March, 2023
The portfolio returned 7.28% in the quarter, versus the benchmark return of 6.60%.
The biggest contributors to portfolio return were Salesforce (profit margin expansion from cost efficiency efforts rapidly showing in numbers), Booking Holdings (strong Q4 results with gross bookings +58% year on year) and Rentokil Initial (uplift in organic growth guidance and Terminix synergies).
The biggest detractors to return were Frontier Communications (sold off on broker downgrade two days before month end), Eurofins Scientific (lag between higher costs and pricing to impact FY23 margins) and Danaher (market concern over a rumoured acquisition).
This quarter proved once again that equity markets can climb a ‘wall of worry’, rallying despite universally awful headlines.
2023 has so far seen the 2nd and 3rd biggest US bank failures in history, the hastily arranged rescue of Credit Suisse by UBS, ongoing interest rate hikes from central banks, nuclear rhetoric from Russia in Ukraine and the first indictment of a US President on criminal charges. Yet the overall index had a fine start to the year.
In truth market breadth was extremely narrow, reminiscent of 2020/21 where the market was propped up by NASDAQ. The outperformance of US tech in 2023 versus medium and smaller businesses is stark, March saw the second widest spread in the past 20 years with NASDAQ +7% versus Russell 2000 -5%. Given the portfolio’s underweight to mega-cap tech and overweight in medium and smaller-sized businesses, we would typically expect the portfolio to lag this type of market move.
As an indication, the top 10 index weights accounted for 4.2% of the benchmark’s 8.6% gain. In other words, the top 15% delivered almost 50% of the return.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/31032023-CI-GLOBAL-EQUITIES-FUND-HEDGED.pdfDecember, 2022
The Portfolio rose by 4.1% over the December quarter, compared to the Benchmark return of 5.6%. For the Financial Year to December 2022, the Portfolio rose by 0.9% whilst the Benchmark declined by 2.7%. Our China and Hong Kong holdings detracted 73bps of outperformance. After lagging the global and other Asian markets for over a year, the Chinese markets regained some lost ground and rose by 8.6% over the December quarter on optimism around China re-opening. Our Portfolio stocks gained 7%, as shares of AIA Group, Pinduoduo, and YUM China rose. As this letter went to print, nearly all COVID restrictions were lifted in China. Flights and trains resumed, offices re-opened, and quarantine and testing requirements were scrapped. We are pleased to see the final commitment to opening after one year of back-and-forth policy changes. However, three years of strict lockdowns had left indelible marks. Jobs that were lost could not be regained overnight. Businesses that shut also take time to re-open. We continue to observe significant financial pressure on businesses, consumers and local governments. Value for money becomes the most important element in purchasing decisions. Our agile management teams have already started to adapt their own businesses and products to this new reality. Instead of raising prices in pursuit of ‘premiumization’, they are now developing products with more affordable price points without sacrificing the consumer experience.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Multi-Asset-Real-Return-Fund-Individual-Quarterly-6.pdfSeptember, 2022
The Portfolio declined by 3.0% over the September quarter, compared to the Benchmark decline of 7.8%.
Our China and Hong Kong holdings attributed 300bps of outperformance. The Chinese markets continue to underperform the overall region, declining by 16% compared to 8% for broader Asia. Both our capital allocation (the Portfolio is less exposed to China than the index) and stock picks (our Chinese holdings also fared better than the market) added value.
China Mobile, Yum China and YTO Express were the notable contributors, whilst China Meidong, China Mengniu, and Yili detracted from performance. We wrote in our last letter that a large part of our underperformance during the June quarter was due to our portfolio ‘missing out’ on the excitement of re-opening post COVID. We were confident that although our companies were not the hot ‘re-opening’ stocks, gradually normalizing operating conditions will suit them well over the long term. Our portfolio did not disappoint us – the June reporting period was a good one, with over 80% of our companies beating the expectations (albeit low ones) by a wide margin.
