Asia Value Formula Fund
SEMI-ANNUAL REPORT 2010 FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010 Sensible Asset Management Limited 9th Floor, Nexxus Building 41 Connaught Road Central, Hong Kong Tel: (852) 2868 6848 Fax: (852) 2810 9948 Email: [email protected] Website: www.samfund.com.hk
In the event of inconsistency, the English text of this Semi-Annual Report shall prevail over the Chinese text. ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
Contents
Pages
General information 2
Manager’s report 3-7
Statement of financial position (unaudited) 8
Investment portfolio (unaudited) 9-13
Investment portfolio movements (unaudited) 14
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
GENERAL INFORMATION
Manager Legal Advisors Sensible Asset Management Limited With respect to Cayman Islands law 9th Floor, Nexxus Building Campbells 41 Connaught Road Central Scotia Centre, P.O. Box 884 Hong Kong Grand Cayman KY1-1103 Cayman Islands Directors of the Manager British West Indies Mr Law Ka Kin (resigned on 21 June 2010) Mr So Chun Ki Louis With respect to Hong Kong law Mr Tam Raymond Hin Tat Deacons Mr Tse Wai Ming (appointed on 28 October 2010) 5/F, Alexandra House Mr Valadao Mark Paul (resigned on 16 July 2010) 18 Charter Road Central Sub-Investment Manager Hong Kong Value Partners Limited Auditor 9th Floor, Nexxus Building 41 Connaught Road Central PricewaterhouseCoopers Hong Kong PO Box 258GT Strathvale House Directors of the Sub-Investment Manager North Church Street George Town Mr Cheah Cheng Hye Grand Cayman Mr Ho Man Kei Cayman Islands Mr So Chun Ki Louis British West Indies Trustee, Registrar, Administrator and Information available from: Principal Office Sensible Asset Management Limited Bank of Bermuda (Cayman) Limited 9th Floor, Nexxus Building PO Box 513 41 Connaught Road Central HSBC House Hong Kong 68 West Bay Road Grand Cayman KY1-1106 Telephone : (852) 2868 6848 Cayman Islands Fax : (852) 2810 9948 Email : [email protected] Registrar’s Agent and Custodian Website : www.samfund.com.hk HSBC Institutional Trust Services (Asia) Limited 1 Queen’s Road Central Hong Kong
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
MANAGER’S REPORT
The investment objective of the Asia Value Formula Fund (“the Fund”) is to provide long-term capital growth over an investment horizon of three to five years, by investing primarily in the constituents of the MSCI Asia ex-Japan Index. However, investors should note that this is not an index tracking fund. It aims to identify undervalued securities within the Index that will benefit from the upside correction between the market’s short-term inefficiency and long-term efficiency.
We are pleased to present the semi-annual report of the Fund for the six months ended 30 September 2010.
Performance and market overview
The Fund increased by 14.6% during the six months ended 30 September 2010, and gained 29.0% over the past twelve months. For reference, the MSCI Asia (ex-Japan) Index returned 10.9% over the six months ended 30 September 2010, and it increased by 19.8% over the past twelve months. The Fund’s out-performance compared to the MSCI Asia (ex-Japan) Index in the past six months was attributable to our good stock selection, particularly in industrials and information technology sectors, which significantly contributed to the portfolio’s return throughout the same period. We deployed cash throughout the fund performance period, as the cash level was less than 1% at the end of September, making the portfolio fully invested.
During the second quarter of 2010, the Greater China and Asian markets generally weakened on the back of persistent concerns about sovereign debt risks in the Euro zone, and the unclear macro policy outlook in China. Rising geopolitical tensions in North and South Korea triggered a wave of risk aversion across the stock markets in Asia, particularly in South Korea. The Taiwanese market was also impacted by the concerns of depreciation of the Euro and weakening demand from European countries.
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
MANAGER’S REPORT (Continued)
Performance and market overview (Continued)
In China, the domestic economy continued to grow at full strength, accompanied by inflationary pressure heightened by soaring property prices and food prices. To prevent inflationary stresses and spiraling property prices from causing a bubble, the Chinese government unveiled polices to control credit expansion through raising the reserve requirement ratio, and rolled out a string of strict measures to crack down on property speculation in April. In this environment, the portfolio’s investments in banking stocks were trimmed along with select consumer discretionary stocks based on valuation reasons. We added investment levels in energy and industrial sectors.
At the start of the third quarter, market sentiment was generally weak as investors were concerned over the risk of a double-dip recession in developed economies. Subsequent to reports of various solid second quarter corporate earnings in the United States and Asia, the overall market has regained positive momentum. Furthermore, the likelihood that the US Federal Reserve would unveil a second round of quantitative easing triggered a strong liquidity-driven rally. Led by the globally- synchronized rally seen during September, stock markets in Greater China robustly surged, with Hong Kong, Taiwan and the South Korean markets hitting record highs for the year.
