to rise due to the expectation of higher relative interest rates in the U.S. Regional Performance - Emerging Markets Russian equity and currency markets rebounded as Ukrainian violence subsided and oil prices stabilized. outperformed due to supportive tax and other government measures for banks in the country. Country returns within emerging Asia were generally positive, led by and. The Chinese central bank is adopting more accommodative monetary policy to support slower than expected growth. Lower than expected inflation and reasonable budget plans allowed the n central bank to ease their monetary policy. Political events in Brazil, Greece, and Turkey drove their markets lower for the quarter. Brazil is struggling to contain the fallout from the Petrobras scandal and slowing domestic growth. Greece is engaged in a nasty battle with its primary creditors. Turkey is dealing with violence along its borders and the conflicting ambitions of current political leaders. Sector Performance - Emerging Markets Once again, health care and technology led the market higher as investors sought growth. shares in were particularly strong. Commodity prices were mixed during the quarter; copper and oil prices seemed to stabilize but iron ore and steel prices continued to decline. The stabilization in oil prices helped the energy sector perform in line with the broader market, while the materials sector continued to underperform. Stock returns within the financial sector varied and tended to correlate highly with their overall country; financials within, Russia, and the Philippines performed well while financials in Colombia, Greece, and Turkey lagged. Defensive sectors such as consumer staples, telecommunications, and utilities failed keep up with the overall market s advance. Drought conditions and regulatory concerns in Brazil negatively impacted utilities. Equity Market Performance (%) as of 3/31/15 QTD YTD 1Q 15 EM Sector Returns 1- Annualized MSCI EM S&P MSCI EAFE MSCI ACWI Q 15 Top/Bottom Country Returns Russia Philippines Peru Brazil Turkey Colombia Greece -40% -30% -20% -10% 0% 10% 20% 30% Sources: DCM, MSCI Cons. Discretionary Sources: DCM, MSCI -4% -2% 0% 2% 4% 6% 8% 10% Page 1

2 Performance (%) as of 12/31/14 QTD YTD Since Incep. Fund Benchmark All returns greater than one year are annualized. Inception date is December 7, All returns expressed in US Dollars and Fund returns are net of fees. The benchmark is the MSCI Emerging Markets Index. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher. The investment return and principal value of an investment will fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original cost. For performance current to the most recent month-end, please call Performance results reflect the reinvestment of dividends and other earnings. returns reflect waivers and/or expense reimbursements by the manager and/or distributor for some or all of the periods shown. Performance would have been lower without such waivers. The quoted returns do not reflect a 2% redemption fee on shares redeemed within 60 days of purchase. The total operating expense ratio is 1.33%. The Adviser has contractually agreed to reduce and/or reimburse certain expenses until August 31, Furthermore, the Adviser may recoup such amounts for up to three years from the year it reduced and/or assumed expenses. Top/Bottom Relative Contribution by Country Relative Contribution by Sector Indonesia Brazil Turkey Greece Taiwan South Africa South Korea -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% Cons.Discretionary -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% Relative Performance and Attribution Analysis: Stocks with low valuation characteristics, such as low price to earnings ratios, tended to underperform, while stocks with strong price momentum (i.e. high past returns) tended to perform well. This dynamic created a headwind for the Fund. Favorable stock selection in the materials sector positively impacted performance. The Fund owns two Russian export-oriented businesses, which are benefiting from a depreciating Ruble. The materials sector has also benefited from not owning iron ore company, Vale, and a position in LG Chem, which rose on better than expected earnings. An under allocation to the technology sector, and stock selection within the sector, detracted from performance. The majority of the negative impact is the result of not owning Chinese Internet company Tencent Holdings. The negative relative performance impact from the industrial sector was due to a few Brazilian companies, which underperformed on economic growth concerns and the sharp depreciation of the Brazilian currency. was the top contributing country in the Fund on a relative basis, driven by a position in OTP Bank. Favorable stock selection across Indonesia also benefited the Fund. Stock selection in was negatively impacted by not owning internet company Tencent Holdings. Both an under allocation to and stock selection within the country detracted from performance. Page 2

