Pelargos Asia Alpha Fund September 2017

Transcription

1 Fund Performance In September the Class B shares depreciated by 0.21%. The MSCI Asia Pacific (MSCI AP) gained 1.38% in local currency terms during the month. Year to date, the fund is up 2.38%, whilst the MSCI AP index in local terms is up 15.11%. The volatility of the fund is 5.8% since inception and 28.5% on the MSCI AP index level. Fund Performance Share Class NAV MTD YTD ITD 1, , % -0.21% 2.00% 2.38% 0.77% 0.16% Market Environment During the month the MSCI Asia Pacific appreciated 1.38%. Defensive sectors underperformed cyclical sectors. The strongest sectors were Consumer Discretionary (2.4%), Healthcare (2.2%) and IT (1.8%). While Materials (-3.5%), Telecommunications (-2.8%) and Consumer Staples (- 2.6%) lagged the overall index performance. On a country level the Korean index gained 3.6%, closely followed by the Thai index gaining 3.2%. The worst performers on a country level were the MSCI Taiwan and the MSCI India down 3% and 1.2%, respectively. From a style perspective value stocks underperformed growth stocks. In our proprietary quant model, the value factor was down 2.6%. While on a MSCI level the Value index underperformed the Growth index by 1.2 percentage points. Top & Bottom Industry Movers Industry Group MTD YTD PB PE Consumer Disc. Health Care IT Industry Group 2.4% 2.2% 1.8% MTD 26.6% 20.1% 48.6% YTD PB PE Materials Telcom Consumer St. -3.5% -2.8% -2.6% 18.1% 3.9% 11.9% Source: Bloomberg During the month the long awaited FED balance sheet reduction was announced. Cross assets this led to higher longer term yields in the U.S. with the 10-year U.S. government bond yield moving up 20bps during the month. In turn this led to strength in the U.S. dollar versus most currency pairs. Moreover, industrial and precious metals sold off sharply as the stronger U.S. dollar provided a headwind for commodity prices. General Statistics % Return long book % Return short book # Long stocks # Short stocks % Long stocks % Short stocks # Up days / Down days Daily Correlation with MSCI AP ex JP Turnover as % NAV -0.4% -0.7% % 53% 11 / % Largest Long & Short Holdings Longs Shorts Kasikornbank NVDR Brambles Sk Hynix Advantech Co Samsung Electronics Jb Hi Fi China Com Cons H Bendigo And Adel Zhengzhou Yut A Scentre group Source: BNY Mellon Fund Services Single Stock Activity Largest Buy & Buy Cover* Largest Sell & Short Sell** Newcrest Mining B Advanced Semicon S Bhp Billiton B Sk Telecom Adr S Lg Chem B Brambles SS China Petroleum B Pegatron Corp S Chimei Innolux C B Samsung Electronics S * B = Buy; BC = Buy Cover Source: BNY Mellon Fund Services ** S = Sell; SS = Short Sell Investment Strategy During the month we aggressively added to our short book, which increased by -11% of NAV, while trading in the long book was fairly balanced. Overall this led to a reduction in net exposure and an increase in gross exposure. Half of the short trades were in Australian stocks and were technically driven, as the Australian market continues to look vulnerable. The largest of which was our short trade in JB Hi-fi, the consumer electronics company. As the fundamentals of JB Hi-fi remain challenging, comps are getting tougher and the technical trading profile deteriorated, we added to our short exposure. Exposure to Brambles, another Australian short position, was also increased. The company s U.S. business remains under competitive pricing pressure and is hurt by cost inflation. Given this backdrop, we added to the stock on technical weakness. Lastly, we added to our short in Advantech. The market is giving the company credit for longer term IOT opportunities, while in our view overestimating the pace at which this change might occur. Therefore, the stock is expensively priced at 21x forward earnings and 5x price to book. 1

