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)

<p>Utilities are the smallest sector allocation among global EM managers.  Average weights stand at 1.45%, or underweight -0.41% versus the <a href="https://www.smartkarma.com/entities/ishares-msci-emerging-markets" target="_blank" data-smartkarma-citation="entities:438:1" rel="noopener">iShares MSCI Emerging Markets (EEM US)</a> portfolio.  Only 66.8% of the EM funds in our analysis have any exposure at all, with 29.5% positioned as overweight.</p><p><a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a> and <a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power Group Corp (916 HK)</a> are the few brightspots in an otherwise very lightly held sector.</p><p>With continued underperformance of the MSCI EM Utilities sector, a weight in the benchmark MSCI Emerging Markets index of sub 2% and an average active fund weight of 1.45%, EM managers must question whether Utilities stocks have a place in EM portfolios at all.</p>

Utilities are the smallest sector allocation among global EM managers.  Average weights stand at 1.45%, or underweight -0.41% versus the iShares MSCI Emerging Markets (EEM US) portfolio.  Only 66.8% of the EM funds in our analysis have any exposure at all, with 29.5% positioned as overweight.ENN Energy (2688 HK) and China Longyuan Power Group Corp (916 HK) are the few brightspots in an otherwise very lightly held sector.With continued underperformance of the MSCI EM Utilities sector, a weight in the benchmark MSCI Emerging Markets index of sub 2% and an average active fund weight of 1.45%, EM managers must question whether Utilities stocks have a place in EM portfolios at all.

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power Group Corp (916 HK)</a> achieved an impressive 39.4% YoY growth in wind power generation in 2M21 on a low base a year ago. However, even as we compared 2M21 generation with 2M19, the CAGR still reach a resilient 18.4%. This suggested that the low base effect is not a key reason for the surge in generation, but instead, the underlying demand is resilient. </p><p>Longyuan has taken a beating on the back of the concerns on future tariff, on-grid capacity and profitability if the proposal in the consultation paper released by the National Energy Association is fully implemented. However, with its valuation now back to the end-2020 level (10x PER), we see a lot of uncertainties have been discounted. With a 34% plunge in share price in just 5 trading days and 49% from its peak, the market has already turned from overly bullish to overly bearish, in our view. </p>

China Longyuan Power Group Corp (916 HK) achieved an impressive 39.4% YoY growth in wind power generation in 2M21 on a low base a year ago. However, even as we compared 2M21 generation with 2M19, the CAGR still reach a resilient 18.4%. This suggested that the low base effect is not a key reason for the surge in generation, but instead, the underlying demand is resilient. Longyuan has taken a beating on the back of the concerns on future tariff, on-grid capacity and profitability if the proposal in the consultation paper released by the National Energy Association is fully implemented. However, with its valuation now back to the end-2020 level (10x PER), we see a lot of uncertainties have been discounted. With a 34% plunge in share price in just 5 trading days and 49% from its peak, the market has already turned from overly bullish to overly bearish, in our view. 

China Longyuan (916 HK): Things Aren't that Bad

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Beijing Jingneng Clean Energy / Event-Driven

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<p>Subsequent to a low-turnout at the H-share class meeting last Friday (the 19th February), <a href="https://www.smartkarma.com/entities/beijing-jingneng-clean-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:16316:1" rel="noopener">Beijing Jingneng Clean Energy (579 HK)</a>'s shares declined 6.7% on Monday, followed by 6.3% yesterday, and 3.1% today. All on above-average volume. </p>
<p>Jingneng is now trading at a 25% gross spread to the voluntary conditional offer price of HK$2.70/share. Quite remarkable given deal completion is binary, and there is little in the way of clarity to indicate deal failure is more certain.</p>
<p>Jingneng's undisturbed price back in early July 2020 when a possible Offer was first <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0706/2020070602025.pdf" target="_blank" rel="noopener">floated</a>, was HK$1.58. However, the power mix that Jingneng supplies has sector-by-sector average gains - some considerable - since the deal.</p>
<p>Jingneng has overshot to the downside, and is a buy outright or against a basket of peers.</p>
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Subsequent to a low-turnout at the H-share class meeting last Friday (the 19th February), Beijing Jingneng Clean Energy (579 HK)'s shares declined 6.7% on Monday, followed by 6.3% yesterday, and 3.1% today. All on above-average volume. 
Jingneng is now trading at a 25% gross spread to the voluntary conditional offer price of HK$2.70/share. Quite remarkable given deal completion is binary, and there is little in the way of clarity to indicate deal failure is more certain.
Jingneng's undisturbed price back in early July 2020 when a possible Offer was first floated, was HK$1.58. However, the power mix that Jingneng supplies has sector-by-sector average gains - some considerable - since the deal.
Jingneng has overshot to the downside, and is a buy outright or against a basket of peers.






