Value Partners Classic Fund

Transcription

1 HHHH Morningstar Rating TM1 As at Value Partners Classic Fund 31 March Pages NAV per unit : A Units - USD B Units - USD C Units - USD16.29 Fund size : USD1,715.4 million Value Partners Classic Fund ( the fund ) primarily invests in stock markets of the Asia-Pacific region, with a Greater China focus. Please pay particular attention to the risk of investment in China and other markets in the Asian region and in companies with medium or small capitalization. The value of the fund can be extremely volatile and could go down substantially within a short period of time. It is possible that the entire value of your investment could be lost. The fund may also invest in derivatives which can involve material risks, e.g. counterparty default risk, insolvency or liquidity risk, and may expose the fund to significant losses. You should not make investment decision on the basis of this material alone. Please read the explanatory memorandum for details and risk factors. Investment objective The fund aims to achieve consistent superior return and uses a bottom-up approach to invest in value stocks in the Asia Pacific region, particularly those in Greater China region, which the Manager believes are being traded at deep discounts to their intrinsic value. Performance since launch (with dividends reinvested) 2 % 2,800 2,400 2,000 1,600 1, NAVs & codes The Fund (A Units, USD) Hang Seng Index ,743.9% % Classes 4 NAV ISIN Bloomberg A Units KYG9316N1025 VLPARAI KY B Units KYG VLPARBI KY C Units KYG9316N1280 VLPARCI KY C Units (HKD) KYG9316N1280 VLPARCI KY C Units (AUD) Hedged KYG9316N1363 VLCHAUD KY C Units (CAD) Hedged KYG9316N1447 VLCHCAD KY C Units (NZD) Hedged KYG9316N1512 VLCHNZD KY Performance update 2 A Units Hang Seng Index 3 B Units C Units One month +3.7% +0.8% +3.7% +3.7% Year-to-date +6.5% +6.0% +6.4% +6.4% One year +30.3% +17.2% +29.7% +30.1% Three years +41.8% +35.9% +39.6% +40.4% Five years +47.8% +40.1% +44.2% +47.3% Since launch +2,743.9% % +1,191.2% +62.9% Annualized return ^ +16.4% +8.0% +14.5% +9.3% Annualized volatility ^ 21.7% 26.9% 22.5% 18.4% Annual performance from 2009 to A Units B Units C Units % +82.0% +7.7% % +19.6% +21.2% % -17.6% -17.6% % +13.4% +13.4% % +10.6% +10.8% % +13.0% +13.3% 2015 (YTD) +6.5% +6.4% +6.4% The fund A Units : Monthly performance from 1 Jan 2009 to 31 Mar Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual % -0.2% +8.2% +8.2% +20.1% +1.3% +11.5% +0.1% +2.5% +7.5% +5.9% +2.2% +82.9% % +2.2% +7.1% +3.1% -6.1% +1.1% +5.0% +0.2% +10.5% +3.8% -0.7% -0.7% +20.2% % -1.6% +5.4% +3.5% -1.3% -3.2% +2.8% -7.5% -19.8% +15.3% -7.8% +1.0% -17.2% % +6.3% -5.7% +1.6% -10.2% -2.1% -1.3% +1.7% +6.4% +2.3% +1.9% +5.9% +14.0% % -2.5% -2.9% +0.6% +1.2% -9.0% +2.3% +0.5% +2.2% +6.2% +4.8% +0.4% +11.2% % +2.3% -4.0% -1.6% +2.0% +4.6% +6.2% +3.0% -1.5% +1.6% +1.9% +4.6% +13.5% 2015 (YTD) +0.3% +2.4% +3.7% +6.5% ^ Annualized return and volatility are calculated from inception. Volatility is a measure of the theoretical risk in terms of standard deviation; in general, the lower the number, the less risky the investment, and vice versa. 9th Floor, Nexxus Building, 41 Connaught Road Central, Hong Kong Tel : (852) Fax : (852) vpl@vp.com.hk Website :

2 Value Partners Classic Fund 31 March 2015 Top 10 securities holdings Name Industry 7 (%) Luye Pharma Pharmaceuticals, 8.3 biotechnology & life sciences Gree Electric Appliances Consumer durables & apparel 7.7 Chongqing Changan Automobiles & components 6.5 Automobile PetroChina Energy 5.5 Ping An Insurance Insurance 4.5 China Life Insurance Insurance 4.5 Inner Mongolia Yili Industrial Food, beverage & tobacco 3.9 China Vanke Real estate 3.7 CSPC Pharmaceutical Pharmaceuticals, biotechnology 3.7 & life sciences China Resources Gas Utilities 3.3 These stocks constitute 52% of the fund. The top ten securities holdings only include companies and/ or REITs the fund invested, excluding any index tracking fund or ETF. Geographical exposure by listing 8 H Shares Hong Kong China A Shares Red Chips China B Shares 9 Cash Others Taiwan Singapore Sector exposure 7, 8 Consumer discretionary Health care Utilities Insurance 9 Cash Energy Real estate Information technology Consumer staples Other financials Banks Others Telecom services 24% 20% 17% 15% 9% 7% 3% 3% 2% 19% 14% 13% 11% 7% 6% 6% 5% 5% 4% 3% 3% 2% Portfolio characteristics As at 31 Mar Price/earnings ratio 15.5 times Price/book ratio 2.4 times Dividend yield 2.4% Fund facts Manager: Value Partners Limited Base currency: USD Trustee: Bank of Bermuda (Cayman) Limited Custodian: HSBC Institutional Trust Services (Asia) Limited Launch date: A Units - 1 Apr 1993 B Units - 15 May 1996 C Units - 15 Oct 2009 C Units (AUD/CAD/NZD) - 17 Mar 2014 A, B and C units are invested in the same fund, A and B units were no longer issued from 12 Apr 2002 and 15 Oct 2009 respectively. Only C units are currently available. Unit price is published daily in the South China Morning Post, the Hong Kong Economic Journal and the Hong Kong Economic Times. Fee structure A Units B Units C Units Minimum subscription Closed Closed USD10,000 or equivalent Minimum subsequent USD5,000 Nil Nil subscription or equivalent Subscription fee Closed Closed up to 5% Management fee 0.75% p.a. 1.25% p.a. 1.25% p.a. Performance fee 11 15% of profit (High-on-high principle) Redemption fee Nil Dealing day Daily redemption Daily redemption Daily dealing Senior investment staff Chairman & Co-Chief Investment Officer: Cheah Cheng Hye Deputy Chairman & Co-Chief Investment Officer: Louis So Deputy Chief Investment Officer: Renee Hung Senior Investment Director: Norman Ho, CFA Investment Directors: Eric Chow; Alan Wang, CFA; Michelle Yu, CFA Recent awards GREATER CHINA EQUITY Fund of the Year Awards 2011 Outstanding Achiever Greater China Equity category 12 ~ Benchmark OUTSTANDING ACHIEVER Long-Term Performance Award (10 years) 13 ~ AsiaHedge Awards Morningstar, Inc. All Rights Reserved (for A Units). 2. Source: HSBC Institutional Trust Services (Asia) Limited and Bloomberg, in USD, NAV to NAV, with dividends reinvested. Performance data is net of all fees. 3. Index refers to Hang Seng Price Return Index up to 31 Dec 2004, thereafter it is the Hang Seng Total Return Index. Hang Seng Total Return Index includes dividend reinvestment whereas Hang Seng Price Return Index does not take into account reinvestment of dividends. 4. The fund may invest in financial derivative instruments ( FDI ) for hedging purposes. In adverse situations, the fund s use of FDI may become ineffective in hedging and the fund may suffer significant losses. Each hedged share class will hedge the fund s base currency back to its currency of denomination on a best efforts basis. However, the volatility of the hedged classes measured in the fund s base currency may be higher than that of the equivalent class denominated in the fund s base currency. Risks associated with FDI include counterparty risk, credit risk and liquidity risk. Such exposure may lead to a high risk of capital loss. The AUD/CAD/NZD Hedged Classes are not recommended for investors whose base currency of investment is not in the aforesaid currencies. 5. Investors should note that the base currency of C Units is in USD. The HKD is for reference only and should not be used for subscription or redemption purpose. Conversion to the base currency of C Units will normally take place at the prevailing rate (as determined by the Fund s Trustee or Custodian) on the corresponding fund dealing day. Investor should be aware of possible risks resulting from fluctuations of exchange rates against USD. 6. Calculated based on the since inception return of C Untis. 7. Classification is based on Global Industry Classification Standard (GICS). 8. Exposure refers to net exposure (long exposure minus short exposure). Due to rounding, percentages shown may not add up to 100%. 9. Cash refers to net cash on hand excluding cash for collaterals and margins. 10. The profile is based on market consensus forecast as derived from S&P Capital IQ and Bloomberg. Note that the manager s internal estimates may differ significantly from S&P Capital IQ and Bloomberg estimates. 11. Performance fee will only be charged if the NAV at the end of the financial year or upon realization of units exceeds the high watermark, which is the all-time year-end high of the fund s NAV. If in any one year, the fund suffers a loss, no performance fee can be charged in subsequent years until the loss is recovered fully (the high-on-high principle). 12. Class A Units of the fund selected as one of the top 100 funds based on fund size, track record, Morningstar s Star rating and one year absolute ranking as at month end Oct Value Partners Classic Fund is not authorized as a hedge fund by the Securities and Futures Commission ( SFC ) in Hong Kong according to the Code on Unit Trusts and Mutual Funds. SFC authorization is not a recommendation or endorsement of a scheme nor does it guarantee the commercial merits of a scheme or its performance. It does not mean the scheme is suitable for all investors nor is it an endorsement of its suitability for any particular investor or class of investors. Investors should note investment involves risk. The price of units may go down as well as up and past performance is not indicative of future results. Investors should read the explanatory memorandum for details and risk factors in particular those associated with investment in emerging markets. Information in this report has been obtained from sources believed to be reliable but Value Partners Limited does not guarantee the accuracy or completeness of the information provided by third parties. This report has not been reviewed by the SFC. Issuer: Value Partners Limited. VPCF_Master_201503

