Value Partners Classic Fund

Transcription

1 HHHH Morningstar Rating TM1 As at Value Partners Classic Fund 30 September Pages NAV per unit : A Units - USD B Units - USD C Units - USD14.13 Fund size : USD1,274.2 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 Performance update 2 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 % NAVs & codes Value Partners Classic Fund (A Units, USD) Hong Kong Hang Seng Index ,368.0% % Classes 5 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 A Units Hang Seng Index 3 B Units C Units One month -1.5% -7.1% -1.6% -1.5% Year-to-date +4.9% +2.1% +4.5% +4.6% One year +17.3% +4.3% +16.7% +17.0% Three years +42.9% +46.3% +40.7% +41.0% Five years +53.9% +30.0% +50.1% +41.3% Since launch +2,368.0% % +1,023.3% +41.3% Annualized return +16.1% +7.8% +14.0% +7.2% Annualized volatility 21.9% 27.1% 22.8% 19.1% 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. Annual performance 2 A Units B Units C Units % +83.1% N/A % +5.6% N/A % +15.6% N/A % +41.2% N/A % +40.4% N/A % -48.1% N/A % +82.0% +7.7% % +19.6% +21.2% % -17.6% -17.6% % +13.4% +13.4% % +10.6% +10.8% 2014 (YTD) +4.9% +4.5% +4.6% Value Partners Classic Fund A Units : Monthly performance from 1 Jan 2003 to 30 Sep Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual % +4.9% +0.7% -2.2% +9.3% +4.5% +9.8% +6.9% +6.3% +8.5% +1.4% +6.5% +83.6% % +4.5% +0.1% -2.9% -6.1% -0.8% -0.1% -0.1% +4.2% +0.7% +3.9% +0.0% +5.8% % +3.4% -1.1% +0.3% -1.2% +4.0% +1.6% -0.1% +3.1% -1.9% +3.8% +2.5% +15.9% % +3.5% +6.7% +4.6% -5.6% -2.6% +3.2% +0.7% +0.8% +5.0% +6.4% +4.6% +41.8% % +2.5% +2.5% +5.0% +3.7% +4.8% +12.6% -7.4% +10.5% +8.9% -9.6% +1.6% +41.1% % +6.1% -9.5% +10.9% -2.2% -8.3% -5.3% -8.6% -11.0% -31.0% +5.2% +13.4% -47.9% % -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% 2014 (YTD) -5.5% +2.3% -4.0% -1.6% +2.0% +4.6% +6.2% +3.0% -1.5% +4.9% 9th Floor, Nexxus Building, 41 Connaught Road Central, Hong Kong Tel : (852) Fax : (852) vpl@vp.com.hk Website :

2 Value Partners Classic Fund 30 September 2014 Top 10 securities holdings Name Industry 7 % PetroChina Energy 8.6 Chongqing Changan Automobiles & components 7.8 Automobile Luye Pharma Pharmaceuticals, biotechnology 7.6 & life sciences Lijun International Pharmaceuticals, biotechnology 6.3 Pharmaceutical & life sciences China Vanke Real estate 5.0 Inner Mongolia Yili Industrial Food, beverage & tobacco 4.5 Daqin Railway Transportation 4.4 Uni-President Enterprises Food, beverage & tobacco 3.3 Sihuan Pharmaceutical Pharmaceuticals, biotechnology 3.1 & life sciences TCL Communication Technology Technology, hardware & equipment 2.9 These stocks constitute 54% of the fund. The top ten securities holdings only include companies and/ or REITs the fund invested, excluding any index tracking fund or ETF. Portfolio characteristics As at 30 Sep Price/earnings ratio 13.2 times Price/book ratio 1.8 times Dividend yield 2.5% 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. Geographical exposure by listing 8 Hong Kong China A Shares Red Chips China B Shares H Shares Taiwan 6% Singapore 2% Others 1% 9 Cash -5% Short exposure includes: H Shares, -1.3%. 17% 13% 13% 29% 24% 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 Sector exposure 7 8 Health care 24% Consumer discretionary 20% Energy 14% Consumer staples 9% Real estate 9% Information technology 7% Utilities 7% Insurance 5% Industrials 4% Telecom services 3% Banks 2% 9 Cash -5% Total short exposure is -1.3%. Short exposure includes: Consumer discretionary, -1.3%. Value Partners Investment Team 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 Senior Fund Managers: Doris Ho; Kyu Ho; Michelle Yu, CFA; Yu Xiao Bo Recent awards GREATER CHINA EQUITY OUTSTANDING ACHIEVER Fund of the Year Awards 2011 Outstanding Achiever Greater China Equity category 12 ~ Benchmark 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. Calculated based on the since inception return of C Untis. 5. 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. 6. 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. 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_201409

