The portfolio is split between the core portfolio, which consists of companies that have sustainable and predictable growth to provide steady returns over the longer term (3-5 years), and the trading portfolio which will be short term in nature (up to 6 months) and will seek to capitalise on market inefficiencies and earnings momentum.
Core portfolio: high dividend yield companies that are at the same time beneficiaries of long term strategic themes and with stable and predictable, albeit, subdued earnings growth. Aiming at total return of 15-20% per annum composed of dividend (4% and above), 5-15% EPS growth, and 1-2% currency appreciation.
Trading portfolio: designed to take advantage of changes in earnings momentum, which is the major driver for stock price momentum, our focus is on fundamental research of earnings growth that has been materially under- or over-estimated by the market. All of our ideas are generated internally although we do use extensive input from analysts from the brokerage industry as well as third parties.
Long positions will be mainly held in the physical stock. Positions may be held through derivative instruments for market excess to the still restricted Chinese A share market.
The Fund may also invest, at the Investment Manager’s discretion, in other transferable securities, derivative instruments and collective investment schemes.
Derivative transactions will be made with one or more counterparties and counterparty risk will be spread in accordance with the UCITS III Directive.
Sell disciplines
We constantly review the portfolio and close positions when our rationale to hold is found to be deficient or wrong. We usually review and take action when the stock is down 10%. We have a hard close limit of 30% although we do not expect hard closure to arise as we intend to deal with the stock before significant loss arises.
Currency Exposure
The fund may use forward foreign exchange transactions to hedge, as far as is reasonably practicable, the currency exposure of the underlying assets as against the base currency of the fund. However, this will not totally eliminate the funds currency risk.
Cash Holdings
The fund may have large cash holdings. The managers take a very conservative approach to managing cash balances and deposits will only be made with organisations with a high credit rating. Cash will typically be in USD to avoid exchange rate exposure. Cash holdings will mainly be invested in cash with select banks and money market funds in line with UCITS III diversification rules. The fund is prohibited from long-term cash borrowing.