3 Value Partners Classic Fund Commentary / First Quarter 2015 Value Partners Classic Fund (the Fund ) primarily invests in stockmarkets of the Asia-Pacific region, with a Greater China focus. Please pay particular attention to the risk of investment in China and other markets in the Asian region and in companies with medium or small capitalization. The value of the Fund can be extremely volatile and could go down substantially within a short period of time. It is possible that the entire value of your investment could be lost. The Fund may also invest in derivatives which can involve material risks, e.g. counterparty default risk, insolvency or liquidity risk, and may expose the Fund to significant losses. You should not make investment decisions on the basis of this material alone. Please read the explanatory memorandum for details and risk factors. Chinese stocks made a winning start to the year as share prices rallied towards the end of the first quarter underpinned by easing measures from the People s Bank of China (PBoC) and strong investor sentiment on the mainland. Value Partners Classic Fund increased by 6.5% in the first three months of the year. For reference, the Hang Seng Index and MSCI China Index were up 6.0% and 8.1%, respectively, over the same period. Growth and reforms At the National People s Congress (NPC) meeting in March, China announced to lower its economic growth target for 2015 to 7%, a widely anticipated move to achieve soft landing. Job creation is a critical focus with new urban job target kept at 10 million, reflecting the government s desire to maintain a healthy level of employment to ensure social stability. Meanwhile, with economic data deteriorating early this year, Premier Li Keqiang called for more forceful fiscal policy and appropriate monetary policy to help stabilize growth. Indeed, the PBoC made a number of announcements to increase liquidity since the second quarter of In February 2015, reserve requirement ratio for banks was cut across-the-board the first time since May 2012, allowing banks to hold less deposit reserves. Furthermore, a symmetric interest rate cut of 25 basis points followed last November s asymmetric one to reduce the cost of borrowing. On 30 March, the central bank extended relaxation measures to the property market and lowered the required down payment for second-home buyers to 40% from 60%. Such a step up in stimulus represents a new cycle of monetary policy and reconfirms our expectations for continuous easing measures. While growth is a primary area of concern, we remain optimistic about the acceleration of China s structural reforms. At the NPC meeting, Premier Li pledged that there will be breakthroughs in major reforms. We welcome the program of deregulation, market-opening, economic re-balancing, more respect for the rule of law and the drive against bad practices in the government and corporate sectors. In the near term, financial reforms remain the lowest hanging fruit. With the establishment of a deposit insurance scheme, interest rate deregulation will likely happen earlier and improve the efficiency of capital allocation. With lower lending rates, banks may consider lending more to the private sector to maintain margins. Meanwhile, China s plan to drive public-private partnership to encourage private capital in traditional government investments will likely take longer time to implement. We are hopeful that some of the pilot programs announced in the third quarter of 2014, especially the reduction of capital expenditure that is driving state-owned enterprise (SOE) reform, will see some initial results in With these reforms driving governance and growth, this will likely reverse the price-to-earnings de-rating trend of Chinese stocks and bring about significant multiple expansion in the coming years. 9 th Floor, Nexxus Building, 41 Connaught Road Central, Hong Kong Tel: (852) Fax: (852) vpl@vp.com.hk Website:

