Kennox Strategic Value Fund’s Q3 2018 report included some commentary on their recent investment in Yue Yuen, the world’s largest manufacturer of athletic footwear.

As per their latest quarterly report:

“Yue Yuen makes shoes for all of the large athletic shoe brands (Nike, Adidas, Puma, Under Armour, etc.) and lead its competitors both in moving manufacturing away from China where costs are increasing rapidly (it has less than 20% of capacity in China now) and reducing reliance on labour (it is investing heavily in automation technology). These investments have weighed on cash flows recently, and whilst they only increase the competitive advantages in the longer term, it has also been reflected in the share price which has fallen around 40% from recent highs. We have bought the shares at around 11x trailing earnings, 12x our very conservative view of long-term Sustainable Earnings and at a 7% covered dividend yield. It is a 2.4% position.”

Kennox is an Edinburgh-based wholly independent asset manager. Their team runs the Kennox Strategic Value Fund, a long only global equities portfolio.