2 Investment Strategy After consolidating for a few weeks, Brilliance broke out to the upside. As the fundamentals for the stock remain strong, with solid august sales numbers (released early September), the technical break-out of the stock confirmed the fundamental thesis. Hence, we increased the position. Exposure to Innolux, the Taiwanese LCD panel manufacturer, was increased during the month. Early July the stock reached a new 52-week high after which it sold off. We used this recent weakness to add to the position as longer term fundamentals remain favorable. Moreover, the company is cheaply priced at 9x forward earnings and 0.5x price to book. We also added to our exposure in Samsung Electronics, the Korean consumer electronics conglomerate. As the stock recovered from recent weakness and continued to trend upwards we added to the position. Fundamentally, DRAM and NAND pricing remain strong, providing the company with a strong earnings tailwind and the valuation of the company is undemanding. Lastly, we reduced our exposure to Haier Electronics, the Chinese home appliances company. The stock started to accelerate down in September, which resulted us in managing our risk exposure to the stock as it neared a 50bps drawdown. Top Gainers & Losers Gainers CTR* Losers CTR* Sk Hynix L 0.64% China Com Cons H L -0.23% Zhengzhou Yut A L 0.39% China Overseas Land L -0.22% Samsung Electronics L 0.26% Newcrest Mining L -0.22% Silicon Works L 0.14% Haier Electronic L -0.21% Kasikornbank NVDR L 0.10% Regis Resources L -0.17% *CTR = Contribution Value Factor Performance* P/E EV/EBITDA P/B Div Yld EV/IC FCF MTD -1.3% -1.4% -2.8% -1.9% -0.7% -0.8% YTD 10.3% 8% 6.0% 0.4% 8.8% 9% 20.0% 10.0% 0.0% -10.0% 0.10% 0.00% * Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Cumulative Percentage Return 12 month rolling Percentage Average Daily Return Per Quintile [YTD] Performance While the skew in the top five winners and losers favored the winners, the portfolio as a whole lost 0.21%. This means that our hit rate during the month was low. Nevertheless the performance of a few outliers managed to limit the losses during the month. The biggest of these positive outliers was SK Hynix, the Korean memory semiconductor manufacturer. The stock continued to soar higher moving up 21% which translated to a 0.64% contribution to the fund s performance. As the DRAM pricing cycle continues to extend, the stock continues to surprise on the upside. As the stocks rips higher, the company is becoming more fairly valued, of which we are mindful. Our second biggest contributor was Zhengzhou Yutong Bus, the Chinese electric bus manufacturer, which added 0.39% after a 19% move in the stock. The cheaply valued company released decent sales data for August during the month. Longer term the fundamentals remain very positive as Chinese authorities are accelerating the transition towards more clean means of transportation. Completing the top three gainers is Samsung Electronics, the Korean conglomerate, which benefitted from the same memory market dynamics as SK Hynix. The stock moved up 11% during the month, which meant the position added 0.26% to the fund s performance. Our top five losers consists of three Chinese holdings and two Australian stocks. The latter are both gold mining companies, which suffered from gold selling off 3% during the month. In total this gold exposure subtracted 0.39% from the fund s performance. China Overseas Land moved down 6% during volatile trading, which costs the fund -0.22%. The stock is being tormented by continued (rumors of) policy changes regarding the Chinese property market. However, if we look beyond the short term noise COLI is well positioned and has a solid land bank and strong balance sheet. Hence, in our view it is one of the highest quality companies in the sector attractively priced at 6.5x forward earnings and 1x price to book. 2