4 China s A-share momentum spilling over to Hong Kong We recognize that many investors remain wary about the China story, particularly as the country s development model matures, resulting in a slower growth rate. No doubt, it is going to be a volatile market. But at this point of the cycle, a combination of monetary loosening and reform measures has driven capital into the A-share equity market. The domestic A-share market remains red hot. After gaining 55.8% in 2014, the Shanghai Shenzhen CSI 300 Index continued its rally in the first quarter and went up by a further 14.7% with much of the returns coming in the month of March. The euphoria has undoubtedly been boosted by greater retail participation as new brokerage accounts were opened at a record rate of 1.67 million per week. It is unsurprising that regulators are worried that a potential bubble is forming and the government may seek to divert capital out of the A-share market. A similar attempt was the margin trading clampdown in January when regulators punished non-compliant brokers to stabilize margin trading activities. One diversion for the strong capital flows in China s A-share market is the Hong Kong stockmarket. Hong Kong-listed Chinese companies have been trading at an attractive discount to A shares. For dually listed A/H shares, the discount has hit a recent high of 35% at the end of March 2015, according to the Hang Seng China AH Premium Index. Coincidentally, at the end of March, the China Securities Regulatory Commission (CSRC) announced that domestic fund management companies can buy Hong Kong-listed shares via the Shanghai-Hong Kong Stock Connect program without a Qualified Domestic Institutional Investor (QDII) license requirement. Immediately, we saw a revival in the southbound leg of the connect program. The euphoric market environment in the A-share market will likely continue to spill over to the Hong Kong market. Portfolio review and outlook From a portfolio strategy perspective, we maintain a very positive stance on equity markets. We have maintained an aggressive positioning for over a year now and this has been beneficial to the portfolio's return during this period. At the end of March, there was a temporary increase in cash level due to strong subscriptions as well as position rotations to more attractively valued stocks, therefore we have promptly moved the portfolio to fully participate in the market rally. From an asset allocation perspective, majority of our investments remain in Hong Kong-listed Chinese companies, including a large exposure to insurance and property sectors that benefit from the loosening monetary environment. Meanwhile, we continue to have an elevated exposure in the A-share market although we have rotated some positions from Shanghai A shares into Shenzhen A shares. We believe that China s insurance industry is in an upcycle. The life premium business has seen a recovery in 2014 and growth in new business value (NBV) has accelerated. One of the key drivers is less attractive investment alternatives; interest rate cuts have selectively reduced deposit rates and with a slowdown in wealth management products, insurance products stand to benefit. We expect this trend of investors shifting their asset allocation from yield-chasing shadow banking products to insurance products to continue. The current pace of growth is further supported by increasing agent numbers and turnaround of the bancassurance business (selling insurance products via banks). Furthermore, with the strong A-share market, Chinese insurance companies investments have been profitable. In the next 12 months, we anticipate that tax incentive support for investments into pension products and health insurance will likely serve as a catalyst for further growth in premium income. As of the end of March, Chinese insurers are trading at an average price-to-embedded-value ratio (P/EV) of 1.24x, which is at a discount to the 5-year historical average of 1.43x. Moreover, the strong stockmarket performance also leads to a boost in insurers book and embedded value, bringing about increasing forecast estimates in the embedded value and even more attractive P/EV valuations. Page 2