During the third quarter, the South Korean market bounced back from July levels, as global risk aversion fell. South Korea’s economy strongly recovered from the economic downturn, on the back of low interest rates and robust exports, as well as capital and consumer spending. The country is showing signs of moderation in GDP growth in the third quarter, following a 7.6% year-on-year economic growth in the first half of this year. The country’s GDP is likely to grow 5.1% in 2010, according to the Bank of Korea. With the current level of growth, and lower inflationary pressures, the central bank was able to pause from raising interest rates in October.
Taiwan’s recovery since 2008 has been impressive and its macro data continued to be strong as it entered the second half of 2010. Therefore, Taiwan’s 2010 GDP growth forecast was revised upward to 8.1%, according to the Consensus Economic Corporation. Additionally, the signing of the Cross-Straits Economic Framework Agreement (ECFA) boosted Taiwan’s Consumer Confidence Index in September on better economic prospects. Since the signing of the ECFA, we have seen various degrees of liberalization in the financial service sector and an increase in direct cross-Straits flights. Additionally, starting next year, China is considering an increase to the limit of the daily quota for Chinese tourists traveling to Taiwan, and allowing individuals to enter Taiwan for independent travel. Based on Hong Kong’s experience in 2004, the ‘individual travel scheme’ is very likely to provide another huge boost to consumption in Taiwan.
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
MANAGER’S REPORT (Continued)
Market outlook
We believe the market outlook remains promising. Stock market sentiment in East and Southeast Asia has improved sharply during the third quarter as the much-feared “hard landing” for the Chinese economy is looking less and less likely. The Chinese economy, which grew 9.1% last year, seems on track to grow 9.5% this year, easing to a “soft landing” of 8% to 8.5% growth next year. Meanwhile, large parts of Asia are experiencing negative real interest rates and surplus liquidity, as governments keep interest rates low and try to prevent their currencies from too much appreciation against a falling U.S. dollar. Regional economies are adjusting through rising inflation and asset prices – a setting generally positive for equities, but with clear winners and losers.
Within China, the nation’s leaders are preparing the country’s 12th five-year plan, covering 2011 to 2016. The plan will be made public early next year, but don’t expect big surprises. The government can be expected to continue with efforts to promote a “harmonious society”. Look for significant new spending on “soft infrastructure” such as healthcare, education and social security, a continuing campaign to clean up the environment and further initiatives to rebalance the economy by encouraging domestic spending. Although rapid economic growth remains a priority, it is no longer the only one, and we have seen projections that Chinese economic growth in this current decade is likely to average 8% per annum, compared to 10.3% per annum during the period from 2000 to 2009.
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
MANAGER’S REPORT (Continued)
Worth mentioning
In its October 2010 edition, the widely followed AsianInvestor magazine, based in Hong Kong, published a list of “The 25 Most Influential People in Asian Hedge Funds”. Mr Cheah Cheng Hye, Value Partners’ chairman and co-chief investment officer, was among those named, and was described in the AsianInvestor list as “a godfather of the Asian hedge fund industry”.
In October 2010, Value Partners was crowned “Management Firm of the Year” in the prestigious AsiaHedge Awards 2010. Additionally, the Value Partners China Greenchip Fund* was awarded as “Best China Fund of the year 2010”.
For and on behalf of Sensible Asset Management Limited, Manager 19 November 2010
* This fund is not authorized as hedge fund by the Securities and Futures Commission (SFC) in Hong Kong according to the Code on Unit Trust and Mutual Funds. SFC authorization is not a recommendation or endorsement of a scheme, nor does it guarantee the commercial merits of a scheme or its performance. It does not meant the scheme is suitable for all investors, nor is it an endorsement for its suitability for any particular investor or class of investors.
All performance figures are sourced from HSBC Institutional Trust Services (Asia) Limited and Bloomberg, in USD, NAV to NAV, with dividends reinvested, updated as at 30 September 2010. Performance data is net of all fees.
Investment involves risks. The price of units may go down as well as up and past performance is not indicative of future results. Investors should read the explanatory memorandum for details and risk factors in particular those associated with investment in emerging markets and in companies with medium and small capitalization.
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
MANAGER’S REPORT (Continued)
Asia Value Formula Fund NAV per unit = US$9.56 (as at 30 September 2010)
Since launch return compared to index From 15 October 2007 to 30 September 2010
10 %
0% -4.4%
-10% -11.4%
-20%
-30%
-40%
-50%
-60% Asia Value Form ula Fund MSCI Asia (ex-Japan) Index
-70% 10/07 3/08 8/08 1/09 6/09 11/09 4/10 9/10
Source: HSBC Institutional Trust Services (Asia) Limited and Bloomberg, in USD, NAV to NAV, with dividends reinvested. Performance data is net of all fees.
