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Keywise Capital Management’s Return, AUM, and Holdings

Nina Zdinjak

Keywise Capital Management is a Hong Kong-based hedge fund that invests in public equity companies in Greater China markets, mostly China, Taiwan, Hong Kong, Singapore, and Chinese ADRs in the US. The fund focuses on under-researched public companies of mid-market caps. In addition to its headquarters in Hong Kong, this asset management firm provides another research office in Bejing, China. Keywise Capital Management’s CIO and Managing Director is Fang Zheng, a chartered financial analyst. Mr. Zheng cut his teeth as an Equity Research Analyst in Singapore and further honed his investment acumen at JP Morgan Emerging Market Equity Group as a Portfolio Manager and a Vice President in charge of Asian markets. He also co-founded  Neon Liberty Management in 2002, where he served as a Portfolio Manager.  MR. Zheng graduated with a B.A. from the University of International Business & Economics in Bejing, and with an M.B.A. from Harvard Business School.

The fund utilizes a bottom-up investment style, relying on two types of strategies – long/short and long-only. Its The Keywise Discovery Fund mainly targets long securities in the China A-Share market, while The Keywise Golden Key Fund mainly looks for long securities in the Hong Kong market via Shanghai-Hong Kong and Shenzhen-Hong Kong stock-connect programs. The fund's The Keywise Penguin Fund employs a long-short market neutral strategy. These and other Keywise Capital Management’s funds aim to generate good returns profiting from structural changes of the Chinese economy.

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Keywise Capital Management’s Return, AUM, and Holdings

Let’s take a look at the fund’s return figures in recent years in order to see how did this strategy work out. For instance, its Milltrust Keywise China Fund delivered 5.18% in 2013, followed by a stronger 9.18% in 2014, and a loss of 9.65% in 2015. 2016 also wasn’t favorable for the fund as it lost 2.54%. In 2018 made a fantastic comeback generating great 36.22%. Last year’s challenging market environment managed to bring down the fund again, with Milltrust Keywise China Fund returning -11.14% through October. Its total return amounted to 38.83%, for a compound annual return of 5.32%, while its worst drawdown was 34.76.

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At the end of the first quarter of 2019, Keywise Capital Management’s equity portfolio carried a value of $223.96 million, up by 76%, from the previous quarter, when it was valued $127.19 million. During the quarter, the fund initiated 5 new positions, and it hasn't dumped a single company, having at the end of it a total of 11 long holdings. It held the most valuable stake in Alibaba Group Holding Limited (NYSE:BABA), a Chinese conglomerate holding company that provides e-commerce and retail services. This $416.17 billion market cap company was actually the 7th most popular stock among hedge funds in Q1 of 2019. Keywise Capital Management held 575,064 Alibaba’s shares, with a value of $104.92 million, amassing 46.84% of its 13F portfolio. Since the beginning of the year, Alibaba’s stock gained 16.93%, having a closing price on June 10th of $159.85. The stock is trading at a P/E ratio of 45.71.

The second largest position in the fund’s 13F portfolio was in Vipshop Holdings Limited (NYSE:VIPS), and it was worth $58.75 million, on the account of 7.32 million shares, comprising 26.23% of its portfolio. Vipshop is a Chinese company that runs an e-commerce website VIP.com, one of the most popular online discount retailers for brands in China. It began trading on the New York Stock Exchange in March 2012. Over the past 12 months, its stock lost 33.21%, and on June 10th, it had a closing price of $7.50. The company has a market cap of almost $5 billion, and it is trading at a P/E ratio of 15.56. For the first quarter of 2019, Vipshop reported total net revenue of RMB21.3 billion (US$3.2 billion) up by 7.3% from the same quarter of 2018, when it reached RMB19.9 billion. It also disclosed net income attributable to Vipshop’s shareholders of RMB.872.3 million (US$130.0 million) or diluted net earnings per Class A and Class B ordinary share of RMB6.33 (US$0.94) compared to net income of RMB529.7 million or diluted net earnings per share of RMB3.86 in the same period of 2018.

Among other valuable Keywise Capital Management’s old positions were Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), 58.com Inc. (NYSE:WUBA), Baozun Inc. (NASDAQ:BZUN), and YUM! Brands, Inc. (NYSE:YUM). During the quarter, the fund lowered its stake in Taiwan Semiconductor by 5% to 453,800 shares worth $18.59 million, and it raised its stakes in 58.com Inc. and Baozun Inc. by 174% to 32,000 shares worth $2.10 million and by 18% to 18,500 shares worth $768,000, respectively. In Yum China Holdings it trimmed its stake by 85% having 6,400 shares, worth $287,000 at the end of the quarter.

Click here to read the rest of this article where we highlight Keywise Capital Management’s quarterly additions.

Disclosure: None

This article was originally published at Insider Monkey.