As at 31-12-2014
31 December 2014
Value Partners Classic Fund
NAV per unit : A Units - USD267.03
Fund size :
B Units - USD121.39
C Units - USD15.31
• 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.
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
Value Partners Classic Fund (A Units, USD)
Hong Kong Hang Seng Index 3
A Units Hang Seng B Units
+2,570.3% +417.3% +1,113.9%
Annual performance 2
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
NAVs & codes
A Units (USD)
B Units (USD)
C Units (USD)
C Units (HKD) 6
C Units (AUD) Hedged
C Units (CAD) Hedged
C Units (NZD) Hedged
Value Partners Classic Fund – A Units (USD): Monthly performance from 1 Jan 2003 to 31 Dec 2014
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 December 2014
Top 10 securities holdings
China Life Insurance
Ping An Insurance
Industrial & Commercial
Bank Of China
China Taiping Insurance
biotechnology & life sciences
Automobiles & components
biotechnology & life sciences
These stocks constitute 51% of the fund. The top ten securities holdings only
include companies and/ or REITs the fund invested, excluding any index tracking
fund or ETF.
As at 31 Dec 2014
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.
Geographical exposure by listing 8
China A Shares
China B Shares
Performance fee 11
Sector exposure 7 8
up to 5%
15% of profit (High-on-high principle)
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; Lai Voon San;
Michelle Yu, CFA; Yu Xiao Bo
Fund of the Year Awards 2011
Outstanding Achiever – Greater China Equity
1. © 2014 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 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 / Fourth Quarter 2014 (including Yearend 2014 Summary)
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.
Value Partners Classic Fund (the “Fund”) finished 2014 on a high after a relatively volatile year. Chinese
equities drifted lower in the first half of the year, only to rally towards the end as the Shanghai-Hong Kong
Stock Connect and a loosening monetary stance helped drive equity markets higher. The Fund delivered a
positive return of 13.5% for the year. For reference, the Hang Seng Index gained 5.5% for the year while the
MSCI China Index rose 8.0%.
China reforms and supportive macros
The China story continues to remain compelling as we are only in the early stage of reform programs
announced in 2013. While investors are still wrestling with the reality that China’s growth continues to slow,
we think that this could be a positive factor in delaying the recognition of reform dividends. In 2014, China
tackled some of the more difficult aspects on its reform agenda, such as raising SOE (state-owned enterprise)
profitability and efficiency. SOE reform measures are expected to continue, notably in the areas of asset
divestment, industry consolidation, mixed ownership and equity incentive schemes. Furthermore, the
Communist Party had its recent Fourth Plenum focusing on “rule of law” for the first time. The blueprint
improves judicial procedures and the separation of judicial and administrative functions. These changes will
play a significant role in China’s long-term economic growth and political stability, benefiting those who are
doing business in China. These types of reforms are not easy to execute and demonstrate the significant
political clout and determination of the current administration.
From a macro perspective, a stronger US dollar environment and lower commodity prices will aid to
maintain low inflation in China and leave room for further interest rate cuts. A more accommodative
monetary policy environment is suitable in a time of significant reform. This will help minimize financial
market shocks as the rapid pace of reforms may expose its weakest links. We expect the Chinese
government to continue providing support to domestic growth by continuing infrastructure projects and
housing stimulus plans to maintain economic growth rate at around 7% to 7.5%.
Performance driven by A shares and stock selection in 2014
From a portfolio strategy perspective, the Fund has remained fully invested throughout much of the year,
underpinning our positive view on equity markets. We have further engaged in our high conviction ideas and
remained aggressive in employing our active strategy. In 2014, our significant additions in A shares and
stock selection were the key performance drivers of the Fund.
9th Floor, Nexxus Building, 41 Connaught Road Central, Hong Kong
Tel: (852) 2880-9263 Fax: (852) 2565-7975
Email: [email protected]
At the beginning of 2014, our portfolio started with an exposure of approximately 10% in Chinese A shares.
With the anticipated launch of the Shanghai-Hong Kong Stock Connect and low market valuations, we
recognized potentials for strong A-share performance. With the support from our Shanghai research team
since 2009, we significantly increased the Fund’s A-share exposure to 27%1 as of the end of October – ahead
of the official launch of the Stock Connect. We favored stocks that are dually listed in the Shanghai and
Hong Kong stock exchanges, as well as selected companies that are cheaper in the A-share market. We also
favored high-yielding stocks and unique opportunities available in the A-share market. Despite the
lukewarm take-up of the Stock Connect, we were able to take advantage of the broader A-share rally.
The CSI 300 Index has gained 52.1% (in US$ terms) over the year, particularly spurred by interest rate cuts
and recovering retail participation in the domestic stockmarket in the final month.
From a stock selection perspective, our positions in China healthcare, properties and energy have particularly
yielded a positive impact on the portfolio. Going forward, we will continue to find attractive value stocks,
especially in “old economy” sectors including banking, insurance and property. Healthcare, as one of the
few “new economy” sectors, will however remain one of our favorites.
Investment case study – Lijun International Pharmaceutical
Lijun International Pharmaceutical (“Lijun”) is a healthcare company that has been one of our top holdings
and key performance contributors. It is one of the top three largest makers of infusion products in China.
