February 2012

Volatility as a Friend in a Low Return World

IVA Worldwide Fund
Class
A C I

Ticker
IVWAX IVWCX IVWIX

CUSIP
45070A107 45070A503 45070A206

Since the nancial crisis hit in 2008, volatility has increased signicantly. It has been a roller coaster ride in equity markets around the world, but also in credit markets, foreign exchange markets, and commodity markets. Why we think volatility has been high and could remain high for the foreseeable future  The excessive use of debt in many economies (at the household, corporate, and government level) and the presence of still inadequately capitalized banks in Europe and possibly China. Volatility in economic activity exacerbates volatility in nancial markets.  Some major imbalances exist in terms of current account deficits that cause the fortunes of many creditor nations (China, Germany) to be joined at the hip with those of debtor nations (U.S. and the rest of Europe).  Some skepticism about the ability of various policy makers around the world to properly address todays economic problems.  There is still uncertainty as to whether the main outcome of the deleveraging that is taking place in the world will result in deation or ination.  Many industries are in a state of flux (technology, banking, media, healthcare) and assessing the sustainability of profit margins longer term is unusually difficult.  Low interest rates and in particular negative real interest rates can create an incentive to chase higher returns in risky assets without the necessary conviction and commitment to stay the course.  The growing use of exchange traded funds (ETFs), in particular leveraged ETFs, and high frequency trading may be partially responsible for some big upswings and downswings, especially on a daily basis. Volatility and Risk: Intertwined yet not the same Volatility is not the same as risk. Similarly, to a value investor, price is not the same as value (price is what you pay, value is what you get). In both instances, we believe investors should be less concerned about daily, monthly, or even yearly price changes and much more concerned about the potential permanent loss of capital in any investment. Today we are not arguing that volatility is high, while risk is low. Risk remains high but at least we are aware of some of these known risks, which were largely unknown to most market participants before 2008. As a result of that awareness, we believe that perceived risky assets such as stocks are more reasonably priced today than in 2007, while perceived risk-free assets such as cash and Treasury bonds seem to be quite expensive. Volatility can be a friend to a global and exible value investor like IVA especially in a low return world Volatility plays well into our investment strategy:  We believe that volatility often causes correlations among stocks to increase in the short term and we think that this can create mispricings when they throw the baby along with the bathwater. As equity markets were going up and down in 2009 and 2010, we owned stock in eBay, Inc. three times and Bureau Veritas SA twice. We believed these companies had good businesses; we did not think their fundamentals had changed, except for the better; it was just that the price of these two stocks moved up and down excessively which allowed us to respond accordingly. As Charles de Vaulx likes to say, the more markets or individual securities move up and down like a yo-yo, the easier it is to buy low and sell high. To achieve that, it is critical to be small and nimble, and to have the prerogative to hold cash as we do at IVA.

IVA International Fund

Class
A C I

Ticker
IVIOX IVICX IVIQX

CUSIP
45070A305 45070A602 45070A404

Investment Risks 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 uctuations in currency exchange rates. Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value.

