The fund’s investment strategy is long/short equity which uses specific macro themes to drive bottom up stock picking process in those particular themes. In analysing companies we are focusing on the business model, the quality of management (or lack of quality) and sustainability of the business. Particular attention is paid to free cash flows.
Investment can be small, medium or large cap, however 75% will always be in large cap liquid companies, and will cover:
1. Companies located in China (People’s Republic Of China, and its Specials Administrative Regions, Hong Kong and Macau) or;
2. Companies that are not located in China but derive a majority (over 50%) of their income from China.
Our return target is to have an annualised return of 15-20% with reasonably low volatility of around 15%. Our investment horizon is long term and we are prepared to tolerate volatility in the short term, which is prevalent in the Asian markets.
Our philosophy is driven by the belief that we can deliver absolute returns by adopting a thematic approach to China and by focusing on dividend yield and earnings momentum. We will invest in a core portfolio of high dividend yielding stocks together with a trading portfolio which consists of earnings driven shorter-term opportunistic positions.
Our objective is to deliver a pattern of returns with lower volatility than, and low correlation to, the market. Typically, the net exposure will be between 0% and 75% net long.
There are two important aspects of our investment philosophy. Firstly, we believe in the concept of total return, composing of dividend yield, earnings growth and currency appreciation. This concept looks at stock returns from a wholistic point of view. Our belief is that if one can derive a large part of expected return from dividend yield, it reduces the burden of EPS delivery and therefore reduces volatility of share prices which usually come from mismatch of earnings expectation with delivery.
Secondly, we believe that stock price movement under normal circumstances are ultimately driven by changes in earnings expectation. In our view, the absolute level of earnings growth is not important in that it would have already been discounted by the market. What drives changes in stock prices are changes in earnings expectations. We seek to identify earnings growth that has been materially under- or overestimated by the markets.
Market risk is hedged using exchange traded index futures and options. Foreign currency hedging is achieved via the use of currency forwards. Long positions may be held through a combination of direct investment and/or derivative instruments. Short positions will be held through derivative positions, primarily equity swaps and futures.
The use of derivatives forms an important part of the investment strategy. The Fund may also invest at the Manager’s discretion in other transferable securities, derivative instruments and collective investment schemes.
- Long/short fund investing in equities in China and Hong Kong.
- Investment will be led by broad macro themes seeking to identify companies which will be subject to positive or negative dynamics over the medium to long term.
- Objective is to target 15-20% annualised return with low volatility.
- Fundamentally driven core portfolio focusing on investment ideas with a horizon of 3-5 years.
- Short term trading portfolio seeking to exploit market inefficiencies and momentum.
- Positions will be mostly in large cap companies although attractive opportunities in small and mid cap companies will also be pursued.