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
Statement of financial position AS AT 30 september 2010 (unaudited)
30.9.2010 31.3.2010 US$ US$ Assets Current assets Financial assets at fair value through profit or loss 18,053,380 17,228,494 Dividend and interest receivables 49,136 57,561 Bank balances 120,220 170,556
Total assets 18,222,736 17,456,611 Liabilities Current liabilities Amounts payable on redemption of units 31 31 Management fee payable 21,821 23,505 Accruals and other payables 24,774 35,963 Total liabilities 46,626 59,499
Net assets attributable to unitholders (before adjustment on fair value of investments) 18,176,110 17,397,112
Represented by: – Net assets attributable to unitholders (at last traded prices) 18,207,700 17,508,681 – Adjustment for different bases adopted by the fund in arriving at the net assets attributable to unitholders (31,590 ) (111,569 )
Net asset value per unit with 1,904,508.65 (31.3.2010: 2,100,576.81) units outstanding 9.56 8.34
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
INVESTMENT PORTFOLIO (UNAUDITED) AS AT 30 SEPTEMBER 2010
% of Holdings Fair value net assets US$
Financial assets at fair value through profit or loss
Listed equity securities
China Inner Mongolia Yitai Coal Co Ltd - B Shares 25,200 143,186 0.79
Hong Kong Bank of China Ltd - H Shares 1,461,808 768,659 4.22 Bank of Communications Co Ltd - H Shares 23,400 25,272 0.14 China Communication Services Corporation 252,000 148,098 0.81 China Everbright Ltd 38,000 90,308 0.50 China Mobile Ltd 73,328 750,839 4.12 China Oilfield Services Ltd 72,000 112,465 0.62 China Petroleum & Chemical Corporation - H Shares 772,000 683,529 3.75 China Telecom Corporation Ltd - H Shares 642,000 352,474 1.94 CLP Holdings Ltd 70,087 559,128 3.07 Greentown China Holdings Ltd 30,000 32,632 0.18 Guangzhou Automobile Group Co Ltd - H Shares 98,597 168,750 0.93 Hang Seng Bank Ltd 28,272 415,379 2.28 Hongkong Electric Holdings Ltd 55,826 338,876 1.86 Hopewell Holdings Ltd 25,500 82,161 0.45 Hopson Development Holdings Ltd 36,000 40,226 0.22 Jiangsu Expressway Co Ltd - H Shares 54,000 56,163 0.31 Longfor Properties Co Ltd 51,000 57,644 0.32 NWS Holdings Ltd 37,000 72,291 0.40 PCCW Ltd 425,000 153,366 0.84 PetroChina Co Ltd - H Shares 648,000 754,129 4.14 Renhe Commercial Holdings Co Ltd 382,000 70,894 0.39 Shanghai Industrial Holdings Ltd 17,334 87,461 0.48 Shui On Land Ltd 134,000 65,625 0.36 Television Broadcasts Ltd 11,000 62,661 0.34 Yue Yuen Industrial (Holdings) Ltd 47,609 176,098 0.97 Zhejiang Expressway Co Ltd - H Shares 70,000 66,218 0.36
6,191,346 34.00
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
INVESTMENT PORTFOLIO (UNAUDITED) (Continued) AS AT 30 SEPTEMBER 2010 % of Holdings Fair value net assets US$ Financial assets at fair value through profit or loss (Continued)
Listed equity securities (Continued)
Indonesia Bumi Resources Tbk (DMT) 1,322,500 311,299 1.71 Indo Tambangraya Megah 24,000 111,775 0.61 Pt Tambang Batubara Bukit Asam 60,000 130,808 0.72 553,882 3.04 Malaysia Berjaya Sports Toto 121,600 163,840 0.90 PPB Group 68,228 380,088 2.09 RHB Capital 80,200 187,025 1.02 730,953 4.01 Philippines Globe Telecom Inc 1,020 20,628 0.11 Philippine Long Distance Telephone Co 1,610 95,790 0.53 116,418 0.64 Singapore Ascendas Real Estate Investment Trust 126,000 208,510 1.15 K-Green Trust 21,600 17,872 0.10 Keppel Corp Ltd 101,676 693,096 3.81 Starhub Ltd 48,886 95,371 0.52 United Overseas Land Ltd 38,000 133,268 0.73 Yangzijiang Shipbuilding Holdings Ltd 120,573 160,172 0.88 1,308,289 7.19
1 0 SEMI-ANNUAL R E P O R T 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
