Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

Real Estate exposure is close to its lowest levels on record among active Asia Ex-Japan investors.  Average weights have fallen to 3.07% following an aggressive decline that took hold in April 2020 when average holding weights were above 5%.Real Estate is now the 3rd least widely held sector among active Asia Ex-Japan investors, slipping behind Health Care and Materials earlier this year for the first time in a decade.Underweights are widespread, led by the lightly held <a href="https://www.smartkarma.com/entities/ck-asset-holdings-ltd" target="_blank" data-smartkarma-citation="entities:22650:1" rel="noopener">CK Asset Holdings (1113 HK)</a>, <a href="https://www.smartkarma.com/entities/wharf-real-estate-investment" target="_blank" data-smartkarma-citation="entities:26031:1" rel="noopener">Wharf Real Estate Investment (1997 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-holdings-co" target="_blank" data-smartkarma-citation="entities:5225:1" rel="noopener">Country Garden Holdings Co (2007 HK).</a>  <a href="https://www.smartkarma.com/entities/capitaland-investment-ltd-si" target="_blank" data-smartkarma-citation="entities:33774:1" rel="noopener">Capitaland Investment (CLI SP)</a>, a 0.1% weight in the MSCI AAXJ index is held by none of the active strategies in our analysis.Activity over the last 6-months shows a clear rotation out of China &amp; HK and Singapore Real Estate and in to India.  Indian Real Estate ownership metrics all moved higher, with average weights increasing by 0.17%, funds invested by +4.3%, more funds buying than selling and positive fund flows.Analysis taken from our Asia Ex-Japan research, covering 96 active strategies with combined AUM of $85bn

Real Estate exposure is close to its lowest levels on record among active Asia Ex-Japan investors.  Average weights have fallen to 3.07% following an aggressive decline that took hold in April 2020 when average holding weights were above 5%.Real Estate is now the 3rd least widely held sector among active Asia Ex-Japan investors, slipping behind Health Care and Materials earlier this year for the first time in a decade.Underweights are widespread, led by the lightly held CK Asset Holdings (1113 HK), Wharf Real Estate Investment (1997 HK) and Country Garden Holdings Co (2007 HK).  Capitaland Investment (CLI SP), a 0.1% weight in the MSCI AAXJ index is held by none of the active strategies in our analysis.Activity over the last 6-months shows a clear rotation out of China &amp; HK and Singapore Real Estate and in to India.  Indian Real Estate ownership metrics all moved higher, with average weights increasing by 0.17%, funds invested by +4.3%, more funds buying than selling and positive fund flows.Analysis taken from our Asia Ex-Japan research, covering 96 active strategies with combined AUM of $85bn

Asia Ex-Japan Real Estate:  Hitting the Lows.  China to India Rotation

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Worries In Both Hong Kong and Mainland China: The Hong Kong retail portfolio's rental reversion rate continued to be challenged YOY in FY 1H22, albeit slightly improving from a negative 1.8% in FY 2H21 to a barely positive low single digits. Not surprisingly, this weakness would appear to be with us for an extended period - especially given the continued border closures amid the COVID-19 disruption.  The mainland Chinese expansion remains worrisome, given the likely carry-on impact of stress seen in the broader mainland Chinese property market and its lenders; and*Poor Capital Management Becoming A Big Problem: Link REIT (823.HK) [Link] management also appears hell-bent on destroying shareholder value with deals which make little financial sense. Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou where the current annualized NPI yield barely covering the project’s cost of funding. In order to improve occupancy, it would appear that Link would likely need to offer significant tenant enticements, and investment massively in asset enhancement. Bizarrely instead of weighing buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend shares against short-selling.

