Industrials18.1% Financials17.5% Consumer Staples14.3% Communication Services14.3% Consumer Discretionary9.1% Information Technology7.6% Energy6.7% Materials5.1% Health Care4.1% Utilities3.1%
|% OF PORTFOLIO|
|Ping An Insurance Group Co. of China Ltd.||4.8%|
|Tencent Holdings Ltd.||3.9%|
|SoftBank Group Corp.||3.3%|
|Inner Mongolia Yili Industrial Group Co. Ltd.||3.2%|
|Reliance Industries Ltd.||3.0%|
|Hong Kong Exchanges & Clearing Ltd.||2.9%|
|Alibaba Group Holding Ltd.||2.9%|
|Shin-Etsu Chemical Co. Ltd.||2.8%|
Tencent is a leading Chinese Internet company offering an instant messaging service, a social networking site, a news/entertainment portal, and an online gaming platform. In the gaming division, Tencent is a leading provider of both casual games and massively multiplayer online games (MMOG) and utilizes in-house development and third party licensing. Its key asset is its large instant messaging user base, which allows it to cross sell and monetize other services.
Even with a relatively low level of Internet penetration, China already boasts the world's largest online population. The number of Chinese people accessing the Internet should continue to increase as physical telecommunication infrastructure is built out and as more individuals are able to afford PCs. Tencent, which already has more than 500 million active users, will benefit from increasing internet penetration to the extent it can continue to monetize its massive user base. Today Tencent derives revenue from premium instant messaging services, online advertisements, wireless messaging, and online gaming. Notably, it has become a key online gaming player in a relatively short period of time.
Barriers to entry in the Internet space are relatively low given low capital intensity, and the rapid pace of technological innovation can make the competitive environment quite dynamic. Tencent's famous "QQ" brand, user base, significant net cash balance sheet, and substantial free cash generation are key competitive advantages which may be leveraged to grow both organically and inorganically.
SoftBank was founded by the charismatic Masayoshi Son as a publishing company in the 1980s. The CEO and largest shareholder has since transformed the company into one of three leading mobile communications providers in Japan. Since acquiring Vodafone's Japanese assets, SoftBank has continued to gain share by differentiating both its network and its brand.
SoftBank has continued to expand its reach through investments in both China and the US. Its acquisition of a controlling stake in Sprint targets a similar reinvigoration of the mobile assets achieved in Japan. SoftBank has also made a number of investments in the ecommerce space. The most significant thus far has been 33% in Alibaba. Management has repeatedly delivered on existing and found new growth drivers to increase shareholder value.
Reliance Industries Ltd. engages in exploration and production of oil and gas, petroleum refining and marketing textiles, retail and special economic zones. The company also markets petrochemicals, polyester, fiber intermediates, plastics and chemicals. It has three reportable segments: petrochemicals, refining and oil & gas. The petrochemicals segment includes production and marketing operations of petrochemical products, including high and low density polyethylene, polypropylene, polyvinyl chloride, poly butadiene rubber, polyester yarn, polyester fibre, purified terephthalic acid, paraxylene, ethylene glycol, olefins, aromatics, linear alkyl benzene, butadiene, acrylonitrile, caustic soda and polyethylene terephthalate. The refining segment includes production and marketing operations of the petroleum products. The oil & gas segment includes exploration, development and production of crude oil and natural gas. Reliance Industries was founded by Dhirubhai Hirachand Ambani in 1966 and is headquartered in Mumbai, India.
Hong Kong Exchanges and Clearing (HKEx) operates the main stock exchange and futures exchange in Hong Kong and the Hong Kong Securities Clearing Company. HKEx was formed in 2000 through the mergers of five previous market operators as part of a comprehensive reform by the Hong Kong government to enhance its status as a leading regional financial market. The stock exchange operates two cash market platforms, namely its main board and Growth Enterprise Market, and stock options platform. The Futures Exchange is one of the most active derivatives markets in Asia, offering equity index, interest rate, and foreign currency derivatives products.
The Hong Kong capital market is a beneficiary of economic growth in Hong Kong and mainland China. With a reliable regulatory regime and market infrastructure, HKEx continues to benefit from the ongoing privatization process in mainland China and has attracted many significant Chinese companies to be listed in Hong Kong. With both geographic and cultural proximity to mainland China, HKEx has become a natural venue for Chinese companies seeking a public listing.
HKEx generates much of its revenue from trading tariffs and clearing fees. Since revenues are based upon the volume of shares traded, any move by the Chinese government to reduce its percentage of equity holdings in publicly listed firms should increase trading volumes and have a positive effect on revenues. In addition, with the gradual liberation of Chinese capital accounts, overseas equity investment by Chinese should increase, possibly through investment in HKEx listings of western firms.
As China aims to promote its Renminbi (RMB) as a global currency, Hong Kong has become a trial place to allow RMB convertibility. HKEx has been actively pursuing initiatives to launch new RMB investment products on its trading platform, such as RMB dominated common stocks and RMB currency contracts. We believe those initiatives, once material, will help increase trading volumes on HKEx over time.
Alibaba Group was the largest online and mobile commerce company in the world by gross merchandise volume in 2013. Alibaba operates platforms for third parties and does not engage in direct sales or hold inventory. Alibaba Group started as an online B2B marketplace platform, alibaba.com, in 1999. In 2003, it launched an online C2C marketplace platform, Taobao. In 2008, it launched an online B2C marketplace platform, Tmall.
Taobao currently has 85% market share in China C2C ecommerce market. Tmall has 55% market share in China B2C ecommerce market. We believe Alibaba Group is a beneficiary of 1) growth in China consumption, and 2) increasing penetration of online retail to offline retail.
|Portfolio P/E Forward 12 Months*||16.5x|
|Portfolio Price to Cash Flow*||10.4x|
|Portfolio Price to Book*||2.2x|
|Median Market Capitalization*||$39.2 B|
|Number of Holdings||52|
|5-Year Beta† (A shares vs. MSCI EAFE Index)||1.05|
|5-Year Beta† (A shares vs. MSCI AC World ex-U.S. Index)||1.01|Europe ex UK41.9% Asia Pacific ex Japan28.7% Japan18.3% UK6.7% North America4.5% Large Cap (> $12 B)90.7% Mid Cap ($2.5 to $12 B)9.3% Small Cap (< $2.5 B)0.0%