Their outlook for the future also remains optimistic. Take Tencent as an example. It recorded a small revenue decline of 3% during the June quarter, mostly driven by declining advertising revenues as Shanghai (the center for advertising in the country) was in lockdown. However, this was better than feared and more importantly, exciting new revenue streams are emerging for the first time in 18 months. Tencent’s video account advertising product is ramping up fast, enjoying a lot of user time and attention and just started to monetize. Tencent is confident in its ability to implement cost discipline and restart profit growth ‘regardless of the state of the macro economy”. Its management team is also putting their money where their mouth is – over the past few months, Tencent is liquidating its investments in other companies to buy back its own shares. Using their own words, “our stock is the best investment we can find in the market today”. China Mobile is another good example.
It reported a solid set of June results, with service revenues and EBITDA both growing a healthy clip of 7-8%. It also announced raising the dividend payout ratio from the current 58% to 70% or above in 2023, one year ahead of expectations. The strategic shift from heavy capex investment to capital return is very meaningful – as of 1H’21 the payout ratio was still less than 50%. China Mobile’s current dividend yield is 9%, and likely to rise further to 10% and beyond in 2023.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/30092022-CI-ASIAN-EQUITIES-FUND-RETAIL2.pdfJune, 2022
The Portfolio declined by 5.7% over the quarter, compared to the Benchmark decline of 0.63%. 90% of the underperformance came from China, where the Chinese markets performed well and gained 12% during the quarter. The Portfolio has less exposure to China than our Benchmark, and holds defensive companies that do not benefit quickly when the economy first re-opens.
With a return to normalcy and no further major lockdowns, our Portfolio holdings will stand to do well. Outside of China, Southeast Asia, India, Korea and Taiwan suffered declines ranging from 6% to 13%. Our stocks in these regions, in aggregate, performed roughly on par to the Benchmark. For the 12 months ended in June 2022, the Portfolio declined by 26%, compared to the Benchmark decline of 18%. We share the deep disappointment with our investors – CI staff are the largest group of unit holders of our Fund.
Quite a number of large Portfolio holdings performed strongly over the 2020-2021 period, as winners during the pandemic. Examples include private hospitals in India, or an eCommerce company in Taiwan. As their strong operating performance continued, their valuation multiples also rose to historically high levels. Both the relative performance and valuation multiple took a sharp negative turn as the Asian economies re-opened. We suffered the curse of the round-ticket journey.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/30062022-CI-ASIAN-EQUITIES-FUND-RETAIL2.pdfMarch, 2022
The Asian markets had a challenging quarter, declining 11% in AUD terms. It was a tumultuous ride. The Benchmark started off calmly with a relatively flat January. Then it entered a violent decline, bottoming out during mid-March, down nearly 18%. Then within two weeks it regained some lost ground and climbed 8% from the lowest level.
Unfortunately, the Fund did not keep up with our Benchmark and declined by 17%. The main reasons for our underperformance are:
• Some of our winners last year gave back part of their gains as Asia opened up. These are companies that had performed strongly during the lockdowns, and their stock prices rose meaningfully over the past two years. As various economies re-open, companies such as Dr. Lal Pathology Labs, Sea Ltd, Momo.com, and Jubilant Foodworks were perceived to encounter some near-term headwinds. We believe these companies are far from flash-in-the-pan ‘COVID stocks’. They have established long track records of performing well during normal business conditions and their competitive advantages extend far beyond the pandemic.
• Sudden COVID lockdowns in China led to factory closures yet again (Shenzhou) and further disruptions in the supply chain (JS Global).
• The Fund does not have exposure to sectors that the market favoured during the quarter where the Benchmark is exposed to, particularly Materials and Energy.
September, 2021
The Portfolio lost 3.6% (net of fees) over the September quarter, compared to a steep decline of -5.8% for the Benchmark. All our focused industry verticals (consumer brands, software and hardware, and private healthcare services) contributed positively to out-performance.