3 Risk Measurement and Management While our volatility measure remains suppressed at 5.3% the underlying risk profile of the fund does warrant close monitoring. This is due to our relatively large exposure to (Korean) tech stocks. These high momentum stocks have performed very well during the year and could be vulnerable in case of a style/sector shift in the equity markets. The exposure profile of the fund has not changed much when looking at aggregate measures. The fund has a value tilt with positive price and earnings momentum. 120% 100% 80% 60% 40% 20% 0% -20% -40% -60% 0% Oct Nov Dec Jan Jan Mar Apr May May Jun Jul Aug Sep Long Exposure [L] Gross Exposure [L] Short Exposure [L] Net Exposure [R] 60% 50% 40% 30% 20% 10% Source: BNY Mellon Fund Services * Fund Overview Long Short Price to Earnings (PE) EV/EBITDA Price to Book (PB) Dividend Yield EV/IC 1 month momentum 6 month momentum 9 month momentum Earnings momentum (1M) Earnings momentum (3M) CFROI Cash/MarketValue % % 0.1 Style Exposure Long Short Beta Volatility Debt-to-equity % % 58.0 Risk Statistics Delta Adjusted Volatility (ex-ante; 3 month daily data) Volatility (ex-ante; 5yr monthly data) Var (99%, 5 days) Beta (ex-ante) 5.3% 6.8% 1.5% 0.42 Source: Nomura TradeSpecs and UBS PAS Outlook Nothing seems to be able to stop the current bull market in U.S. and Asian equity markets. Over the summer global geopolitical risks flared up and the U.S. were hit by multiple hurricanes, to no effect, equity markets continued to appreciate. More recently, both the announcement of the FED to start reducing the size of its balance sheet and the pricing in of the December rate hike had a marginal impact on global equity markets. Moreover, economically, the global goldilocks scenario for equities seems to persist with steady global growth and relatively low global (wage) inflation resulting in a hesitant data dependent FED. Hence, unless (wage) inflation in the U.S. picks up noticeably, we expect this (bullish) environment to persist. However, the global credit impulse has deteriorated which is often followed (with a lag) by increased volatility in risk assets. Moreover, looking ahead to 2018 the market is still pricing in less hikes than the FED is guiding for and we have an election of the new FED chair that could impact the perceived hawkishness of the FED. Therefore, were inflation to come through under a more hawkishly led FED we could get an inflation scare resulting in a more volatile 2018 for financial markets. On the other hand, President Trump seems to favor more dovish candidates and hence the current goldilocks could well be extended into next year were someone like Neel Kashkari become FED chair. Despite the positive cyclical economic outlook we remain skeptical of the structural economic fundamentals. As described in previous newsletters, poor demographics trends, high debts levels and low productivity remain strong headwinds for the global economy. All of which provide challenges, which societies have not yet dealt with. Concluding, for now the goldilocks scenario seems to persist into year end and perhaps even into Q However, due to the deterioration in the global credit impulse there is a heightened probability of a pick-up in financial market volatility during the remainder of the year. Nevertheless, given the strong and persistent bullish sentiment in the equity markets we do not expect a large sell-off over this horizon. Especially, given how cheap downside protection has been till recently. Consequently, we are net long positioned in our fund, which carries a value/momentum tilt. However, we remain mindful of the potential pick-up in volatility the coming months and hence monitor risk-off indicators closely. 3

4 Historic Fund Performance (Monthly) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec % -1.20% 0.96% -0.15% -0.30% 0.86% 0.49% 0.30% -0.25% % 1.33% -1.87% -0.44% -0.66% 1.76% 2.50% -0.77% 0.67% 0.25% -1.04% -1.08% % 0.92% 0.51% 5.50% -0.59% -2.80% -3.55% 2.41% 2.73% -3.01% -0.37% -0.09% % 0.24% 0.13% -1.19% -1.46% 1.46% -0.44% 0.98% -0.87% -0.23% 1.39% 1.28% % 1.53% 1.16% 0.37% -0.79% -3.32% -0.16% -0.50% -1.05% 1.61% 2.24% 0.17% % 0.92% -1.67% -0.72% -2.42% -0.51% -0.36% -0.69% 1.81% -0.48% 1.26% -0.53% % -1.69% 1.39% 0.29% -0.96% -0.84% 1.13% -2.41% -4.53% -1.03% 0.37% 0.82% % -0.67% 2.95% -1.48% -3.10% -0.07% -0.84% 0.42% 0.81% 1.90% -0.80% 0.79% % 0.56% -0.80% 0.77% 1.39% -0.84% 3.72% -1.20% 3.56% 0.08% 1.61% 1.43% % -1.16% 1.01% -0.11% -0.26% 0.90% 0.53% 0.35% -0.21% % 0.28% % 0.96% % 