· 4.04.2011 · author: luke created date: 1/20/2011 10:04:39 am

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Past performance is not necessarily indicative of future results. Individual investor results may vary. Index information is included for illustrative purposes only and is not intended to imply that the portfolio was similar to any index either in composition or element of risk. The foregoing should not be deemed an offer to sell or a solicitation of an offer to buy an interest in WorldOver Fund Ltd ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

WorldOver Capital Ltd, Nemours Chambers, Road Town, Tortola, BVI Tel. +852 9667 9154 Fax +612 9475 0705 Email: [email protected] WWW.WORLDOVERCAPITAL.COM

Equities are still probably the best asset class at present but valuations are not that attractive based on most historical metrics.

The main valuation problem for equities is the very high level of operating margins. This has been achieved through squeezing

labour and via falling imported costs. This situation may persist for a while longer but eventually there will be a reaction. This

may already be starting to occur as pressures mount on the Chinese cost structure, resulting in higher import prices in the

developed world, and a gradual fight back by local labour as their relative competitiveness improves. This is not evident at the

moment because of high unemployment rates and under-utilised capacity but the situation is being monitored.

WorldOver has been relatively cautious through most of 2010 with a heavy level of hedging being in place most of the time.

WorldOver continues to see value within the world’s emerging markets but risks have risen. Superior economic growth, less

burdened consumers and governments, and healthier financial institutions should continue to result in positive equity returns.

However, rising inflation and interest rates, combined with strengthening currencies, has levelled the relative playing field. A

strengthening US economy may also help underpin the dollar which would add another negative pressure on emerging market

equities. Offsetting that, is the likelihood that reasonable strength in the global economy will increase demand for raw materials

and push commodity prices higher, particularly as inventory levels, in the main, are toward the lower end of historical averages.

WorldOver enters 2011 overweight emerging markets, particularly Asia and Africa, and resources. This is a strategy which clearly

worked in 2010, aided by heavy outperformance by the particular stocks in the portfolio against their relevant benchmark.

However, the risks to this strategy have grown and WorldOver is monitoring events closely.

THE PORTFOLIO

WorldOver’s overweight position in resources, combined with demonstrable outperformance of the resource counters versus

their respective index benchmarks, were the main reasons for the good level of outperformance in 4Q10. Within resources the

main areas of performance came from gold, coking coal, copper and uranium. Oil and gas underperformed. On a regional basis

MENA, Australia and North America showed the best performance while Switzerland and China lagged noticeably.

WorldOver began the quarter with 33 stocks and finished with 33, with seven names sold and the same number added. Three

disposals were in the energy sector, two from infrastructure and one each from finance and retail. Five of the additions were in

resources, all mainly pre-production miners, plus oil services and Chinese healthcare.

Basic Resources (44% weighting at end 4Q10) was the best performing sector over the quarter at +43% versus gains in the global

mining index of +21%, global energy +5% and FT Gold Mines index +7%. The weighting of the basic resources component of the

portfolio increased during the quarter (from 33% to 44%) even as WorldOver was selling into strength, due to the significant

level of outperformance of many of the components. At end 4Q10 WorldOver had exposure to 15 companies within resources

ranging from coking coal (1), iron ore (2), steel based minerals (1), base metals (4), precious metals (5), steaming coal (1) and

uranium (1). The weighting of gold and copper increased over the quarter due to new counters being added, strong relative

performance and removal of counters within the oil & gas and water sectors.

The best performing stock in the sector was a Namibian copper play added during the period. This stock rose by almost 200%

and contributed 3 percentage points to the overall performance of the portfolio during 4Q10. This particular company is

rehabilitating an existing copper/gold mine in Namibia and production is expected to recommence early in 1Q11. Costs of

production are in the third quartile of the global copper cost curve at around USD4000/t and production is set to quadruple

between 2011 and 2014. At current copper prices the shares are trading on a 2012 P/E of less than 3x and in 2013 at less than

2x.

