Perinvest: FY 2016 Update

Perinvest’s Asia Dividend Fund recently released its full year update to investors. The letter includes a review of the results for 2016, updates on a number of holdings as well as the manager’s outlook for the coming year. Some highlights are included below, much of it paraphrased. For more on the fund and manager, please see my original post here.

2016 results:
The portfolio ended the year up by 5.8%, marginally outperforming the MSCI Asia ex-Japan TR index, which was up 5.4%. In terms of geographic allocation, the portfolio remains heavily weighted towards Hong Kong (~45%). It also has a significant allocation to real estate and banks, which currently comprise ~51% of the portfolio. The portfolio’s 34 current positions have an average P/E ratio of 7x, P/B of 0.9x and a gross dividend yield of 5.9% (the benchmark index is at 14x, 1.4x and 2.8% respectively).

Position updates:
The portfolio’s Indian positions contributed the majority of the positive NAV development for the year. Manappuram Finance and National Aluminium were up 100% (prior to sale) and 48% respectively. There was also strong performance (>20%) from a number of other holdings, including Bank Jatim, Posco and CTCI Corp.

By contrast, its investments in Chinese textiles companies were the biggest losers for the year. Texwinca was down 24% for the year, reflecting the loss of key accounts and a slower than expected turnaround of its retail arm (Baleno Group). Victory City, another textile holding, was also down over 50% for the year. 

Skyworth Digital:
The market leader in TVs and set top boxes is a core holding of the fund (>5% weight). Competition in the domestic (Chinese) market has been intense in recent years, reflected in the worsening pricing environment. Some indication that the market is now turning – Skyworth’s average selling price was up in November for the first time in >3 years. Consensus is missing the opportunity with a new product upgrade cycle (OLED televisions) and a growing international division. 

Outlook for 2017:
Most of the predictions for 2016 turned out wrong. Going into 2017, a lot of the focus will be on the US economy. Morton advises caution regarding the consensus predictions – “if everyone is sure something will happen, it rarely does; in fact, the reverse tends to occur.” 

He includes a quote from his mentor, Peter Cundill: “I think the financial community devotes far too much time and mental resources to its constant efforts to predict the economic future and consequent stock market behaviour using a disparate, and almost certainly incomplete, set of statistical variables. It makes me wonder what might be accomplished if all this time, energy and money were to be applied to endeavours with a better chance of proving reliable and practically useful.”