Form N-CSR World Funds Trust For: Sep 30

Clifford Capital Partners Fund

Clifford Capital Focused Small Cap Value Fund

Clifford Capital International Value Fund*

Clifford Capital Funds

Shareholder Letter

Clifford Capital Partners Fund, Focused Small Cap Value Fund,
and International Value Fund (the “Funds”)
Annual Report for the Period October 1, 2021 – September 30, 2022

Clifford Capital Partners Fund Performance

Expense Ratio Gross/Net: CLIFX 1.42%/0.90%; CLFFX 1.61%/1.15%; CLIQX 1.35%/0.82%

⁽¹⁾   The Russell 3000^® Value Index is a capitalization-weighted index which is designed to measure performance of Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. Numbers presented include the reinvestment of dividends (total return). An investor cannot invest directly in an index.

Clifford Capital Focused Small Cap Value Fund Performance

Expense Ratio Gross/Net: FSVVX 3.01%/1.05%; FSVQX 2.93%/0.97%; FSVRX 3.30%/1.30%

⁽²⁾   The Russell 2000^® Total Return Value Index is a capitalization-weighted index which is designed to measure performance of Russell 2000 Index companies with lower price-to-book ratios and lower forecasted growth values. Numbers presented include the reinvestment of dividends (total return). An investor cannot invest directly in an index.

Clifford Capital International Value Fund Performance

Expense Ratio Gross/Net: CCIVX 1.87%/1.06%; CIIRX 2.12%/1.31%; CIVQX 1.79%/0.98%

Clifford Capital Partners, LLC (the “Adviser”) has contractually agreed to reduce fees and/or reimburse certain expenses for the Funds until January 31, 2024.

Performance data quoted represents past performance; past performance does not guarantee future results. 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. Current performance of the Funds may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (800) 628-4077. Short term performance, in particular, is not a good indication of the Funds’ future performance, and an investment should not be made based solely on returns.

Invitation to Visit the Funds’ Website at www.cliffordcapfunds.com

In an effort to communicate with all shareholders, we invite you to bookmark the Clifford Capital Funds’ website at cliffordcapfunds.com where you may find quarterly commentary and other information relevant to the Funds. We hope you find this additional information insightful and instructive.

⁽³⁾The MSCI EAFE Value Index is a capitalization-weighted index which is designed to measure performance of large and mid cap securities exhibiting overall value style characteristics across developed markets countries around the world, excluding the United States and Canada. Numbers presented to include the reinvestment of dividends, net of withholding taxes.

Performance Summary

It has been rough sledding for the Funds during the past year as global stock markets have been in upheaval. We attribute most of the stock market weakness to higher interest rates across the globe as much of the world is grappling with higher inflation. In the U.S., the Fed has begun tightening monetary conditions and raising interest rates, which has been a shock to the domestic financial system. This sea change in Fed behavior was coupled with extremely high stock valuations in certain subsets of the U.S. market coming into the year, which we think has led to outsized losses in many stocks. We also believe investors in many nations—including the U.S.—continue to worry about an economic recession, which many believe has started already or will begin in short order.

Both the Clifford Capital Partners Fund (“Partners Fund”) and the Clifford Capital Focused Small Cap Value Fund (“FSCV Fund”), which we’ll collectively name hereafter the “Domestic Funds”, underperformed their respective benchmarks over the one-year period ending September 30, 2022. The Clifford Capital International Value Fund (“IV Fund”) has also lagged its benchmark over its short existence (inception was less than 5 months prior to September 30, 2022). Given the abbreviated time frame since the IV Fund’s inception, the commentary below will mostly relate to the Domestic Funds, although many of the same dynamics are affecting stock markets across the entire world.

Core Value and Deep Value Dynamic

The Funds employ a mix of Core Value investments (companies deemed by us to be high quality companies that earn high returns on capital) and Deep Value investments (opportunistic investments in non-Core Value companies that are out of favor and deemed by us to be significantly undervalued). The Funds will always hold a majority weighting in Core Value stocks (50-75% for the Domestic Funds and 50-90% for the IV Fund), while Deep Value stocks are limited to a maximum weighting of 50%. While Deep Value investments represent the smaller sleeve of the two, we believe it typically packs a mighty punch, often accounting for most of the Funds’ outperformance or underperformance in a given period.