The biggest contribution to performance came from the Mali based gold producer/explorer. On the back of increased gold

production, some excellent exploration discoveries and a lifting in reserve estimates, this share rose by +180% and contributed

over 4 percentage points to the overall performance of the portfolio in 4Q10. The next best contributor to performance in 4Q10

was the long held Australian coking coal miner which rose by +41% due to it being bid for by a Chinese company. The takeover

has yet to be consummated as the Chinese authorities have yet to give all the permissions for the bid. Another notable

performer was the near +100% increase in the share price of the Eastern European uranium developer/explorer due to an

increase in reserves and a near 50% increase in the spot uranium price. WorldOver began selling down this holding near its highs

as better value began to appear elsewhere. During 4Q10 WorldOver took a position in a pre-development iron ore company in



Country Distribution

4%

24%

24%2%

15%

0%

0%

16%

11%

Cash+other

China

Pacific+Asia (ex

China/Japan)

Swiss

Russia

Europe

UK

Africa

Americas

Sector distribution

4% 14%

44%2%

9%

16%

5% 5%

Cash+other

Other sectors

Basic

resources

Telco

Healthcare

Util/Infra

Financials

C'sumer/Retail

Western Australia. This stock rose by +81% following the approval for development by the local people. Significant further

upside is in prospect should the environmental study prove positive and an iron ore off-take agreement be negotiated with one

of the large steel producers in Asia. Both of these events may be cleared over the next twelve months. Being an island based

resource, near to existing infrastructure, no rail or port development is required. The only notable disappointment within the

resource part of the portfolio was the decision by the nickel development company to abandon efforts to get approval for its

mine in Turkey and turn attention to its Philippine development projects. The shares fell -37% during the period.

Biotech/Healthcare (9%) was the worst performing sector during 4Q10 declining by -20%, as all three counters fell. The Swiss

based biotech fell by -16% as it lost its sponsor for a US trial in one of its most promising drugs. This will place a greater financial

burden on the company unless another sponsor can be found. The Chinese hospital supply company fell by -25% during 4Q10

although since being acquired in February 2010 the shares have risen +77%. There was no real news but the rapid rise in the

share price had made them appear quite expensive based on near term earnings. It is only in 2012, with the release of a plastic

ampoule product and sizeable expansion of its intravenous plastic bag manufacturing capacity, when there will be very sizeable

lift in its earnings. The other Chinese healthcare company, operating in both the traditional Chinese medicine (TCM) and

pharmaceutical markets, fell by -10% in 4Q10, as rains delayed the development of its new active pharmaceutical ingredient

(API) manufacturing facility, by around 3 months.

Telecoms (2%) rose by +32% during 4Q10.

Financials (5%) rose by +7% in 4Q10. The best returns came from the two Thai banking stocks where ongoing loan growth,

falling provisions and a growing economy pushed up profits. The need to invest in infrastructure over the next two to three

years, after having been neglected for the past 10-15 years, should ensure ongoing loan growth in excess of country growth at c.

12-15% pa. During the quarter the big US retail bank was sold, after having made a strong recovery, mainly as a result of the

buy/write strategy deployed. The Indonesian counters in banking and property both made small positive contributions.

Infrastructure/Utilities (16%) fell by -3% in 4Q10. The entire decline was accounted for by a fall of -19% in the biggest weighted

stock, the Chinese gas distribution company. Initially the weakness occurred because of a surprise equity placement to reduce

debt, but then two directors were detained for allegedly appropriating company assets. The company responded by suspending

trading in the shares and refuting any loss of property, cash or assets. The shares are still suspended.

Consumer/Retail (5%) rose by a modest +4% during 4Q10. The long held Chinese backpack manufacturer lost about -10% over

the quarter. This share was sold toward the end of the period after only providing mediocre performance, mainly because of the

difficulty in accessing management and understanding their long term strategy for the business. The Chinese lottery company

began to recover over the quarter rising +11% as the published figures on lottery usage were positive and electronic

gaming/betting edged closer. The Malaysian retail stock was up +19% as it announced a stock split.



HEDGING/TRADING

The final quarter of 2010 was a difficult period for the hedge/trading book with a negative performance of nearly 4% of the

portfolio value. Although it is always disappointing to book a loss, WorldOver's decision to maintain some level of portfolio

hedging was bound to incur a cost in a quarter when equities and commodities both produced strong overall performances.

Analyzing the specific components of the hedge book, it is clear that the options hedge book managed to keep the monthly drag

on the portfolio performance to the targeted maximum level of 1/2% per month. Although this cost could have been lowered by

selling some upside performance, WorldOver felt that the low levels of premium which would have been received for selling call

options were not adequate to compensate for the risk. The commodities futures hedges produced a negative return

approximately equal to that of the options book. A large portion of WorldOver's commodity equity portfolio consists of early-

stage producers which are very difficult to hedge as they often decline with the prices of the underlying commodities but do not

necessarily rise when prices are strong--unless they produce excellent drilling/reserve reports. Fortunately, the news flow for

WorldOver's resource equities was good and the underlying stocks performed exceptionally well, more than offsetting the

hedge costs.

