Overseen by Andrew Mattock and Winnie Chwang, the fund initiated new positions in WuXi Biologics Inc. (HKSE:02269) and China East Education Holdings Ltd. (HKSE:00667). Among its existing positions, the fund's top three boosts were in JD.com Inc. (NASDAQ:JD), Wanhua Chemical Group Co. Ltd. (SHSE:600309) and Alibaba Group Holding Ltd. (NYSE:BABA).
Fund updates market environment as U.S.-China trade negotiations continue
According to the shareholder letter, the fund returned -5.58% during the quarter, underperforming the MSCI China Index's return of -4.67%. The letter said Chinese equities traded lower during the quarter, driven by geopolitical pressure from the U.S.-China trade war and Hong Kong protests.
On Tuesday, the Dow Jones Industrial Average reached a new intraday high of 27,540.78, up 78.67 points from Monday's close of 27,462.11. The 30-chip stock index set a new record close on the heels of trade optimism between the U.S. and China.
The fund's letter said that while the U.S. and China have negotiated phase one of their trade deal, the Chinese government "continues to balance the long-term goal of deleveraging the economy and maintaining consumption-related growth." Trade tensions with the U.S. remain "unresolved," according to the letter.
Portfolio composition summary
As of quarter-end, the fund's $754 million equity portfolio contains 39 stocks with a turnover rate of 11%. The top three sectors in terms of weight are financial services, consumer cyclical and technology.
The fund purchased 770,500 shares of WuXi Biologics, giving the position 1.04% weight in the equity portfolio. Shares averaged 79.64 Hong Kong dollars ($10.17) during the quarter.
WuXi Biologics provides comprehensive, integrated and customized range of services for the discovery, development and manufacturing of biologics. According to the letter, the company has potential to grow market share in innovation and intellectual property.
China East Education Holdings
The fund purchased 2.963 million shares of China East Education Holdings, giving the stake 0.72% weight in the equity portfolio. Shares averaged HK$13.3 during the quarter.
According to the fund's letter, the Hefei, Anhui-based company operates schools to train graduates to work in services-based industries. The fund sees growth in demand for skilled workers as services continue to represent a large part of China's economy.
The fund added 657,600 shares of JD.com, increasing the position 155.18% and the equity portfolio 2.46%. Shares averaged $30.23 during the quarter.
The Beijing-based e-commerce company offers a wide selection of authentic products at competitive prices, with speedy and reliable delivery. GuruFocus ranks JD.com's financial strength 6 out of 10: Even though the company's interest coverage of 3.38 underperforms 75.52% of global competitors, it has cash-to-debt and debt-to-equity ratios that outperform over 70% of global specialty retail companies.
Gurus with large holdings in JD.com include Andreas Halvorsen (Trades, Portfolio) and Chase Coleman (Trades, Portfolio)'s Tiger Global Management.
The fund added 1,611,616 shares of Wanhua Chemical, increasing the position 166.21% and the equity portfolio 1.32%. Shares averaged 43.74 yuan ($6.24) during the quarter.
The Yantai, Shandong-based company researches, develops, produces and sells MDI-based isocyanate, aromatic polyamine products and thermoplastic polyurethane elastomers. GuruFocus ranks Wanhua Chemical's profitability 10 out of 10 on several positive investing signs, which include a five-star business predictability rank, a three-year revenue growth rate that outperforms 93.14% of global competitors and operating margins that outperform 85.63% of global chemical companies.
The fund added 54,200 shares of Alibaba, increasing the position 9.76% and the equity portfolio 1.20%. Shares averaged $171.94 during the quarter.
GuruFocus ranks the e-commerce giant's profitability 9 out of 10 on several positive investing signs, which include consistent revenue growth over the past 10 years and operating margins that are outperforming 93.99% of global competitors despite contracting over the past five years.
Disclosure: No positions.
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This article first appeared on GuruFocus.