Over the past year, the Domestic Funds’ Deep Value investments have meaningfully underperformed, while their Core Value stocks held up much better than their respective benchmarks. This Deep Value underperformance has been a trend over the last 5 quarters (since June 30, 2021), which has been a headwind to the Domestic Funds’ overall performance, but our conviction in our Deep Value stocks remains strong. This was also the opposite of what we

had witnessed for the Domestic Funds in the 5 quarters prior to June 30, 2021, as Deep Value stocks meaningfully outperformed coming out of the Pandemic Panic in early 2020, while Core Value stocks lagged. As you’ll see from the table below, the Domestic Funds’ overall performance results reflected the see-saw we’ve witnessed with the Deep Value sleeve’s performance:

We believe market conditions in recent periods have not been normal and we do not think the volatility we’ve seen in the Domestic Funds’ Deep Value stocks is normal either. In the last few years, we have seen a global pandemic that upended the world, and what we believe to be a speculative bubble in Technology and other “new economy” stocks. We think this bubble was spurred by a belief that traditional industries (a good definition for many of the Domestic Funds’ Deep Value investments) were facing an accelerated pace of competitive disruption and potential obsolescence. While we believe there are elements of truth to this belief (most bubbles are formed on rational ideas that are simply taken too far), we think it has led to some tremendous bargains in companies that are better protected against competitive disruption than investors believe. We think these factors have led to bifurcated performance periods for our Deep Value investments; at times they underperform sharply and trade for extremely low valuations, which inevitably leads to improved performance as investors recognize the value inherent in these companies.

We have been surprised in many cases with how low valuations have become for our Deep Value names while valuations are extremely high for more popular stocks, which suggests that in recent years valuation simply hasn’t mattered to many investors. As illustrated later in this commentary, hundreds of U.S. stocks today trade for more than 8.5 times sales (not profits, but sales!), which is an extremely high valuation, while several of the Domestic Funds’ holdings are trading for a small fraction of sales and less than 3 times free cash flow⁽⁴⁾ (an extremely low valuation!). We strongly believe that valuation always matters, even if there are relatively long periods of time where investors seem to forget it.

⁽⁴⁾Free cash flow is generally defined as cash flow from operations minus capital expenditures. It is a measure of profitability used to determine how much excess profit a company generates that may be used for distribution among its security holders (i.e. debt payments, dividends, share repurchases, acquisitions).

We continue to believe that the Domestic Funds’ best investment opportunities today lie in their currently underperforming Deep Value stocks, many of which we believe are trading at extremely attractive levels with significant upside potential (all-time low valuations in some cases). As such, we continue to have a high weighting in Deep Value stocks in the Domestic Funds. This decision was driven by our conviction in the investment merits of each individual investment—a bottom-up focus—and not based on our educated guesses of the direction of the Fed or the economy. We have identified Key Thesis Points^TM (“KTPs”) for each stock; long term catalysts that we believe will improve the economic prospects of each company, which we believe will translate into better stock performance.

We also note that the past year provides a great microcosmic lesson about why we have the mix of Core Value and Deep Value investments. Even though the Domestic Funds’ Deep Value stocks have meaningfully detracted from performance results, Core Value investments have outperformed, leading to the Domestic Funds staying within “striking distance”, in our opinion, of their respective benchmarks. We also believe that the losses incurred by the Domestic Funds’ Deep Value investments are temporary and have led to deeply depressed valuations, which we think can lead to strong upside potential when the fundamentals of these businesses begin improving like we believe they will. We view the Domestic Funds’ Deep Value investments similarly to a beach ball being held underwater: the deeper down the ball goes, the more pressure there is for it to “pop” back to the surface. We believe our KTPs are the catalysts for these “pops”.

Recently there has been significant upheaval in interest rates, investor expectations, and a clear slowdown in economic conditions that has moved investor focus more towards macro concerns rather than the long-term outlook for individual companies. As such, we’ve observed that some companies’ clear progress towards long term KTPs has often been ignored recently. However, we believe most of these macro issues will eventually subside (or become fully discounted by the stock market) and the Domestic Funds’ Deep Value “beach balls” will lead the charge when our investment companies’ performance improves, catalyzed, in our view, by KTPs.

U.S. Market Valuations – Are We There Yet?

The chart below shows the valuation levels of the Russell 3000^® Index⁽⁵⁾ (a good proxy for the entire U.S. stock market) for four important periods: the end of 1999 (near the end of the dotcom bubble), the end of 2008, (near the end of the Great

⁽⁵⁾The Russell 3000^® Index is a capitalization-weighted index which is comprised of the stocks within the Russell 1000^® and the Russell 2000^® Indices. This index of securities represents approximately 98% of the investable U.S. equity market. Numbers presented include the reinvestment of dividends (total return). An investor cannot invest directly in an index. Moreover, index performance does not reflect the deduction of advisory fees, transaction charges, and other expenses.