INVESTMENT PORTFOLIO (UNAUDITED) (Continued) AS AT 30 SEPTEMBER 2010
% of Holdings Fair value net assets US$ Financial assets at fair value through profit or loss (Continued)
Listed equity securities (Continued) South Korea Daewoo Shipbuilding & Marine Engineering Co Ltd 7,250 172,642 0.95 Dongkuk Steel Mill Co Ltd 2,770 66,325 0.36 Hanwha Chemical Corporation 5,560 133,374 0.73 Hyosung Corporation 1,500 161,821 0.89 Hyundai Heavy Industries Co Ltd 2,107 604,297 3.32 Hyundai Mipo Dockyard Co Ltd 433 71,398 0.39 KCC Corporation 330 106,078 0.58 Korea Exchange Bank 18,600 225,128 1.24 Korea Zinc Co Ltd 390 106,723 0.59 KT&G Corporation 8,054 479,644 2.63 LG Electronics Inc 6,764 570,118 3.13 LG Uplus Corporation 15,812 102,071 0.56 Samsung Heavy Industries 9,634 254,338 1.40 SK Holdings Co Ltd 1,800 187,081 1.03 SK Telecom 2,776 416,345 2.29
3,657,383 20.09
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
INVESTMENT PORTFOLIO (UNAUDITED) (Continued) AS AT 30 SEPTEMBER 2010
% of Holdings Fair value net assets US$ Financial assets at fair value through profit or loss (Continued)
Listed equity securities (Continued)
Taiwan Asia Cement Corporation 140,080 142,557 0.78 Asustek Computer Inc 60,000 429,154 2.36 Chicony Electronics Co Ltd 34,650 73,187 0.40 Far Eastone Telecommunication Co Ltd 121,000 169,026 0.93 Farglory Land Development Co Ltd 19,000 46,090 0.25 HTC Corporation 43,829 994,472 5.46 Novatek Microelectronics Ltd 38,000 107,503 0.59 Powertech Technology Inc 43,000 137,611 0.76 Quanta Computer Inc 199,000 322,247 1.77 Taiwan Mobile Co Ltd 143,000 294,718 1.62 TSRC Corporation 36,000 55,473 0.30 U-Ming Marine Transport Corporation 34,000 66,809 0.37 Young Fast Optoelectronics Co Ltd 6,000 68,165 0.37
2,907,012 15.96 Thailand Advanced Info Service PCL 85,000 264,839 1.45 Thai Oil PCL 86,000 148,471 0.82
413,310 2.27
1 2 SEMI-ANNUAL R E P O R T 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
INVESTMENT PORTFOLIO (UNAUDITED) (Continued) AS AT 30 SEPTEMBER 2010
% of Holdings Fair value net assets US$
Financial assets at fair value through profit or loss (Continued)
Rights and warrants
India DB (Mahindra & Mahindra Ltd) Cwts 01/24/2017 18,517 282,756 1.55 Deutsche Bank (Hero Honda Motors Ltd (DMT) (NSI)) CWts 10/16/2017 6,113 250,813 1.38 Deutsche Bank (Housing Development & Infrastructure Ltd (DMT) (NSI)) CWts 07/06/2017 8,750 50,054 0.27 Deutsche Bank (Rural Electrification Corp) Cwts 03/12/2018 17,024 128,889 0.71 Deutsche (Oil & Natural Gas Corp Ltd (NSI)) CWts 01/17/2017 14,258 442,085 2.43 MACQ (ACC Ltd (DMT) (NSI)) CWts 12/10/2014 3,538 77,911 0.43 MACQ (Sesa Goa Ltd (NSI)) CWts 12/10/2014 26,163 191,027 1.05 Macquarie Bank (Jindal Steel & Power Ltd (DMT) (NSI)) CWts 06/10/2013 28,212 443,890 2.44 Macquarie Bank Ltd (Steel Authority of India Ltd (NSI)) CWts 12/10/2014 35,847 163,563 0.90
2,030,988 11.16
Taiwan Young Fast Optoelectronics Co Ltd Rts 10/20/2010 286 613 0.00
Total investments 18,053,380 99.15
Total investments, at cost 15,248,214
SEMI-ANNUAL REPORT 2 0 1 0 1 3 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0 ASIA VALUE FORMULA FUND (A Cayman Islands Unit Trust)
INVESTMENT PORTFOLIO MOVEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010 (UNAUDITED)
% of net assets 30.9.2010 31.3.2010
Listed equity securities China 0.79 0.38 Hong Kong 34.00 37.05 Indonesia 3.04 3.36 Malaysia 4.01 4.30 Philippines 0.64 0.57 Singapore 7.19 7.04 South Korea 20.09 19.52 Taiwan 15.96 11.99 Thailand 2.27 1.97
87.99 86.18
Rights and warrants India 11.16 11.30 Taiwan 0.00 –
11.16 11.30
Participatory notes India – 0.92
Total investments 99.15 98.40
SEMI-ANNUAL REPORT 2 0 1 0 F O R T H E SIX MONTHS ENDED 30 SEPTEMBER 2 0 1 0