Whilst the options and futures hedge books produced the expected levels of return, it was the smaller trading books which

turned in particularly disappointing results in Q4, especially since these strategies are designed to reduce the overall hedge cost.

The small scale trading book executes short-term trades on stocks which are either already a part of the WorldOver portfolio or

which are under consideration to be added. Although the overall trading was satisfactory, the poor financial results from one

counter produced losses, which more than offset the positive contributions of the rest of the book, leading to a drag on the

overall portfolio of 1/2% instead of an expected profit. Similarly, the buy-write book, which should normally add a small

incremental return to the portfolio, produced a small negative return as the underlying equities were extremely volatile during

the quarter.

As WorldOver enters 2011, the shape of the hedge book is currently less aggressive than during most of 2010. Option striking

prices are further out of the money and no upside call options have yet been sold. This is in keeping with WorldOver's present

view that, in spite of the obvious risks in the background, equities may continue, relatively, to be the best performing asset class.

In an environment of high investor participation but low conviction however, any setbacks could potentially be quite large,

hence the maintenance of some downside protection at lower levels.

CLOSING REMARKS

WorldOver managed to have a good 4Q10 and a satisfactory 2010. This was partially achieved through good regional and sector

allocation but predominantly through stock selection. Over a long period of time, it is possible to achieve outperformance purely

through stock selection, while performance is helped if FX, regional and sector allocations are supportive. WorldOver is an

equities fund and the long investment history of its managers has been built in trying to understand how to make superior

returns through equity investment, on a global basis, without any bias from a regional, sector or FX perspective. At the present

time, equities appear to be the investment class of choice, in our opinion, but this is only on a relative basis. For the past twenty

years bond investors have had an easy ride as global inflation has steadily been reduced and with that nominal interest rates.

Bonds have easily outperformed equities. That game has now finished or is in its final throes. Equities will be the best asset class

over the next twenty years. However, equity values are not particularly attractive on an historical basis and the next few years

are not likely to result in overall strong equity performance. That being the case, stock, sector and regional allocations will be the

difference between satisfactory returns and disappointment. Worldover is in a state of constant vigilance when it comes to

finding ways of delivering positive absolute returns. This is not an easy task and is also often lonely, as an investment path is

often chosen, which differs with that of the investing crowd. WorldOver treats equity investment as a marathon not a sprint.

WorldOver enters 2011 feeling decidedly concerned by short term euphoria created by the unprecedented levels of liquidity

that have been pumped into the system. This will have consequences. As our boat heads out each day, into the global

turbulence, we will do our best to bring home the best of the available fish while being mindful of the ever changing risks.



Quarterly Relative Performance

Fund vs HFRX Equity Hedge Fund

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

HR rel -0.9% 3.2% -15.1 -10.9 11.9%13.5% 0.7% -2.2% 9.9% -1.2% 1.8% 4.5%

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10

Quarterly absolute performance in US$

WorldOver Fund MSCI World HFRX Eq

Data Table and Charts

31 Dec 10 -3M -6M -12M 19-Dec-07

WorldOver Global 103.9 11.8% 20.0% 26.1% 3.9%

HFRX * 1236.3 7.0% 12.8% 8.9% -6.6%

DJ CS Hedge Fund^ 441.2 4.7% 10.3% 10.9% **6.5%

JPM World Bond 859.8 -3.2 4.6% 3.6% **17.8%

MSCI World 1280.1 8.6% 22.9% 9.6% -17.5%

MSCI EM 1151.4 7.1% 25.4% 16.4% -3.8%

FTSE AllCap Em 828.9 7.1% 25.7% 17.4% -0.8%

Asia X Japan 567.4 6.5% 22.9% 17.0% -4.5%

DJ Global SmlCap 338.2 12.2% 29.8% 22.8% 2.2%

Gold 1421.1 8.7% 14.1% 29.8% 77.4%

Copper 444.0 21.8% 51.2% 33.4% 50.7%

Oil 91.4 14.3% 20.8% 15.1% 0.2%

CRB 332.8 16.0% 28.7% 17.4% -5.0%

Baltic Dry 1773.0 -27.5% -26.3% -41.0% -81.5%

*Hedge Fund Research index is not cap weighted

^DJ CS Hedge Fund index is cap weighted

** Since 31 Dec 07

· 4.04.2011 · author: luke created date: 1/20/2011 10:04:39 am

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