As at 31-03-2015
31 March 2015
Value Partners Classic Fund
NAV per unit :
Fund size :
A Units - USD284.39 B Units - USD129.12 C Units - USD16.29
• 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
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
Performance since launch (with dividends reinvested) 2
The Fund (A Units, USD)
Hang Seng Index 3
Annualized return ^
Annualized volatility ^
A Units Hang Seng B Units
+2,743.9% +448.4% +1,191.2%
Annual performance from 2009 to 2015 2
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
NAVs & codes
A Units (USD)
B Units (USD)
C Units (USD)
C Units (HKD) 5
C Units (AUD) Hedged
C Units (CAD) Hedged
C Units (NZD) Hedged
The fund – A Units (USD): Monthly performance from 1 Jan 2009 to 31 Mar 2015
^ 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) 2880 9263 Fax : (852) 2565 7975
Email : [email protected]
Website : www.valuepartners.com.hk
Value Partners Classic Fund
31 March 2015
Top 10 securities holdings
Gree Electric Appliances
Ping An Insurance
China Life Insurance
Inner Mongolia Yili Industrial
China Resources Gas
Industry 7 (%)
biotechnology & life sciences
Consumer durables & apparel
Automobiles & components
Food, beverage & tobacco
& life sciences
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
China A Shares
China B Shares
Sector exposure 7, 8
As at 31 Mar 2015
Value Partners Limited
Bank of Bermuda (Cayman) Limited
HSBC Institutional Trust Services (Asia) Limited
A Units (USD) - 1 Apr 1993
B Units (USD) - 15 May 1996
C Units (USD) - 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.
Performance fee 11
up to 5%
15% of profit (High-on-high principle)
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
Fund of the Year Awards 2011
Outstanding Achiever – Greater China Equity
1. © 2015 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 2011.
13. 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.
2011 - Long-Term Performance Award (10 years) 13
~ AsiaHedge Awards 2011
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
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
2014. 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 2015. 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.
9th Floor, Nexxus Building, 41 Connaught Road Central, Hong Kong
Tel: (852) 2880-9263 Fax: (852) 2565-7975
Email: [email protected]
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
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 2015. 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.
Value Partners Classic Fund: 10 biggest holdings of securities as at 31 March 2015
China Life Insurance
(Code: 2628 HK)
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.
China Resources Gas
(Code: 1193 HK)
(Code: 000002 CH)
(Code: 200625 CH)
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 (“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
(Code: 1093 HK)
Gree Electric Appliances
(Code: 000651 CH)
Inner Mongolia Yili
(Code: 600887 CH)
Luye Pharma Group
(Code: 2186 HK)
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.
(Code: 857 HK)
Ping An Insurance
(Code: 2318 HK)
*EV = Embedded value
Note: The above investments made up 51.6% of Value Partners Classic Fund as at 31 March 2015. The stock prices are based on the closing of 31 March 2015.
Individual stock performance/yield is not necessarily indicative of overall fund performance.