continued to page two

www.ivafunds.com

  In these volatile markets, having not only intrinsic values1 for our companies but also worst case scenarios helps. We can better assess the risks associated with these companies and also establish what we believe will be great entry points into these stocks, particularly when we see the price of a stock fall below our worst case scenario. Being able at times to buy stocks below a harsh worst case scenario gives great peace of mind with potential upside, says Charles de Lardemelle.  During May and June 2010 our benchmark, the MSCI All Country World Index, fell -12.27% and we initiated positions in MasterCard Inc. and Microsoft Corp. as both were trading at significant discounts to our intrinsic value estimate and almost in line with some pretty drastic worst case scenario estimates. We also added to existing positions in Dell Inc., Wal-Mart Stores Inc., and also in foreign names like Genting Malaysia Berhad and Astellas Pharma Inc. These securities worked out to be good investments for our shareholders, having initially corrected for no other reason than they were correlated short term with equity markets at large.  Market dislocations work to our advantage because we are willing to be multi-cap investors, and invest in asset classes other than equities. High volatility sometimes causes traditional correlations between asset classes to breakdown and that can open the door to good investment opportunities. In the fall of 2008 and first half of 2009 we bought what we felt were safe bonds at high yields, such as Wendel which was yielding over 15% annually (many were even formally investment grade like Home Depot which was yielding over 10% annually). And they offered, by our measures, a much better risk reward ratio than many equities. By June 2009 we had as much as 32% of the IVA Worldwide Fund and about 22% of the IVA International Fund invested in high yield bonds. In comparison, as of December 31, 2011, almost 8% of the Worldwide Fund and about 6% of the International Fund were invested in high yield bonds. High volatility can also result in smaller stocks being shunned by market participants who tend to put a big premium on liquidity. In Asia today, we find that small-cap stocks are much cheaper, on a valuation basis, than large-cap stocks and we are now beginning to see that happening in Europe as well.  There are other times when market declines do not allow us to pounce as much as we would like to. In the recent period from August to October 2011, the MSCI All Country World Index fell -16.06% from August 1 through September 30 before rebounding 10.71% during the month of October. Unfortunately for us, the decline was orderly and there was a pretty good discrimination between the good stocks (good businesses, well capitalized) and the not so good stocks (mediocre and/or very cyclical businesses, undercapitalized companies) making it difficult for us to initiate new positions or add significantly to existing ones. So be it! But during that timeframe it was unfortunate to see that many individual investors and advisers sold out of mutual funds, missing the entire October rebound. Data from the Investment Company Institute shows that equity funds saw steady outflows during that period approximately $29 billion in August, $13 billion in September, and $20 billion in October. For some investors, volatility offers a way to buy low and sell high, for others unfortunately, a way to buy high and sell low. Both IVA Worldwide and IVA International have been able to exhibit modest volatility, especially on the downside We often quote Peter Bernstein: We cannot make returns happen, all we can do is control the degree of risk to which a portfolio is exposed if things go wrong. Even though we strive to take advantage of volatility in various financial markets, we nonetheless attempt to reduce the volatility of our Funds, especially volatility on the downside. We try to achieve that by owning stocks of companies with strong balance sheets and solid businesses, by insisting on a significant discount to intrinsic value, by making at times big negative bets and sometimes avoiding some segments of the market altogether (financial stocks and emerging markets in the recent past), and by using high yield bonds when appropriate. Additionally our allocation to cash acts as a buffer against overall portfolio volatility and protects the portfolio on the downside, and gold, at times, is inversely correlated to financial assets. For example, during the following two periods, we demonstrated resiliency in down markets. From May 1 through June 30, 2010, the IVA Worldwide Fund returned -5.23% versus the MSCI All Country World Index return of -12.27%. And from August 1 through September 30, 2011, the IVA Worldwide Fund returned -9.35% versus the MSCI All Country World Index return of -16.06%. To conclude, extended times of high volatility often coincide with times of low returns (1930s after the Crash, mid to late 1970s after the 1973-74 oil crisis). At IVA, we would not be surprised to see volatility remain high for many years to come. If so, we hope to keep exploiting that volatility, yet without our Funds exhibiting much volatility themselves. This is specic to core positions newly initiated by IVA. The timing of capital inows as well as the time elapsed to invest new capital towards the applicable IVA model may cause deviations from IVAs intended margin of safety.
1

www.ivafunds.com

Performance Information
(as of March 31, 2013)
Class
IVA Worldwide Fund Class A (NAV) IVA Worldwide Fund Class A (w/ 5% sales charge) MSCI All Country World Index (Net) IVA International Fund Class A (NAV) IVA International Fund Class A (w/ 5% sales charge) MSCI All Country World Index (Ex-US)(Net)

1 Year
6.61% 1.27% 10.55% 9.51% 4.01% 8.36%

Since Inception*
11.64% 10.38% 6.89% 11.36% 10.11% 5.46%

*Annualized Past performance does not guarantee future results. The performance data quoted represents past performance and current results 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 uctuate so that an investors 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. Maximum sales charge for the A shares is 5.00%. The expense ratios for the funds are as follows: IVA Worldwide Fund 1.28% (Class A); IVA International Fund 1.27% (Class A). The inception date of both funds is October 1, 2008. As of March 31, 2013, the IVA Worldwide Funds top 10 holdings were: SIGB (Singapore Government) 2.25% 2013, 3.625% 2014 (5.3%); Gold bullion (4.9%); Wendel 4.375% 2017, 4.875% 2016, 6.75% 2018 (4.1%); Berkshire Hathaway Inc. Cl A; Cl B (3.9%); Astellas Pharma Inc. (3.2%); Devon Energy Corp. (2.4%); Nestle SA (2.2%); Genting Malaysia Berhad (2.0%); Expeditors International of Washington Inc. (1.8%); Intelsat SA 11.25% 2017, 11.5% 2017, 7.75% 2021 (1.5%). As of March 31, 2013, the IVA International Funds top 10 holdings were: SIGB (Singapore Government) 2.25% 2013, 3.625% 2014 (7.0%); Gold bullion (4.8%); Wendel 4.375% 2017, 4.875% 2016, 6.75% 2018 (3.4%); Astellas Pharma Inc. (3.3%); Genting Malaysia Berhad (2.8%); Nestle SA (2.7%); Temp Holdings Co. Ltd. (1.7%); Intelsat SA 11.25% 2017, 11.5% 2017, 7.75% 2021 (1.6%); Total SA (ADR) (1.5%); Sodexo SA (1.5%). MSCI All Country World Index (Net) 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) is an unmanaged index consisting of 44 country indices comprising 23 developed and 21 emerging market country indices and is calculated withdividends reinvested after deduction of withholding tax. The Index is a trademark of Morgan Stanley Capital International and is not available for direct investment. The views expressed in this document reect 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 specic 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 1-866-941-4482 or visiting www.ivafunds.com. The IVA Funds are offered by IVA Funds Distributors, LLC. The IVA Funds are closed to new investors.

International Value Advisers, LLC 717 Fifth Avenue, 10th Floor New York, NY 10022 877.874.2999

www.ivafunds.com