Coupland Cardiff’s three open-ended Asian funds (Asian Evolution, Asia Alpha and Asia Focus) recently released their investor letters for December 2016. For more background, please see my post here. The full letters are available for download on the firm’s website, but below are some highlights:
CC Asian Evolution
Portfolio updates: Fund was up 3.2% for the year vs. a 5.4% gain in the Asia ex-Japan index. ASEAN names were the main contributors to performance, along with Tencent (up ~24% for 2016). Sold out of Orion Confectionery and online discounter VIP Shop, both of which were significant detractors of performance. As of end of year, the portfolio was valued at ~19x forward earnings with an average dividend yield of 2.6%.
New holdings: Subscribed to the IPO of Sheela Foam, India’s leading branded mattress manufacturer. Some short term weakness in the stock. Longer term, however, demonetisation and a unified goods and services tax should lead to consolidation around category leaders such as Sheela Foam.
Outlook: Fund has no exposure to the two Asia themes likely to face the biggest headwinds in 2017: de-globalisation / US protectionism and the Chinese currency devaluation / debt crisis. Focus continues to be on domestic growth oriented franchise businesses.
CC Asia Alpha
Portfolio updates: Fund was up 0.8% for the year. Standout performer in December was PTT Public. Contribution from the gas distribution business has reduced the cyclical impacts of oil price volatility. Earnings upgrades along with a solid dividend means they expect the stock to return another ~20% to investors. Also saw improved performance from Aconex. The company has moved its clients from upfront payments toward longer term contracts, which should improve earnings visibility.
Outlook: Asian markets appear to offer better risk / reward versus developed markets at this point in time. Better earnings growth, cheaper valuations and potentially less political risk. Asia is also better able to cope with US dollar strength, although they believe it’s likely to be short lived anyway.
CC Asia Focus
Portfolio updates: Fund was down 4.0% for the year vs. a 5.4% increase in the index. Main detractors came from holding companies that were either past their best (Yeong Guan, Ozner Water) or where the investment story had changed (NewOcean Energy, DT&C).
Outlook: India remains a ray of hope and ongoing conversations with portfolio companies suggest that the initial period of weakness following demonetisation should be short term. The fund has increased its exposure to India recently (now at ~17%) and remains focused on finding decently priced domestic companies.