Chris Wood's ex-Japan portfolio dips 1.6% in Q1FY19, drops Vedanta

Life has not been easy for even the best of global fund managers over the past few months, who have struggled to generate a healthy / positive return for investors in the backdrop of trade war fears and rising oil prices.

In his latest weekly note to investors GREED & fear, Christopher Wood, managing director, equity strategist at CLSA says that his ex-Japan long-only portfolio declined 1.6 per cent in the last quarter (first quarter of financial year 2018-19 i.e. Q1FY19) in US dollar terms. Yet, it was able to outperform the regional index – MSCI AC ex-Japan – that declined 5.6 per cent last quarter on a total-return basis.

“The portfolio also outperformed in the first half of 2018, declining by 2.4 per cent compared with the benchmark’s 4.7 per cent decline. This follows the portfolio’s 61.7 per cent rise last year on a total-return basis, which was the best annual performance since 2009,” Wood says.

Since inception at the end of third quarter of financial year 2001 – 02, the portfolio has risen on a total – return basis by 1,910 per cent in US dollar terms, as compared with a 494 per cent increase in the MSCI AC Asia ex-Japan Index and a 360 per cent increase in the S&P500. This means the portfolio has risen by an annualised 21 per cent since inception, compared with an annualised 12 per cent increase in the regional index and an annualised 10.2 per cent gain in the S&P500.

“The absolute-return thematic portfolio for Japan, introduced on 17 March 2005, underperformed the Topix last quarter on a total-return basis, rising by 0.5 per cent in yen terms compared with a 1.1 per cent rise in the Topix. The portfolio also marginally underperformed in 1H18 declining by 4 per cent in yen terms, compared with a 3.7 per cent decline in the Topix,” Wood says.

In US dollar terms, however, the portfolio declined 3.5 per cent in the last quarter, compared with a 3 per cent decline in the Topix. On a year-to-date (YTD) basis, the portfolio is now down 2.3 per cent in US dollar terms on a total-return basis, compared with a 2 per cent decline in the Topix.

This week, Wood replaced Vedanta from his ex-Japan long-only portfolio with an Australian oil and gas company (Woodside Petroleum) which, he says, reflects a positive view on oil prices.

Recently, Anil Agarwal announced plans to delist his flagship firm Vedanta Resources Plc from the London Stock Exchange (LSE), after buying out 33.5 per cent of non-promoter shareholders for around $1 billion. Agarwal's Volcan Investments Ltd, which currently holds 66.53 per cent of Vedanta, made a cash offer for 825 pence a share.

     

Asia ex-Japan thematic equity port folio for long-only absolute-return investors
Country & sector	Weight (%)	Company
Australia gold mining	4	Regis Resources
Australia oil & gas	4	Woodside Petroleum
China autos	5	Geely Automobile
China H share banks	5	China Construction Bank
China online marketplace	5	58.com Inc
China financial services	5	Ping An Insurance (Group)
China internet media	5	Tencent
China technology	8	Sunny Optical (5%), Han's Laser (A) (3%)
China property	4	China Overseas Land
China securities	3	Huatai Securities
Hong Kong insurance	4	AIA Group
India autos	3	Maruti Suzuki
India private banks	9	HDFC Bank (5%), IndusInd Bank (4%)
India housing finance	12	HDFC (5%), GRUH Finance (3%), Indiabulls Housing Finance (4%)
India non-bank finance	8	Bajaj Finance (4%), Indiabulls Ventures (4%)
India life insurance	3	SBI Life Insurance
India cement	4	Dalmia Bharat
India property	5	Godrej Properties
India textile	4	Arvind Limited
Source: Wood's newsletter