3 Avg. Weight Fund Return Cont. Avg. Weight MSCI EM Net Div Return 5 Highest Contributors Cont. Effect MSCI Sector Country OTP Bank Nyrt Novolipetsk Steel OJSC Russia LG Chem Ltd South Korea Shenzhou Intl Grp. Holdings Ltd Cons. Discretionary Vale S.A Brazil 5 Lowest Contributors Tencent Holdings Ltd Embraer S.A Brazil Samsung Life Insurance Co., Ltd South Korea Shenhua Co. Ltd Even Construtora e Incorporadora Cons. Discretionary Brazil Significant Trading Activity We diversified positions within the telecommunications sector by adding a new position in MTN Group and adding to an existing position in Turkcell. MTN has broad exposure to the higher growth telecommunications markets in Africa and the Middle East. The company s strong market positions and good operating capabilities allow them to earn above average returns on capital and generate strong cash flow. The valuation became attractive when the shares traded down due to economic and political concerns in a few of its markets. We trimmed positions in America Movil and Mobile to fund the purchase of MTN. Turkcell is the dominant mobile phone provider in Turkey. The company has the ability to significantly increase dividends or fund its growth due to a cash rich balance sheet. A position in Orange Polska, a Polish telecommunications provider, was sold during the period due to competition and capital allocation concerns. The Fund s under allocation to Chinese financials was reduced with the purchase of additional shares of Construction Bank. Construction Bank is one of the largest banks in and is controlled by the central government. The Fund has been under allocated to Chinese financials for some time due to credit quality concerns, however, the centrals government s recent actions helped alleviate some of these concerns. The shift in policy coupled with the low valuation of the shares caused us to reduce the under allocation. Among the positive steps the central government is taking to address credit concerns are allowing debt swaps for local governments, permitting municipal bond issuance, some rationalizing of state owned companies in areas with overcapacity, and increasing monetary stimulus to boost credit. We reduced the Fund s banking positons in Eastern Europe and Malaysia to fund the purchase of Construction Bank. Also within the financial sector, we added to the Fund s position in ICICI Bank. ICICI Bank is a leading private bank in and we believe they have the ability to continue improving its return on capital. Bancolombia was sold due to increasing credit and capital concerns. Page 3

4 Relative Allocation by Country South Korea Czech Republic Peru Thailand Philippines Taiwan South Africa Weights exclude cash and ETFs. -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% Portfolio Positioning Fund positioning remains similar to the end of last quarter. Relative Allocation by Sector Cons.Discretionary Weights exclude cash and ETFs. -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% Overweight Exposure The Fund remains over allocated to cyclical sectors of the market: consumer discretionary, industrials, and materials. Valuations remain very attractive within these areas of the market and the stocks should benefit as global trade improves and emerging markets continue to grow. Korea remains the largest country over allocation as we have been able to find high quality companies trading at attractive valuations. The Fund is also over allocated to Eastern Europe, mostly due to positions in three very well capitalized, attractively valued financials. Underweight Exposure The Fund remains under allocated to consumer staples, health care, and technology. These sectors are very highly valued by investors and we have not been able to find many undervalued opportunities within these sectors. The sectors are particularly expensive relative to the cyclical sectors of the market. The Fund is under allocated to the financial sector due to an underweight of Chinese financials. The under allocation to Chinese financials has been due to credit quality concerns. The shares are generally undervalued, however, and credit concerns have lessened somewhat recently due to changes in Chinese central government policy. For these reasons, we have reduced the under allocation to Chinese financials. South Africa and are the largest country under allocations. South African stocks are generally overvalued despite a weak economic outlook, presenting few good opportunities. n stocks are also generally more expensive than the broader market, but economic and financial policy changes have been favorable. We have been able to find a few opportunities in where the valuation is attractive and benefits could be realized from improving government policy. Page 4

5 Market Outlook Our base case scenario for this year is moderate global growth. We generally expect growth in to slow and the government to continue supportive growth measures to ensure stability. We are also expecting interest rate normalization to commence in the U.S., which may add volatility to emerging market currencies. The Fund is positioned for cyclicals to outperform growth and defensive sectors. The valuation discount for cyclicals implies a material amount of economic growth pessimism. Within this general positioning, we have been diversifying the Fund s exposures both geographically, across industries, and by identifying stock specific opportunities. Given our concerns regarding the likely rise in U.S. interest rates and the increase in the U.S. Dollar, we have been cautious in purchasing companies reliant on U.S. Dollar funding. Overall, we maintain our favorable outlook for emerging market equities. While economic growth has decelerated in the near term, absolute levels of growth are still healthy for most countries. Valuations remain attractive both on an absolute basis and relative to developed markets. The information contained in this memorandum is intended for the sole use in understanding and evaluating the impact of market events on DCMEX and is not designed or intended to be used for any other purpose. The document may contain forward-looking statements, which are based on current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements. Risk Considerations Mutual fund investing involves risks, including possible loss of principal. The Fund invests primarily in markets of emerging countries, which are riskier than more developed markets and may be considered speculative. Emerging markets are riskier than more developed markets because they tend to develop unevenly or may never fully develop. Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affect returns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and less liquidity than developed markets. Foreign securities are subject to political, social, or economic risks, including instability in the country of the issuer of a security, variation in international trade patterns, the possibility of the imposition of exchange controls, expropriation, confiscatory taxation, limits on movement of currency or other assets, and nationalization of assets. Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus contains this and other information about the Fund and may be obtained by calling or by accessing Please read the prospectus carefully before investing. Shares of the DuPont Capital Emerging Markets Fund are distributed by Foreside Funds Distributors LLC. Page 5