3 Value Partners Classic Fund Commentary / Third Quarter 2014 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 decisions on the basis of this material alone. Please read the explanatory memorandum for details and risk factors. The Chinese equity markets began the third quarter on a bright note as stocks posted strong gains in July and August. However, we saw a steady retreat in September as the release of weaker macro data, combined with political protests in Hong Kong, put additional pressure on the markets. Value Partners Classic Fund rose 7.7% in the third quarter while the Hang Seng Index stayed flat and the MSCI China Index was up 1.4%. In the past year, the Fund gained 17.0%. For reference, the Hang Seng Index and MSCI China Index were up 4.3% and 4.6%, respectively, over the same period. With a turnaround in the Chinese equity markets beginning in late second quarter, we have seen a significant improvement in our fund performance during the third quarter. As the market began to recognize the potential reform dividends from investing in state-owned enterprises (SOEs), traditional sectors which show value characteristics have rallied, acting as a tailwind for our investment approach. SOE reforms gather pace SOEs are a key part of China s command economy, representing up to 70% of the constituent stocks of the MSCI China universe. SOEs are trading at lower valuations as investors perceive these companies as less efficient and less profit-focused. To tackle the inefficiencies, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) announced in mid-july a pilot program to improve the management, supervision and efficiency of SOEs. Companies are required to start adopting more market-based compensation plans to encourage better alignment of corporate and shareholder s interests. The response has been positive. In the past few months, a number of companies have been reducing their capital expenditure as management started to focus more on the bottom line. We believe the roll-out of reforms will take place gradually instead of being a one-off measure. Reforms will be seen most notably in industries such as natural resources and alternative energy areas that we already have positions- and benefits from such reforms can be manifold. For example, PetroChina, one of our key resources plays, has shown stronger commitment in improving profits this year. It has been reducing capital expenditure and shutting down inefficient refineries on the one hand, and undergoing an austerity program to reduce entertainment expenses on the other hand. In addition, it is also enhancing corporate governance, while introducing private capital and planning to sell selected pipeline assets which were previously unavailable to private investors. Finally, as we mentioned previously, PetroChina may benefit from the gas price reform, potential adjustments to tax, as well as supportive policies for shale gas development. While some investors remain skeptical of the SOE reform conviction in the energy sector after witnessing the sale of Sinopec s marketing division to domestic investors, we believe the opening up of the sector to private capital and foreign investors will likely be gradual and hence takes time for the market to fully recognize. 9 th Floor, Nexxus Building, 41 Connaught Road Central, Hong Kong Tel: (852) Fax: (852) vpl@vp.com.hk Website:

