|Western Union||Money Transfer||USA||10.7|
|Joy Global||Mining Machinery||USA||6.2|
|Henderson Land Development||Real Estate||Hong Kong||5.3|
|Wheelock & Co.||Real Estate||Hong Kong||5.0|
|Hang Lung Group||Real Estate||Hong Kong||4.8|
Our INTERNATIONAL managed portfolio follows a long-only, buy-and-hold, equities-centric value strategy. It is intended for investors with at least a 3 to 5 year investment horizon and who seek capital growth at below-market risk.
Hang Lung reported full year results for 2015 and announced a slight reduction in the final dividend, the first such cut since the Asian Financial Crisis in 1999. This is management’s way of signalling their negative view on current and near-term retailing conditions in Hong Kong and the mainland. Hang Lung Chairman Ronnie Chan describes this as the “Long Winter”.
We pay attention to industry cycles. We believe that investment risk decreases as cycles deteriorate, provided a company is sufficiently creditworthy. All players do well in good times, but only in a downturn are the good operators separated from the bad.
We are excited to be building our positions in such high quality companies during a downturn. Weak players will go out of business and operators like Hang Lung will grow stronger. The “Long Winter” will benefit the strongest mall operators, as their customers reduce their store footprints and become more discerning in their choice of lessor. As the cycle improves, more people will recognise the value we see and drive up their share prices.
We are mindful of the risks to our Hong Kong holdings from a significant devaluation of the yuan – the fear du jour… but we think this risk is already priced in to these stocks, while being overestimated in both its magnitude and likelihood.
Global markets weakened considerably in January. Sentiment is truly gloomy – a strong contrarian signal. We struggle to see how dominant fears, even if realised, will impair any of our holdings. On this basis we have been confidently buying across the portfolio, taking advantage of lower prices.