*Worries In Both Hong Kong and Mainland China: The Hong Kong retail portfolio's rental reversion rate continued to be challenged YOY in FY 1H22, albeit slightly improving from a negative 1.8% in FY 2H21 to a barely positive low single digits. Not surprisingly, this weakness would appear to be with us for an extended period - especially given the continued border closures amid the COVID-19 disruption.  The mainland Chinese expansion remains worrisome, given the likely carry-on impact of stress seen in the broader mainland Chinese property market and its lenders; and*Poor Capital Management Becoming A Big Problem: Link REIT (823.HK) [Link] management also appears hell-bent on destroying shareholder value with deals which make little financial sense. Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou where the current annualized NPI yield barely covering the project’s cost of funding. In order to improve occupancy, it would appear that Link would likely need to offer significant tenant enticements, and investment massively in asset enhancement. Bizarrely instead of weighing buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend shares against short-selling. 

*Better, But Weak Metrics: Link REIT (823.HK) [Link REIT] reported a positive FY 2H21 bottom-line result of HKD 5.3 bn, increasing HKD 9.4 bn over the HKD 4.1 bn in losses posted in FY 1H21. However, when we exclude Link’s non-cash FV marks of HKD 2.0 bn, operating performance cam in at just HKD 3.3 bn – improving just HKD 143 mn (4.5%) HOH. The positive HOH operating performance was driven by an increase in revenues from mainland China and overseas related property;  *Worries Remain In Hong Kong: Hong Kong retail portfolio's rental reversion rate continued to be challenged YOY in FY 2H21, albeit slightly improving from a negative 2.6% in FY 1H21 to a negative 1.8%. Although not a enormous surprise, this trend would appear to be with us for an extended period in Hong Kong - especially given the continued border closures amid the COVID-19 disruption; and*Poor Capital Management Becoming A Big Problem: Link management also appears hellbent on destroying shareholder value with deals that make little financial sense. Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou where the current annualized NPI yield barely covering the project’s cost of funding. In order to improve occupancy, it would appear that Link would likely need to offering significant tenant enticements, and investment massively in asset enhancement. Bizarrely instead of weighing buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend shares against short-selling.

*Better, But Weak Metrics: Link REIT (823.HK) [Link REIT] reported a positive FY 2H21 bottom-line result of HKD 5.3 bn, increasing HKD 9.4 bn over the HKD 4.1 bn in losses posted in FY 1H21. However, when we exclude Link’s non-cash FV marks of HKD 2.0 bn, operating performance cam in at just HKD 3.3 bn – improving just HKD 143 mn (4.5%) HOH. The positive HOH operating performance was driven by an increase in revenues from mainland China and overseas related property;  *Worries Remain In Hong Kong: Hong Kong retail portfolio's rental reversion rate continued to be challenged YOY in FY 2H21, albeit slightly improving from a negative 2.6% in FY 1H21 to a negative 1.8%. Although not a enormous surprise, this trend would appear to be with us for an extended period in Hong Kong - especially given the continued border closures amid the COVID-19 disruption; and*Poor Capital Management Becoming A Big Problem: Link management also appears hellbent on destroying shareholder value with deals that make little financial sense. Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou where the current annualized NPI yield barely covering the project’s cost of funding. In order to improve occupancy, it would appear that Link would likely need to offering significant tenant enticements, and investment massively in asset enhancement. Bizarrely instead of weighing buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend shares against short-selling.

Link REIT – Hong Kong “Stabilizing”

*Desperado: The bulk of the Link REIT (823.HK) [Link] franchise continues to contract: negative rental reversion rates persist in Hong Kong; declining tenant sales; and another round of negative property revaluation due to lower rents and/or higher cap rates. That being said, Link management also appears hellbent on destroying shareholder value with  deals that make little financial sense; and *Throwing Good Money After Bad Again: Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou for CNY 3.2 bn. According to management, current annualized NPI yield of 3.3% - barely covering the project’s cost of funding. Management would have investors believe that the opportunity for Link is the shopping mall’s 70% occupancy and that 68% of leases are expiring between now and 2023. In order to improve occupancy, it would appear that Link would likely need to offering significant tenant enticements, and investment massively in asset enhancement.