Financial Crisis and what, in hindsight, was a great buying opportunity), the end of 2021 (a period we believed represented a new bubble), and September 30, 2022 after a meaningful stock market correction during 2022 to-date. We segmented the Russell 3000^® Index constituents into five equal groups (quintiles) ranked on their price to sales ratio, which we believe is a simple valuation metric, but one that is less vulnerable to fluctuations in earnings/cash flow. The price to sales ratio is a simple answer to the question, “how many dollars are stock investors paying for each dollar of sales generated by a company?”

2022 so far has not been kind to U.S. stock investors (Russell 3000 declined 24.6% during the first nine months of the year) and a common question we’ve heard from investors is “are we close to the bottom??” – the stock market equivalent of every parent’s ubiquitous road trip question, “are we there yet??”

Price to Sales Ratios⁽⁶⁾ at the end of 1999, 2008, 2021 and
September 30, 2022
(most expensive to least expensive quintiles)

U.S. stocks are definitely cheaper than they were at the beginning of the year, but we don’t view valuations of the overall stock market as very cheap overall. Even after 2022’s meaningful downdraft, most of the market quintiles are still close to the price/sales level at the end of 1999, near the peak of the dotcom bubble. Of

⁽⁶⁾Price to Sales ratio is the ratio of a company’s or index’s current market capitalization to its sales over the prior 12 months as of the date of the analysis. For this chart, the Russell 3000^® Index was sorted by highest to lowest price to sales ratio in fifths (quintiles) for all index stocks with available price/sales data for each time period (about 90%, 95%, and 92% of total Index constituents were included for 1999, 2008, and 2021, respectively). 9/30/2022 data was obtained from the same constituents as at 12/31/2021 for comparability. The datapoint presented on the chart is the median price/sales ratio for each quintile.

note, the most expensive stocks continue to be the worst performing quintile of the stock market in 2022 (not a surprise to us), but the least expensive quintile has not meaningfully outperformed either (which has been a surprise to us).

We still think owning stocks in companies on the lower end of the valuation spectrum is a prudent discipline. As you can see from the chart below, the Domestic Funds are valued in the lowest quintile of the overall U.S. stock market based on price to sales, well below their respective benchmarks.

We think there are multiple ways for extremely inexpensive stocks to become worth more. Borrowing from some past Fund commentary:

We think owning stocks with lower valuations is always prudent, but especially today in an environment where many investors are taking a more skeptical view of the future. From a pragmatic viewpoint, we think companies with lower valuations have more options to improve their stock prices. For example, share repurchases made at low valuations can result in material share count reductions and earnings per share accretion, dividend yields become more meaningful, and we believe activist investors and strategic/financial buyers become more interested in cheaper companies, leading to mergers and acquisitions activity.

We have already seen some of these types of actions happen—or rumored to be happening soon—among our favorite inexpensively-valued holdings.

So Why Haven’t Cheap Stocks Held Up Better?

We have observed that many of the global stock market’s least expensive stocks are in companies that have more economic sensitivity, so recession worries have weighed on their stock prices. Additionally, many inexpensively valued companies have meaningful debt, and investors are (correctly) concerned about the effect of higher interest rates on their borrowing costs and their ability to refinance existing debt when the time comes (we discuss this some more below).

We understand the logic of investors being wary of recession and debt in today’s environment, but we also think there are several investment opportunities that have arisen because of the rapidity and violence of the market’s reactions to these areas. As contrarians, we think market participants have become less discerning of individual companies’ financial position (current assets, debt maturity schedule, cash flow prospects, etc.) and their long-term prospects, choosing instead to run away from areas of concern in what we view as a knee-jerk reaction in many cases. To be clear, we think investors have every right to be concerned about recession and debt loads; we simply think some companies are less concerning than others, and as contrarians we’re seeking out the inexpensively valued ideas that we believe are significantly mispriced today because of these worries.

Other Market Observations

•Almost everything outside of Energy is down in the U.S. – a fertile field for finding undervalued stocks. As shown below, more than 80% of the stocks in every sector of the U.S. market were down for the 2022 year-to-date period, with the only exception being the Energy sector. Quite simply, almost everything is down in 2022. Only ~14% of the Russell 3000 constituents⁽⁷⁾ had a positive total return during the first nine months of 2022. There have been very few places to hide in 2022 if you own U.S. stocks:

⁽⁷⁾Using Russell 3000 constituents as of 12/31/21 that were still actively traded as of 9/30/22.

