The fund, overseen by lead manager Andrew Mattock and co-manager Winnie Chwang, seeks long-term capital appreciation through investments primarily in China and Hong Kong. According to the quarterly letter, the China Fund returned -1.46% for the quarter and 22.27% for the first half of the year, outperforming the MSCI China Index's return of -3.92% for the quarter and 13.08% for the first half.
Fund updates market environment as U.S. - China trade war lingers on
The Dow Jones Industrial Average, a U.S. index that tracks 30 blue-chip stocks, turned negative on Thursday on the heels of President Trump announcing in a series of tweets that while trade talks are continuing, the U.S. will enact a 10% tariff on $300 billion worth of goods coming from China. Although the Dow reached an intraday high of 27,175.59 during the morning, the 30-stock index closed at 26,583.42, down 280.85 points from Wednesday's close of 26,864.27 and 614.6 points from Tuesday's close of 27,198.02. Apple Inc. (NASDAQ:AAPL), the top holding of Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B), tumbled 2.16% for the day.
The fund's second-quarter letter said despite the market volatility, Chinese equities posted "strong results" during the first six months as the government's "easing posture" helps mitigate long-term market risks. The letter added that market participants seemed "reassured" by the incremental policy shift in policy support for economic growth.
As of quarter-end, the fund's $819 million equity portfolio contains 46 stocks, including one new holding. The fund's top sectors in terms of weight are financial services, consumer discretionary and technology.
For the quarter, the fund's top five buys included a new holding in Lepu and position boosts in the following companies: Tencent Holdings Ltd. (HKSE:00700), China Overseas Property Holdings Ltd. (HKSE:02669), CITIC Securities Co. Ltd. (HKSE:06030) and China Resources Land Ltd. (HKSE:01109).
The fund purchased 2,634,606 shares of Lepu, giving the stake 1.08% weight in the equity portfolio. Shares averaged 24.61 yuan ($3.57) during the quarter.
The fund's letter said Lepu, a medical device company, has added cardiovascular drugs to its core business. Additionally, the Beijing-based company marketed a new product line of biodegradable stents that are designed to dissolve after use.
GuruFocus ranks Lepu's profitability 10 out of 10 on several positive indicators, which include a strong Piotroski F-score of 8, a four-star business predictability rank and operating margins that have increased approximately 2% per average over the past five years and are outperforming over 93% of global competitors.
The fund purchased 298,100 shares of Tencent, increasing the position 19.57% and the equity portfolio 1.65%. Shares averaged 360.2 Hong Kong dollars ($46.01) during the quarter.
The Shenzhen, Guangdong-based company operates several social media platforms like WeChat and QQ. GuruFocus ranks Tencent's profitability 8 out of 10 on several positive indicators, which include a five-star business predictability rank and operating margins outperforming 80.26% of global competitors despite contracting 3.1% per year on average over the past five years.
China Overseas Property
The fund added 19,665,000 shares of China Overseas Property, increasing the holding 1,605.31% and the equity portfolio 1.25%. Shares averaged HK$3.78 during the quarter.
The Hong Kong-based company provides real estate services through two business segments: property management services and value-added services. GuruFocus ranks the company's financial strength 8 out of 10 on several positive signs, which include solid interest coverage and a strong Altman Z-score of 5.35.
The fund added 4,056,500 shares of CITIC Securities, increasing the stake 112.23% and the equity portfolio 1.03%. Shares averaged HK$16.11 during the quarter.
The Shenzhen, Guangdong-based company provides various services, including brokerage, underwriting, sponsoring and proprietary trading. GuruFocus ranks the company's financial strength 4 out of 10 on several poor indicators, including debt ratios that underperform over 63% of global competitors. The website warns the company's long-term debt has increased 37.5 billion yuan (approximately $5.44 billion) over the past three years.
China Resources Land
The fund added 1.78 million shares of China Resources Land, increasing the position 44.63% and the equity portfolio 0.96%. Shares averaged HK$33.53 during the quarter.
GuruFocus ranks the company's profitability 8 out of 10: Even though the Piotroski F-score ranks a modest 5 out of 9, China Resources Land's return on equity outperforms 80% of global competitors. Additionally, the company has a three-star predictability rank and operating margins that have increased approximately 10.20% per year on average over the past five years.
Disclosure: No positions.
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- Warren Buffett's Apple Rises on Strong 2nd-Quarter Revenue Growth
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This article first appeared on GuruFocus.
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