Intravenous infusion solutions are a critical component of China’s developing healthcare system, and Lijun
has experienced stable double-digit growth in the past five years. While Lijun’s competitors focus on the
lower end of the market, Lijun pioneers in producing non-PVC soft bag injections with a market share of
over 30%. The advantages of non-PVC soft bag injections over traditional glass-based injection bottles
include lower weight for transportation and lower risk of breakage. Therefore, we expect non-PVC soft bags
to grow faster than the overall market. In addition, Lijun operates the largest “single-factory” production
facility for large-volume infusion products, giving it cost advantage with economies of scale. Lijun’s strong
branding and low-cost production also help the company to generate a gross margin of over 50% in the first
half of 2014. On the back of an experienced management team and the capacity for further expansion, we
are hopeful that Lijun will continue to deliver strong earnings growth. While the overall healthcare sector
has performed strongly in the past two years, Lijun is currently trading at 12.7 times of 2015 forward
price-to-earnings ratio, which is reasonable given its business prospects.
Amidst a volatile environment, we believe this is a good time for Value Partners to thrive further as our
region is refocusing on stock picking and fundamental value. While we expect markets to remain somewhat
volatile, we are optimistic about the outlook for Chinese equities. We are also well-positioned to take
advantage of market fluctuations.
Value Partners has continued to grow from strength to strength in 2014. Our assets under management
(“AUM”) have grown by more than 20% in 2014 to over US$12.6 billion. Our performance also continued
to win us industry accolades. Among our numerous awards in 2014 include “Asian Fund House of the Year”
and “Asset Management Company of the Year (Hong Kong)” 2. In addition, we are pleased to report that
Value Partners Group has won the Enterprise Award in the DHL/SCMP Hong Kong Business Awards 2014,
a distinguished title given to entrepreneurs and companies that have made important contributions to
Hong Kong and the neighboring Pearl River Delta. This is the second time that we were given this renowned
title after receiving it in 2005, from a different judging panel. Meanwhile, in the Benchmark Fund of the
Year Awards 2014, we were named the Outstanding Achiever in the China Equity and High Yield Fixed
Value Partners’ leading position in Asian fund management is also reflected in the industry leadership role
played by our Chairman and Co-Chief Investment Officer, Dato’ Cheah Cheng Hye. In 2014, Dato’ Cheah
was invited to speak at many industry events in Hong Kong, Shanghai and Singapore, organized by
professional and public organizations, including the Hong Kong Securities and Futures Commission (SFC);
the CFA Institute; The Hong Kong Society of Financial Analysts; and Business China Singapore, a
government-supported group seeking to strengthen business ties between Singapore and China. Dato’ Cheah
spoke mainly on investing and corporate governance. Also, from early 2014, Dato’ Cheah delivered a speech
at various gatherings entitled “Chinese stocks: From Ugly Duckling to Beautiful Princess,” predicting a
renaissance for the Chinese equity market, arising from President Xi Jinping’s program emphasizing
deregulation, market-opening, a growing role for private enterprise and much improved corporate
governance. We are beginning to see the renaissance in action.
In closing this report, we’d like to convey our heartfelt thanks to our investors for their continued support and
the confidence they have placed in us. The recovery of value stocks showed that our value discipline has
once again borne fruit as we stay true to our convictions. We look forward to achieving new highs and
bringing another prosperous year for investors.
Value Partners Investment Team
9 January 2015
Including exposure from both direct A-share investment and indirect investment through China A-Share Access
Value Partners was named Asian Fund House of the Year in AsianInvestor’s Investment Performance Awards 2014
and Asset Management Company of the Year (Hong Kong) in The Asset Triple A Investor and Fund Management
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 December 2014. 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.
Value Partners Classic Fund: 10 biggest holdings of securities as at 31 December 2014
(Code: 1816 HK)
Listed in Hong Kong in December 2014, CGN Power is the leading nuclear power producer in
China with the biggest total installed capacity as of June 2014. Its nuclear power stations are
strategically located in economically developed regions in China that have a strong demand for
electricity. Within China’s energy spectrum, nuclear power is unique in that it has the lowest
earnings volatility. As the Chinese government supports clean energy development, CGN Power
is well positioned to benefit from the potential growth of the nuclear power industry in the
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 & 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 Taiping Insurance (“CTI”) engages in the underwriting of direct life insurance business,
property and casualty insurance business, and reinsurance business. The company has seen
peer-beating growth in life NBV (new business value) in 2014 on the back of specific
advantages in terms of its large scale agent recruitment. With a focus on life insurance, it is
also well positioned to benefit from measures by the Chinese government to let the insurance
industry play a bigger role in the social security network in the medium to 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 interest rate cuts in November 2014 has further helped
reviving homebuyers’ confidence.
China Life Insurance
(Code: 2628 HK)
China Taiping Insurance
(Code: 966 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.
Industrial & Commercial Bank of China (“ICBC”) is the largest commercial bank in China in
terms of assets and deposits. An extensive network of over 17,000 branches and a huge
customer base gives it both scale and funding advantages. ICBC has a liquid balance sheet, low
exposure to interbank, excess reserves and industry high capital adequacy.
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.
Industrial & Commercial
Bank of China
(Code: 1398 HK)
Luye Pharma Group
(Code: 2186 HK)
(Code: 857 HK)
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.
Tasly Pharmaceutical (“Tasly”) is a leading traditional Chinese medicine (TCM) developer and
distributor with a focus on the treatment of cardiovascular and cerebrovascular diseases. Given
the high potential of essential drug tendering ramp-up in most provinces in 2015 in China, Tasly
will likely continue to enjoy strong sales growth going forward. The company has a strong
potential for product internationalization to drive future growth. Its Compound Danshen
Dripping Pills is undergoing a Phase III clinical trial in the US and could potentially become the
first TCM product to enter the US market as a prescription drug.
Ping An Insurance
(Code: 2318 HK)
(Code: 600535 CH)
*EV = Embedded value
Note: The above investments made up 50.5% of Value Partners Classic Fund as at 31 December 2014. The stock prices are based on the closing of 31 December 2014.
Individual stock performance/yield is not necessarily indicative of overall fund performance.