1.37% -1.83% -0.40% -0.62% -1.70% 0.18% % 1.58% 1.20% % 0.82% -1.66% 1.44% -0.64% 2.99% 0.60% -1.15% 0.41% -1.63% -0.68% 0.33% -1.44% -1.42% -0.75% -2.38% -0.92% -3.06% 1.50% -0.40% 1.02% -0.76% 0.80% 2.24% -1.00% 4.68% -1.44% 1.81% 2.54% -0.72% 0.72% 0.28% -0.99% % 0.96% 0.55% 5.54% -0.55% -2.76% -3.51% 2.45% 2.77% -2.97% -0.33% 0.00% -0.19% 1.43% 1.33% -3.28% -0.11% -0.46% -1.01% 1.65% 2.29% -0.47% -0.80% -0.31% -0.64% 1.17% -2.36% -0.03% -0.80% 0.47% 0.86% -1.27% -0.83% 1.85% -0.43% -4.50% 0.85% -0.99% 1.94% 4.01% 0.12% -4.91% -0.06% 1.72% 0.22% 1.31% -0.48% 0.41% -0.75% 0.04% -1.04% 0.87% 0.84% 1.54% -1.78% Historic Fund Performance (Yearly) % -0.10% 0.17% 0.93% 3.57% -4.37% -8.97% -2.16% 10.89% 2.38% 0.40% 0.72% 1.44% 4.10% -3.88% -8.52% -1.67% 13.96% -7.02% Fund Facts Fund Facts Investment Manager Pelargos Capital Fund Size in EUR 121,726,901 Legal Status FGR (fund for joint account) Fund Size in USD $143,928,697 Fiscal Status VBI (tax exempt) Participations Outstanding Class A 243 Dividend Policy Reinvestment Base Currency EUR Participations Outstanding Class B 121,290 ISIN NL ISIN NL Minimum Subscription Class A EUR 10,000 Inception Date January 2009 Minimum Subscription Class B EUR 10,000 Inception Date July 2008 Dealing Day First business day of each month Subscription Any dealing day, 3 business days notice Company Facts Redemption 15 business days notice Firm AUM in EUR 235,991,532 Management Fee Class A 1.5% Firm AUM in USD $279,034,079 Management Fee Class B Performance Fee Class A 1.0% 20% subject to High Watermark Portfolio Managers Performance Fee Class B 15% subject to High Watermark Angus Chiang Richard Dingemans Fund Description Investment Strategy Equity Long/Short Service Providers Investment Style Fundamental Value Prime Brokers UBS AG, Goldman Sachs International 4

5 Investment Objective Capital appreciation through investing in Administrator BNY Mellon Fund Services long/short positions Accountant PricewaterhouseCoopers Legal De Brauw Blackstone Westbroek N.V. Title Holder SGG Custody B.V. Depositary Bank of New York Mellon Contact Details WTC The Hague, Tower E 7th floor Prinses Margrietplantsoen AM, The Hague The Netherlands +31 (70) Disclaimer Pelargos Capital B.V. has compiled this publication. Pelargos Capital B.V. is a management company and in that capacity avails of a license pursuant to section 2:65 of the Act on Financial Supervision of the Netherlands (Wft) as that section reads following the incorporation of the AIFM Directive in the Wft]. Although the information contained in this publication is composed with great care and although we always strive to ensure the accuracy, completeness and correctness of the information, imperfections due to human errors may occur, as a result of which presented data and calculations may vary. Therefore, no rights may be derived from the provided data and calculations. All information is provided "as is" and is subject to change without prior notice. Pelargos Capital B.V. does not warrant the adequacy, accuracy or completeness of any information and expressly disclaims any liability for errors or omissions therein. The recipients of this publication are responsible for evaluating the accuracy, completeness or usefulness of this information. The information contained in this publication does not constitute any recommendation, investment proposal, offer to provide a service, nor a solicitation to buy or sell any security or other investment product. The publication of this information may be subject to restrictions imposed by law in some jurisdictions. Pelargos Capital B.V. requests any recipient of this publication to become acquainted with, and to observe, all restrictions. Pelargos Capital B.V. accepts no liability for infringement of such restrictions. The recipient shall not distribute, forward or publish this information. No rights may be derived from the provided information, data and calculations. Also by risks inherent to this investment fund, the value of the investments may fluctuate. Past performance is no guarantee or guide to future performance. 5