% of Stocks with Positive Total Return as of September 30, 2022
(and average performance of each sector’s stocks)

We think widespread downdrafts like this year’s often produce our best investment ideas because of investor overreactions, forced liquidations, or just general fear. These conditions increase the likelihood of an individual stock trading for an unreasonably low price for reasons that are not necessarily fundamental in nature—our wheelhouse for finding great investments. We believe several of our current investments are trading at the most attractive valuations in their entire history and we’re finding that our watchlist of potential opportunities is steadily expanding.

•Companies with significant debt loads have underperformed the overall market as interest rates have jumped – we see some highly selective opportunities here. As interest rates have increased this year, we’ve observed that companies with significant amounts of debt have systemically underperformed the overall market. As mentioned earlier, we think this makes intuitive sense because of higher borrowing costs and potential difficulties in refinancing, or paying off, debt when it comes due. This dynamic was particularly noticeable during the second half of the quarter when rates spiked upward as shown in the table below.

10 Year U.S. Treasury Yields

Leveraged Companies Underperformed as Rates Increased

Data Source: Bloomberg

⁽⁸⁾Defined as companies that began 2022 with higher net debt (debt minus cash) than market capitalization (i.e. a net debt/market equity ratio greater than 1.0X). Excludes the Energy sector, which we believe is an outlier, given a significant increase in oil prices. Including Energy, the year-to-date and 8/17 – 9/30 period returns of Stocks with Significant Leverage would have been -24.5% and -23.8%, respectively.

We believe that there are some select investment opportunities in companies with significant debt loads (but manageable levels, in our view), with strong free cash flow, whose stocks have declined more than we think is warranted simply because they are lumped by the marketplace into this “levered” category. We strive to be selective investing in companies with significant leverage and closely monitor their weighting in the Funds because unexpected shortfalls in cash flows tend to hurt shareholders more than in companies with less leverage.

Some of the Domestic Funds’ and IV Fund’s largest detractors recently have been stocks that fell into this levered category (we think this is the #1 factor leading to the Funds’ underperformance recently), but we believe these stocks are tremendous long-term opportunities that are being overly punished today because of leverage-related fears. Several of these companies have the ability and willingness, in our opinion, to buy back their debt—or their stock—at discounted prices, given our expectation of better-than-expected free cash flow in the future. We also believe that when these companies’ KTPs come to fruition, the beach ball tends to “explode” higher, rather than the typical “pop”.

Overall, we feel good about the positioning and the valuation levels of the Funds today. We believe the volatility has led to the Funds being attractively valued at the end of September, and we believe all three Funds are well positioned for solid long-term returns.

Final Comments

Thank you for your investment in the Funds. We have high conviction in the Funds’ stocks, and we are invested alongside you. We appreciate your support, and we will continue to strive to prudently manage your money.

Sincerely yours,

Ryan Batchelor, CFA, CPA
Principal and Portfolio Manager
Clifford Capital Partners, LLC

The Funds’ investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the Funds, and it may be obtained by calling (800) 628-4077, or by going to the Clifford Capital Partners Funds’ website at www.cliffordcapfunds.com and clicking on the “Prospectus” link. Read it carefully before investing.

Information about Risk

Risks of Investing in Equity Securities. Overall stock market risks may affect the value of the Funds. Factors such as economic growth and market conditions, interest rate levels, and political events affect the securities markets. When the value of the Funds’ investments goes down, your investment in the Funds decreases in value and you could lose money.

Risks of Small-Cap and Mid-Cap Securities. Investing in the securities of small-cap and mid-cap companies generally involves substantially greater risk than investing in larger, more established companies.

Risks of Large-Cap Securities. (Partners Fund Only) Prices of securities of larger companies tend to be less volatile than companies with smaller market capitalizations. In exchange for this potentially lower risk, the Funds’ value may not rise as much as the value of funds that emphasize companies with smaller capitalizations.