*Desperado: The bulk of the Link REIT (823.HK) [Link] franchise continues to contract: negative rental reversion rates persist in Hong Kong; declining tenant sales; and another round of negative property revaluation due to lower rents and/or higher cap rates. That being said, Link management also appears hellbent on destroying shareholder value with  deals that make little financial sense; and *Throwing Good Money After Bad Again: Link recently announced the acquisition of Happy Valley Shopping Mall in Guangzhou for CNY 3.2 bn. According to management, current annualized NPI yield of 3.3% - barely covering the project’s cost of funding. Management would have investors believe that the opportunity for Link is the shopping mall’s 70% occupancy and that 68% of leases are expiring between now and 2023. In order to improve occupancy, it would appear that Link would likely need to offering significant tenant enticements, and investment massively in asset enhancement.

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> there are 3 inclusions - <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a>, <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>.The 3 inclusions will increase the number of index constituents to 58. With the target of getting to 80 stocks by mid-2022, the expectation was for more stocks to be included at this review. What likely resulted in fewer stocks being added was the large turnover due to the capping changes.While we had expected the inclusion of <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>, the inclusion of <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> will have a big impact since the stock has also been included in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>. One-way turnover is estimated at 7.77% and will result in a one-way trade of HK$16.82bn.  The largest passive inflows will be on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> as a result of the capping change from 5% to 8%, while the largest outflows will be from <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a> due to the capping change from 10% to 8%.There are only 10 trading days to implementation of the changes and we expect all 3 inclusions to open higher on Monday and continue to outperform the market over the period.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the Hong Kong Hang Seng Index (HSI INDEX) there are 3 inclusions - Xinyi Solar Holdings (968 HK), BYD (1211 HK) and Country Garden Services Holdings (6098 HK).The 3 inclusions will increase the number of index constituents to 58. With the target of getting to 80 stocks by mid-2022, the expectation was for more stocks to be included at this review. What likely resulted in fewer stocks being added was the large turnover due to the capping changes.While we had expected the inclusion of Xinyi Solar Holdings (968 HK) and Country Garden Services Holdings (6098 HK), the inclusion of BYD (1211 HK) will have a big impact since the stock has also been included in the Hang Seng China Enterprises Index (HSCEI INDEX). One-way turnover is estimated at 7.77% and will result in a one-way trade of HK$16.82bn.  The largest passive inflows will be on Meituan (3690 HK) and Alibaba Group (9988 HK) as a result of the capping change from 5% to 8%, while the largest outflows will be from AIA Group Ltd (1299 HK), Tencent (700 HK) and HSBC Holdings (5 HK) due to the capping change from 10% to 8%.There are only 10 trading days to implementation of the changes and we expect all 3 inclusions to open higher on Monday and continue to outperform the market over the period.

HSI Index Rebalance: Only 3 Additions but BIG Turnover

Hong Kong

Sun Hung Kai Properties Limited develops and invests in properties. The Company operates and manages hotels, properties, car parking, and transportation infrastructures. Sun Hung Kai Properties serves customers in Hong Kong.

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Sun Hung Kai Properties (16 HK)

Asia Ex-Japan Real Estate: Hitting the Lows. China to India Rotation

Real Estate exposure is close to its lowest levels on record among active Asia Ex-Japan investors. As China Real Estate suffers an exodus, India...

Steven Holden

Link REIT – Looking For Handouts

LINK REIT: The Hong Kong's rental reversion rate remained challenged in FY 1H22 at positive single digits. Mainland expansion likely will be...

Thomas J. Monaco

Link REIT – Hong Kong “Stabilizing”

LINK REIT: Link operating results only improved 4.5% HOH, driven by mainland China and overseas. Hong Kong retail portfolio remains a challenge, as...

Thomas J. Monaco

Link REIT – Purchase or Perish

LINK REIT: The Link franchise continues to contract, and management appears hellbent on destroying shareholder value by chasing bad deals - the...

Thomas J. Monaco

HSI Index Rebalance: Only 3 Additions but BIG Turnover

There are 3 inclusions (BYD, Xinyi Solar, CG Services) to the HSI taking the number of constituents up to 58. Turnover is high at 7.77% and will...

Brian Freitas

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