5 Going forward, we expect the further opening up of China s capital market via the proposed Shenzhen-Hong Kong Stock Connect, as well as the potential A-share inclusion in international indices, will act as a long-term catalyst for market re-rating. While it is only three months into the year, we are looking forward to a stronger market environment, which is particularly beneficial to value investing as investors are less focused on a few smaller fast-growing sectors but more focused on the merits of each company on a fundamental basis. Despite the strong rally, we think that the long-overdue recovery in China-related stockmarkets has only just begun, and we continue to find value in the Chinese equity markets. Value Partners Investment Team 16 April 2015 Fund performance mentioned referred to Value Partners Classic Fund A Unit. All performance figures are sourced from HSBC Institutional Trust Services (Asia) Limited and Bloomberg (Data computed in US$ terms on NAV-to-NAV basis with dividends reinvested) as at 31 March Performance data is net of all fees. Individual stock performance is not indicative of fund performance. The views expressed are the views of Value Partners Limited only and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This material contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Investors should note that investment involves risk. The price of units may go down as well as up and past performance is not indicative of future results. Investors should read the explanatory memorandum for details and risk factors in particular those associated with investment in emerging markets. This commentary has not been reviewed by the Securities and Futures Commission. Issuer: Value Partners Limited. Page 3

6 Value Partners Classic Fund: 10 biggest holdings of securities as at 31 March 2015 Stock Industry Valuation (2015 Estimates) China Life Insurance (Code: 2628 HK) US$157.0 billion China Resources Gas (Code: 1193 HK) US$6.9 billion China Vanke (Code: CH) US$24.7 billion Insurance Downstream gas distributor Real estate Price: HK$33.95 P/EV*: 1.4x Yield: 1.8% Price: HK$24.10 P/E: 17.9x P/B: 2.9x Yield: 1.2% Price: CNY13.82 P/E: 7.5x P/B: 1.5x Yield: 3.9% Remarks China Life Insurance ( China Life ), together with its subsidiaries, is the largest integrated insurer in China. It has the most extensive distribution and service network among all insurance companies in China, covering life insurance, property and casualty insurance, pension plans (corporate annuity), asset management and industrial investment. Following its management's efforts to scale down bancassurance and focus on growing agency over the past few years, China Life is finally able to execute on its much needed changes and restore its growth profile. Meanwhile, it is expected to benefit from better investment returns and improving business performance amidst rate cut cycles. China Resources Gas ( CR Gas ) is the biggest gas distributor in China in terms of gas sales volume. With its state-owned background and flexible mechanism, the company has great advantage in mergers and acquisitions (M&A). While a corruption investigation against its ex-chairman casted a shadow over the company s M&A activities, CR Gas s recent acquisitions of two large prefecture-level projects, Qingdao and Qinhuangdao, are good indications that the company has come out from the negative haze of the incident. Meanwhile, demand may recover in 2015 with China s first gas price cut in the first quarter, and CR Gas is well-positioned to benefit from the potential rise in gas usage over the long term. China Vanke is China s largest developer of residential properties in terms of contracted sales. It has over 300 projects that are located in over 60 cities in mainland China. We see China Vanke s land bank as one of the most diversified among its peers, which may help it deliver faster sales growth. In 2014, its contracted sales rose 26% despite a decline in the overall Chinese property market, which further solidifies its leading position in the industry. Being the largest homebuilder in China, it may benefit from the more accommodative policy environment in China since mid-2014, and the recent interest rate cuts will help increase affordability and revive homebuyers confidence. Page 4