Focused Investment Risk. The Funds are focused funds and generally holds stocks of between only 25 and 35 companies (Domestic Funds) and 25 to 45 companies in the IV Fund. Focused funds may invest a larger portion of their assets in the securities of a single issuer compared to a more diversified fund. Focusing investments in a small number of companies may subject the Funds to greater share price volatility and therefore a greater risk of loss because a single security’s increase or decrease in value may have a greater impact on the Funds’ value and total return. Economic, political or regulatory developments may have a greater impact on the value of the Funds’ portfolios than would be the case if the portfolios held more positions, and events affecting a small number of companies may have a significant and potentially adverse impact on the performance of the Funds. In addition, investors may buy or sell substantial amounts of Fund shares in response to factors affecting or expected to affect a small number of companies, resulting in extreme inflows and outflows of cash into or out of the Funds. To the extent such inflows or outflows of cash cause the Funds’ cash position or cash requirements to exceed normal levels, management of the Funds’ portfolio may be negatively affected.

Management Style Risk. Because the Funds invest primarily in value stocks (stocks that the Adviser believes are undervalued), the Funds’ performance may at times be better or worse than the performance of stock funds that focus on other types of stock strategies (e.g., growth stocks), or that have a broader investment style.

Health Crisis Risk. A widespread health crisis, such as a global pandemic, could cause substantial market volatility, exchange trading suspensions or restrictions and closures of securities exchanges and businesses, impact the ability to complete redemptions, and adversely impact the Funds’ performance. An outbreak of infectious respiratory illness caused by the novel coronavirus known as COVID-19 was first detected in China in December 2019 before spreading worldwide and being declared a global pandemic by the World Health Organization in March 2020. COVID-19 has resulted in travel restrictions, closed international borders, enhanced health screenings, disruption and delays in healthcare services, prolonged quarantines, cancellations, temporary store closures, social distancing, government ordered curfews and business closures, disruptions to supply chains and consumer activity, shortages, highly volatile financial markets, and general concern and uncertainty. These types of market disruptions may adversely impact the Funds’ investments.

Sector Risk. The Funds may emphasize investment in one or more particular business sectors at times, which may cause the value of its share price to be more susceptible to the financial, market, or economic events affecting issuers and industries within those sectors than funds that do not emphasize investment in particular sectors. Economic or market factors, regulation or deregulation, and technological or other developments may negatively impact all companies in a particular sector and may increase the risk of loss of an investment in the Funds. This may increase the risk of loss associated with an investment in the Funds and increase the volatility of the Funds’ net asset value (“NAV”) per share.

New Fund Risk. The IV Fund is and has only recently commenced operations. As a new fund, there can be no assurance that the Fund will grow to or maintain an economically viable size, in which case it could ultimately liquidate.

The Clifford Capital Funds are distributed by Foreside Fund Services, LLC, Member FINRA/SIPC

Clifford Capital Partners Fund

Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of shares. The total cumulative returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends.

The Russell 3000^® Value Index is generally considered to be representative of the performance of unmanaged common stocks that comprise the broad value segment of the U.S. securities markets. You cannot invest directly in this index. This index does not have an investment advisor and does not pay any commissions, expenses, or taxes. If this index did pay commissions, expenses, or taxes, its returns would be lower. The index is not adjusted to reflect expenses that the U.S. Securities and Exchange Commission (“SEC”) requires to be reflected in the Fund’s performance.

*Non-Income producing

** Effective 7 day yield as of September 30, 2022

ADR - Security represented is held by the custodian bank in the form of American Depositary Receipts.

Clifford Capital Focused Small Cap Value Fund

Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of shares. The total cumulative returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends.

The Russell 2000^® Value Index is generally considered to be representative of the performance of unmanaged common stocks that comprise the broad value segment of the U.S. securities markets. You cannot invest directly in this index. This index does not have an investment advisor and does not pay any commissions, expenses, or taxes. If this index did pay commissions, expenses, or taxes, its returns would be lower. The index is not adjusted to reflect expenses that the U.S. Securities and Exchange Commission (“SEC”) requires to be reflected in the Fund’s performance.

ADR - Security represented is held by the custodian bank in the form of American Depositary Receipts.

*Non-income producing

**Effective 7 day yield as of September 30, 2022

Clifford Capital International Value Fund

Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of shares. The total cumulative returns are historical in nature and measure net investment income and capital gain or loss from portfolio investments assuming reinvestments of dividends.

The MSCI EAFE Value Net Retrun Index captures large and mid cap securities exhibiting overall value style characteristics across Developed Markets countries around the world, excluding the US and Canada. The value investment style characteristics for index construction are definded using three variables: book value to price, 12-month forward earnings to price and dividend yield. With 461 constituents, the index targets 50% coverage of the free float-adjusted market capitalization of the MSCI EAFE Index.