Investment Strategy

Disciplined, diversified and research-driven.

The Fund’s top-down stock selection process is disciplined, repeatable, and research-driven. Management uses a macroeconomic investment approach to make decisions about sector allocations, seeking out the best performing categories. We take an in-depth and long-term outlook on global economic trends to determine which sectors of the Chinese market should be given the most emphasis. We then apply an on-going bottom-up approach to evaluate individual stocks for value and earnings dynamics.

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Disciplined

The Fund’s disciplined investment strategy selects companies believed to be industry leaders in China—with management depth, integrity, adaptivity, and strict corporate governance; excellent business models; above-average consistency of earnings and/or dividends; price-to-earnings multiples at or below market valuations; and superior marketing strategies and product lines. The Fund presently only holds shares traded on the more liquid and reputable Hang Seng Stock Exchange in Hong Kong and the New York Stock Exchange. The Hong Kong exchange has some of the most stringent and reputable listing and reporting requirements in the world. As domestic Chinese market protections improve, the Fund looks to also add shares listed on the Shanghai and Shenzhen stock exchanges.

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Diversified

The Fund is generally diversified among sectors we believe to have the most long-term growth potential. Management typically also invests across all market cap sectors, with an emphasis on mega cap stocks (those with a market capitalization above $25 billion in U.S. dollars), large cap stocks ($10-25 billion), and mid cap stocks ($3-10 billion) stocks.

As the Fund is designed as a diversification for North American investors, the Fund often underweights sectors where North American opportunities appear superior. Conversely, many mature sectors that look unappealing in North America can be owned in China where they are still enjoying early growth opportunities.

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Research-Driven

Quantitative research drives the Fund’s long-term secular outlook and themes upon which how we make investment decisions. Our Far East research team provides quantitative research based on valuation analysis and earnings dynamics. The investment selection process benefits from the investment committee’s thorough and local research and analysis and is reinforced by the long-term tenured expertise of all team members. Proprietary research is supplemented with outside research as needed.

Stock Stories

Below are three representative Chinese companies that over the long-term potentially may benefit from the growth of middle-class consumer consumption:

Anta Sports Products

Anta Sports Products is China’s largest sportswear brand by sales. Greater purchasing power of Chinese consumers and the increasing popularity of sports has well placed the company for the future growth.

In the year ended December 31, 2018, Anta’s net profit rose 33% to $613 million—a record—as revenue increased 44%.

Anta was the official apparel sponsor for the Chinese national team at the Rio Olympics and presently sponsors numerous teams, players, and associations such as Klay Thompson, Gordon Hayward, Kevin Garnett, Rajon Rondo, Luis Scola and Manny Pacquiao.

China Mengniu Dairy Company Ltd

Dietary improvement is a fundamental outcome as countries become developed. In particular, protein consumption rises in close relationship to disposable income. As infrastructures like transportation, refrigeration and distribution improve, milk becomes a viable and common source of protein.

China’s per-capita annual milk consumption presently approximates 20 kilograms, up over 200% from just 5.6 kilograms in 2003. This compares with annual per-capita consumption of over 70 kilograms in the USA and between 30 and 50 kilograms in Japan and Korea. Dairy sales in China are predicted to grow a further 16.8% by 2023, to $70 billion.

China Mengniu Dairy Company Ltd, is one of China’s leading dairy manufacturers and distributers. Mengniu’s products include liquid milk products (such as UHT milk, milk beverages and yogurt), ice cream, milk formula and other dairy products (such as plant-based protein beverage and cheese).

For the year ended December 31, 2018, China Mengniu Dairy reported a 49% rise in profits as revenue jumped 14.7% to a record US $452 million.

Sino Biopharmaceutical Limited

According to the World Bank, in 2016, China’s per-capita spending on healthcare came to $791, compared to the global average of $1,355 and the US figure of $9,870. As a percentage of GDP, the World bank estimated China spent 4.98%, compared to the global figure of 10.01% and the US rate of 17.07%. As China’s wealth and disposable income rise, this gap can be expected to close.

Sino Biopharmaceutical Limited is a research and development driven pharmaceutical conglomerate in the People’s Republic of China. The business encompasses a fully integrated chain of pharmaceutical products comprising a variety of medicines directed at tumors, liver disease, cardio-cerebral diseases, analgesia, respiratory system diseases and orthopedic diseases. The company attaches great importance to R&D breakthroughs.

In 2018, profits amounted to $1.3 billion, up 316% over 2017 as revenue rose 41%. During the year, sales of new products accounted for 18.7% of the total revenue.

 

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