Our investments in China / Hong Kong declined by 10% over the quarter, compared to 14% for the Benchmark. They generated 180 bps of outperformance for the Portfolio. Strong earnings results by core holdings such as China Mengniu, as well as our decision not to invest in a number of large benchmark stocks such as Alibaba contributed to the outperformance.
The operating environment has grown more complex in China. Regulatory scrutiny on various fronts, including companies’ social utilities, competitive practice and consumer protection is increasing. Investor concerns around the regulations drove down the share prices of Netase, Bilibili and JD.com despite of their resilient business results – all three companies reported earnings that exceeded our and consensus expectations.
Numerous snap lockdowns after a number of regional COVID resurgences shook consumer confidence, impacting our holdings such as Topsports. In addition, rising raw materials costs, port closures and potential energy shortages pressured the share price of Shenzhou
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/30092021-CI-ASIAN-EQUITIES-FUND-RETAIL-CLASS.pdfJune, 2021
The Portfolio gained 7.8% over the June quarter, compared to 5.1% of our Benchmark. For fiscal year 2021, our portfolio returned 28.6% against the Benchmark of 28.1%. For the 3 months and financial year ended on June 30th 2021, our China and Hong Kong Portfolio holdings contributed 132bps and 94bps to outperformance, respectively. Our consumer holdings in the region such as Li Ning are the biggest contributors to outperformance. We wrote in our letter one year ago that these companies, often the leaders in their respective industries, emerged from the pandemic with solid balance sheets, more efficient operations and ready to grow again. They delivered just that in FY21 – as we publish this letter, our portfolio of 40 stocks are on track to growing earnings per share over 10% in Calendar Year 2021 over the pre-pandemic 2019 levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/30062021-CI-ASIAN-EQUITIES-FUND-RETAIL-CLASS.pdfMay, 2021
The Fund invests in Asian companies where we identify a compelling value proposition through the application of the Cooper Investors’ proprietary VoF investment process. We focus on companies with high standards of corporate governance, and with management that think and act like owners. The Fund generally holds 30-70 high conviction stocks across Asia
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Asian-Equities-Fund-Retail-Fact-Sheet-May-2021.pdfDecember, 2020
The Fund gained 7% over the December quarter, against a very robust Benchmark that rose 10.2%. The strong performance of cyclical companies to which the Fund has relatively small exposure accounted for most of the short term underperformance. For the calendar year of 2020, the Fund returned 14%, slightly ahead of the Benchmark.
Looking forward to 2021, we are excited about our Portfolio. The operating trends for the forty companies that we own continue to strengthen. Most of these companies have completed the recovery phase and are back to long term growth paths, often with an even better industry positioning than before the pandemic. Their progresses far exceed peers in the same industries and regions, and are direct results of the hard work, innovation and discipline of individual management teams. We are also pleased to report that our own high-touch corporate access strengthened over 2020.
We conducted ~430 company meetings and another ~180 research meetings via video conferences. Our team was in China until one week before the Covid-19 breakout. Our team member based in Mumbai also provided us with valuable observations and insights when on-the-ground research access in India was cut off for most global investors
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/31122020-CI-ASIAN-EQUITIES-FUND-RETAIL-CLASS.pdfasset_class: Foreign Equity
asset_category: Asia Pacific w/o Japan
peer_benchmark: Foreign Equity - Asia ex Jap Index
broad_market_index: World Emerging Markets Index
manager_contact_details: Array
ticker: ETL7426AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://www.cooperinvestors.com/performance-reports/reports/
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Retail Funds
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fund_features:
Cooper Investors Asian Equities Retail aims to exceed the Benchmark over the long term period. However, the Fund will be constructed with limited reference to the Benchmark and therefore returns.
- The Fund aims to invest in quality companies with a strong value proposition.
- We try to understand “downside risk” as well as “upside potential” in assessing the investment merit of stocks.
- The Manager uses CI’s VoF investment process, incorporating strong fundamentally driven research in its search for suitable investments.
- A minimum of 70% of the Fund’s exposure to foreign currency is unhedged.
structure: Managed Fund