4 Tapping the through train opportunities While reforms are expected to continue to support the market in the medium term, the upcoming Shanghai- Hong Kong Stock Connect program is likely to act as a near-term catalyst. The through train scheme is a landmark opening of investment channels which will let global investors participate in Shanghai-listed securities trading and allow Chinese domestic investors to trade Hong Kong-listed stocks. At Value Partners, we are very excited about this program which is likely to be launched in late October. We have been closely following the progress and are well prepared to make full use of it. We look to take every step to generate gains for our investors. In addition to preparing ourselves to take part in the program, we have already positioned our portfolio to take advantage of the potential arbitrage opportunities. Through utilizing various existing and newly granted access quota to A shares, we have substantially increased the Fund s A-share exposure to 24% currently* from 10% at end-june. While selected dually-listed companies are still trading at discounts ranging from 10% to 15% in the A-share market, this presents an immediate and obvious investment opportunity. The significant additions reflect our focus on value opportunities in the A-share market, an area where experienced Hong Kong investors will focus as the Stock Connect program launches. Meanwhile, we have also deployed capital in traditional value sectors that offer attractive dividend yields. Luye Pharma shines in booming healthcare sector During the quarter, we have increased our exposure in our favorite sectors such as healthcare. The rapid growth of the sector is a reflection of aging population and dietary shifts in China. As China is increasingly focusing on the quality of growth, we remain confident that the healthcare sector will continue to grow at 1.5 to 2 times the GDP growth rate as it did in the past, benefiting drug and medical equipment manufacturers. Our additions in the healthcare sector continued to do well in the third quarter and made significant contributions to portfolio return. One example is Luye Pharma, one of the largest drug manufacturers in oncology, cardiovascular system, and alimentary tract and metabolism - the faster-growing segments in the healthcare sector. With a strong product pipeline over the next three years, together with four upcoming drug trials in the U.S., Luye is well positioned within the sector. Its recent initial public offering ( IPO ) has also provided the company with capital to purchase Jialin, a local cardiovascular drug manufacturer. Jialin s drug portfolio can leverage Luye s existing distribution network, giving us more confidence in Luye s ability in growing market share. Since our participation in Luye s IPO in early July, it has been one of the top 10 positions in our portfolio. The company s share price gained over 65% in the third quarter. Hong Kong protests While we remain pro-active with our portfolio fully invested, Hong Kong has been in newspaper headlines on the political front. In late September, we witnessed a political divide accompanied by mass street protests. As Hong Kong society became increasingly polarized, some investors took profits, causing a retreat in Hong Kong share prices. The protests certainly have hurt certain local industries such as retail, tourism, and property landlords, but have little or no impact on Chinese businesses which make up the majority of our portfolio. In fact, local Hong Kong exposure is estimated to be at only around 2% of our portfolio. As usual, we will be monitoring the situation carefully. We think there is a reasonable chance that the unrest in Hong Kong will have only a temporary impact on local shares, but we are fully prepared for a bad-case scenario where the negative impact could be a lot longer-lasting but largely confined to Hong Kong. Although based in Hong Kong, Value Partners has been dedicated to investing across the Greater China region, and since the late 1990s has spread out across the Asia Pacific Region. Like many well-diversified investors, we wish Hong Kong well but we are not overly dependent on it. Page 2

5 As market sentiment has improved, we have seen significant positive inflows to our funds during the quarter. We thank our investors for their continued support and will remain focused as ever on delivering performance for clients through our value investing approach. Value Partners Investment Team 13 October 2014 * Including exposure from both direct A-share investment and indirect investment through China A-Share Access Products (CAAPs). 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 30 September2014. Performance data is net of all fees. Individual stock performance is not indicative of fund performance. 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 30 September 2014 Stock Industry Valuation (2015 Estimates) China Vanke (Code: CH A shares) US$16.8 billion Real estate Price: CNY9.18 P/E: 4.9x P/B: 1.0x Yield: 5.2% Remarks China Vanke is China s largest developer of residential properties in terms of contract 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 over its peers. Being the largest homebuilder in China, it may also benefit from the improving mortgage situation and more accommodative policy environment in China. The A shares of China Vanke are trading at a discount of around 15% to H shares. Chongqing Changan Automobile (Code: CH) US$10.3 billion Auto manufacturer Price: HK$16.68 P/E: 6.4x P/B: 1.7x Yield: 2.2% 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. Daqin Railway (Code: CH) US$18.8 billion Railway Price: CNY7.78 P/E: 7.1x P/B: 1.2x Yield: 7.6% Daqin Railway is one of the largest eastbound coal transporters in Northern China, serving a number of major coal companies while also running a passenger transportation business. The company possesses strong fundamentals with growth potential as a beneficiary of railway reforms with possible tariff hikes that will likely improve the company s profitability. The average dividend payout ratio of Daqin Railway in the past five years has been over 50%, contributing to its relatively high dividend yield. Inner Mongolia Yili Industrial (Code: CH) US$12.9 billion Dairy product manufacturer Price: CNY25.90 P/E: 16.3x P/B: 3.6x Yield: 2.3% 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 4

