Polaris Global Value Fund 2Q15 Commentary

Polaris Global Value Fund commentary for the second quarter ended June 30, 2015.

Dear Fellow Shareholder,

The Polaris Global Value Fund (“the Fund”) outperformed the MSCI World Index, net benchmark in the quarter. The Polaris Global Value Fund returned 0.86%, while the Index advanced 0.31%. Fund holdings in six of 10 sectors were in absolute positive territory for the quarter. The consumer discretionary sector drove performance, with multiple holdings posting double-digit returns. U.S. community banks, rallying on rising interest rate expectations, boosted results in the financial sector. The materials and energy sectors added measurably.

British homebuilders, Taylor Wimpey PLC, Bellway PLC, Barratt Developments PLC and Persimmon PLC, were among the top individual stock performers. Freenet AG was a standout in the telecom industry, after announcing healthy March 2015 quarter-end revenues and an increasing subscriber base; declines at Frontier Communications Corp. dampened industry returns. Gains by Microsoft Corporation (NASDAQ:MSFT) Corp. could not offset losses in the information technology sector, with Xerox Corp (NYSE:XRX) Corp., Wincor Nixdorf AG and Samsung Electronics Co., Ltd. (LON:BC94) Electronics Co., Ltd. down.

We capitalized on volatility in global markets, induced by negative headline news, to bolster positions in undervalued, but fundamentally-strong companies. We continued to update our investment theses, scrutinize company financials and cash flows, and execute sales and purchases for potentially better risk/return profiles. The efforts of our research team paid off, as approximately half of Fund holdings produced gains during the quarter. On a year-to-date basis, Polaris Global Value Fund returned 6.07% compared to the MSCI World Index, net, which is up 2.63%.

The consumer discretionary sector was led by the aforementioned U.K. homebuilders, which rose as a result of more liberalized land availability. The British government instituted a five-year plan to make more municipal land available for additional housing, ensuring that housing prices do not accelerate too fast due to supply-demand constraints. Previously owned government and industrial sites have recently opened for sale, allowing homebuilders to purchase most of that inexpensive land. U.S. children clothing manufacturer, Carter’s Inc., had double digit growth after one of its subsidiaries, OshKosh, staged a rebound. OshKosh implemented a strategy to start promoting its branded clothing in Carter’s Inc. stores, which effectively boosted sales. Michelin, a French tire manufacturer, reported first quarter 2015 earnings, noting global volume growth due to lower gas prices and lower raw material prices. REXLot Holdings, Ltd. was the main detractor in the sector, as the stock dropped and was suspended from trading after an Anonymous Analytics’ report criticized the company’s accounting standards, claiming that REXLot Holdings, Ltd. exaggerated revenues. Short sellers took advantage of this purported news. We have found no evidence of such irregularities following discussions with Rexlot’s management. During the quarter, we added one new holding to the consumer discretionary sector: Kia Motors Corp., a South Korean manufacturer of more than 1.5 million motor vehicles each year.

Many U.S. financials rallied on expectations that the Federal Reserve would raise interest rates sooner than previously projected. In fact, 10 of 12 U.S. community banks in the portfolio had strong returns during the quarter. Independent Bank Corp. was up approximately 10% after reporting first quarter 2015 profits that topped Wall Street expectations. Investors were also heartened by the seamless completion of the bank’s recent acquisition of Peoples Federal Bancshares. Webster Financial Corp. continued to reap the benefits from the acquisition of J.P. Morgan’s health savings account business.

Despite falling oil prices, Norway maintained a rorobust economy with high employment rates. DNB Bank continued to thrive in this environment, achieving good mortgage margins and lower loan loss provisions. German reinsurer, Munich Re, detracted from sector returns after announcing quarterly profit below the comparable prior year period. The reinsurer maintained its profit target for the year, pointing to demand for primary insurance and reinsurance coverage.

Our research has identified a wealth of undervalued financial companies worldwide, including Capital One, the fourth largest credit card and third largest automotive financing company in the U.S. We decided to purchase Capital One on the back of lower oil prices, which we felt would benefit the bank. We believe consumers may use the savings from gas expenditures to strengthen their credit and pay off debts. Optimism about the U.S. economy will likely spur on consumer purchases, ranging from new cars to greater credit card usage, all of which potentially help Capital One’s business.

German specialty chemicals producer, Lanxess AG (ETR:LXS) (FRA:LXS) (OTCMKTS:LNXSF) AG, boosted the materials sector as the company announced robust product demand in conjunction with lower raw material costs. A variable exchange rate in Euros against the U.S. dollar also aided performance. Imerys SA, a French multi-national firm specializing in processing industrial minerals, saw gains after announcing quarterly earnings. Increased revenues were attributable to the integration of 2014-2015 acquisitions, S&B, Monolithic Refractories and Carbonates. Irish building materials supplier CRH PLC was sold during the quarter. While we still consider the company a good long-term investment, we determined that CRH’s current earnings volatility and higher debt load, following the recent acquisition of Lafarge and Holcim assets, offered a less favorable risk/return profile than new portfolio investments.

The