7 Stock Industry Valuation (2015 Estimates) Chongqing Changan Automobile (Code: CH) US$14.7 billion CSPC Pharmaceutical (Code: 1093 HK) US$5.0 billion Gree Electric Appliances (Code: CH) US$21.2 billion Auto manufacturer Drug manufacturer Air conditioner manufacturer Price: HK$21.17 P/E: 7.5x P/B: 2.4x Yield: 2.3% Price: HK$6.56 P/E: 23.1x P/B: 4.2x Yield: 1.6% Price: CNY43.78 P/E: 7.9x P/B: 2.4x Yield: 5.2% Remarks Chongqing Changan Automobile ( Changan ) is one of the largest automakers in China. It owns a joint venture with Ford. The joint venture Changan Ford has contributed to the majority of the company s profits and launched in 2013 two locally manufactured sports utility vehicles (SUV) models, aiming to participate in the fastest-growing passenger vehicle segment. Ford is determined to ramp up production capacity to double their current production volume by 2015 and also expects to bring more new models to China and gain market share. In 2014, the company delivered a sales volume growth of about 20%, continuing to shine among peers. CSPC Pharmaceutical is a leading player of innovative, branded and common generic drugs in China, with major product lines including the "NBP" series, "Oulaining" series, and "Xuanning" series. It is also a key manufacturer of bulk drugs and principal products such as vitamin C, caffeine, and antibiotics. The company s production facilities are mainly located in the city of Shijiazhuang in Hebei, China. Despite a relatively high level of valuation, we remain optimistic about the company s growth potential in the next two to three years on the back of strong research and development capability and robust product pipelines. Gree Electric Appliances ( Gree Electric ) is the top leader of air conditioning brand in China with its own production capacity, research and development center and large-scale sales distribution network. The company s strong and innovative research and development capabilities enable it to launch new products which are well received by the market, helping it to maintain its leading market position. In the foreseeable future, we believe the company is wellpositioned to remain a strong leader in the industry. Inner Mongolia Yili Industrial (Code: CH) US$15.2 billion Dairy product manufacturer Price: CNY30.85 P/E: 17.7x P/B: 4.1x Yield: 2.2% Inner Mongolia Yili Industrial ( Yili ) is the leading dairy group in China engaging in sectors including liquid milk, ice cream, infant milk powder and yoghurt. Since 2010, its management has been committed to channel optimization and product upgrade, resulting in a continuous operational improvement. Its market share would also grow further as Yili would be the major beneficiary of the policy-driven industry consolidation among domestic peers. At present, Yili is trading at a huge valuation discount to its closest peer, Mengniu, which is listed in Hong Kong s stockmarket. Page 5

8 Stock Industry Valuation (2015 Estimates) Luye Pharma Group (Code: 2186 HK) US$4.0 billion PetroChina (Code: 857 HK) US$329.6 billion Ping An Insurance (Code: 2318 HK) US$113.1 billion Drug manufacturer and distributor Energy Insurance Price: HK$9.37 P/E: 27.0x P/B: 4.3x Yield: 0.3% Price: HK$8.58 P/E: 21.0x P/B: 1.0x Yield: 2.2% Price: HK$93.20 P/EV*: 1.2x Yield: 1.0% Remarks Luye Pharma Group ( Luye Pharma ) is a leading pharmaceutical company which focuses on the manufacturing and selling of pharmaceutical products in three of the fastest growing therapeutic areas in China including oncology, cardiovascular system, and alimentary tract and metabolism. In 2014, the group s nationwide distribution network enabled it to sell its products to over 8,000 hospitals in the PRC. Given its strong product pipeline, proven research and development capabilities and sales and marketing networks, Luye Pharma is well positioned to continue gaining market share despite an increasingly competitive market environment. PetroChina is the largest integrated oil company in Asia by market capitalization. It has crude reserves of nearly 11 billion barrels and gas reserves of over 69,000 billion cubic feet. Its downstream assets consist of refining, and a service-station marketing network of over 20,000 stations. PetroChina is expected to benefit from growth in gas usage as China targets to diversify their energy reliance from coal. The SOE reform undergoing will also push the company to adopt measures for better cost control and returns for investors. Ping An Insurance ( Ping An ) is a leading provider of insurance service in China. It is one of the first Chinese non-state-owned financial conglomerates that provide insurance (both life and non-life), banking, securities, trust and asset management services to customers in the country. In the current tough operating environment, Ping An is well-positioned amongst peers given its superior agency force and multi-product platform. *EV = Embedded value Note: The above investments made up 51.6% of Value Partners Classic Fund as at 31 March The stock prices are based on the closing of 31 March Individual stock performance/yield is not necessarily indicative of overall fund performance. Page 6