7 Stock Industry Valuation (2015 Estimates) Lijun International Pharmaceutical (Code: 2005 HK) US$1.4 billion Drug manufacturer Price: HK$3.74 P/E: 15.6x P/B: 3.0x Yield: 2.0% Remarks Lijun International is a leading pharmaceutical manufacturer in China mainly engaged in producing intravenous infusion solutions and antibiotics. It has the highest sales revenue in intravenous infusion solution in China on a single factory basis. In 2013, intravenous infusion solution and related products contributed 62.8% of the company s total revenue and 90% of total profit. Gross profit margin of the company was 44.9% in 2013, higher than 42.5% a year earlier. We believe profit margin will continue to rise because of the upgrade of its infusion solution products. Luye Pharma Group (Code: 2186 HK) US$4.3 billion Drug manufacturer and distributor Price: HK$9.95 P/E: 39.8x P/B: 4.9x Yield: 0.0% 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 the first half of 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 R&D capabilities and sales and marketing networks, Luye is well positioned to continue gaining market share despite an increasingly competitive market environment. PetroChina (Code: 857 HK) US$232.5 billion Energy Price: HK$9.95 P/E: 9.7x P/B: 1.1x Yield: 4.6% 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. A new pricing mechanism of natural gas will help its prospects, as the government announced in June 2013 the lifting of the city-gate gas price. The SOE reform undergoing will also push the company to adopt measures for better cost control and returns for investors. Page 5

8 Stock Industry Valuation (2015 Estimates) Sihuan Pharmaceutical (Code: 460 HK) US$7.8 billion Drug manufacturer Price: HK$5.82 P/E: 24.6x P/B: 5.1x Yield: 1.2% Remarks Sihuan Pharmaceutical is one of the largest domestic drug companies in China as well as a leading cardio-cerebral vascular prescription drug franchise by market share. The company enjoys a diversified product mix, in which its fast-growing exclusive drugs will likely face limited pricing pressure. We expect the company to likely see further growth with rising demand from a demographic more susceptible to stroke-related conditions. Its extensive agent distribution network is expected to support continued strong sales, in particular their fastgrowing drug products manufactured to treat cerebral damage. TCL Communication Technology (Code: 2618 HK) US$1.5 billion Electronics manufacturer Price: HK$9.32 P/E: 7.3x P/B: 2.1x Yield: 4.6% TCL Communication is one of the top mobile phone brands in the global market by shipments. Leveraging its lean cost structure, as well as strong channels and relationship with global operators via the TCL-Alcatel brand, the company has gained success in the feature phone market in the past few years. Starting 2013, TCL Communication has gradually come up with comprehensive smartphone offerings. We believe the company has key elements that can help it duplicating success from the feature phone era to the smartphone era and delivering strong earnings growth in the coming years. Uni-President Enterprises (Code: 1216 TT) US$9.5 billion Food and beverage Price: TWD52.80 P/E: 18.2x P/B: 2.9x Yield: 3.2% Uni-President Enterprises Corporation is a leading food and beverage manufacturer and distributor in Taiwan, commanding more than 45% share of the instant noodle, ready-to-drink tea, and convenience-store markets. To strengthen its China business further, its management has completed sales-channel reforms and successfully launched a number of popular products in the past two years. We see huge potential in the group and expect it to become one of the biggest food conglomerates in the fast-growing Greater China market. Note: The above investments made up 53.5% of Value Partners Classic Fund as at 30 September The stock prices are based on the closing of 30 September Individual stock performance/yield is not necessarily indicative of overall fund performance. Page 6