More below the fold.






<p><a href="https://www.smartkarma.com/entities/china-longyuan-power-group-corp-ltd" target="_blank" data-smartkarma-citation="entities:14215:1" rel="noopener">China Longyuan Power Group Corp (916 HK)</a> has a very strong turnout in Jan as its overall power generation was up by 47.5% YoY, with wind generation (+50.8%) being the most important driver. We do not think that a low base and distortion from timing of the Chinese New Year are the reasons for the impressive growth, and we see underlying momentum very solid. While Jan is a record-breaking month for generation, we believe the peak generation in this year is yet to come.</p><p>Longyuan has an attractive long term story, supported by factors including: 1.) beneficiary of government support, 2.) access to the A-share market, 3.) acquisition of Pingzhuang renewable assets, and 4.) increased potential from parent injection. Share price has rallied 59.5% YTD but valuations are still not too stretched. We believe any pull-back is opportunity for taking position in this encouraging long-term story of renewable energy development. </p>

China Longyuan Power Group Corp (916 HK) has a very strong turnout in Jan as its overall power generation was up by 47.5% YoY, with wind generation (+50.8%) being the most important driver. We do not think that a low base and distortion from timing of the Chinese New Year are the reasons for the impressive growth, and we see underlying momentum very solid. While Jan is a record-breaking month for generation, we believe the peak generation in this year is yet to come.Longyuan has an attractive long term story, supported by factors including: 1.) beneficiary of government support, 2.) access to the A-share market, 3.) acquisition of Pingzhuang renewable assets, and 4.) increased potential from parent injection. Share price has rallied 59.5% YTD but valuations are still not too stretched. We believe any pull-back is opportunity for taking position in this encouraging long-term story of renewable energy development. 

China Longyuan (916 HK): Record-Breaking Jan, and Strategically Positioned for the Long Term

China Everbright Environment / Equity Bottom-Up

<p>We believe there will be more positive policy measures to support the waste treatment industry, especially after China's "Two Meetings" to be held in Mar and <a href="https://www.smartkarma.com/entities/china-everbright-international-limited" target="_blank" data-smartkarma-citation="entities:15946:1" rel="noopener">China Everbright Environment (257 HK)</a> (CEE) is in a good position to benefit. Although its share price has increased by 12.9% YTD, with an undemanding PER of 4.1x for FY21F, there is still more room to go.</p><p>CEE's project momentum has stayed encouraging, with over Rmb1.5bn of new waste and water treatment projects secured over the last few months. The recent grant of approval to its subsidiary <a href="https://www.smartkarma.com/entities/china-everbright-greentech-0377b31c-5401-466f-987e-9a176b05fb52" target="_blank" data-smartkarma-citation="entities:24085:1" rel="noopener">China Everbright Greentech (1257 HK)</a> to issue asset-backed notes (ABN) represents another major step towards asset securitisation. We also see CEE a prime beneficiary of public infrastructure REIT, which when issues, will both improve its valuation and capital structure.  </p>

We believe there will be more positive policy measures to support the waste treatment industry, especially after China's "Two Meetings" to be held in Mar and China Everbright Environment (257 HK) (CEE) is in a good position to benefit. Although its share price has increased by 12.9% YTD, with an undemanding PER of 4.1x for FY21F, there is still more room to go.CEE's project momentum has stayed encouraging, with over Rmb1.5bn of new waste and water treatment projects secured over the last few months. The recent grant of approval to its subsidiary China Everbright Greentech (1257 HK) to issue asset-backed notes (ABN) represents another major step towards asset securitisation. We also see CEE a prime beneficiary of public infrastructure REIT, which when issues, will both improve its valuation and capital structure.  

China Everbright Environment (257 HK): Compelling Story yet to Fully Appreciate

China

China Longyuan Power Group Corp Ltd designs, develops, manages, and operates wind farms.  The Company also sells the electricity generated by the wind farms.

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China Longyuan Power (916 HK)

EM Utilities: Bailing Out

With continued underperformance of the MSCI EM Utilities sector, EM managers must question whether Utilities stocks have a place in EM portfolios...

Steven Holden

China Longyuan (916 HK): Things Aren't that Bad

Longyuan has achieved good generation in 2M21, suggesting excellent underlying demand. The recent weakness in share price has largely discounted...

Osbert Tang, CFA

Beijing Jingneng (579 HK): This Is A Buy

If it does not go through, the downside should be limited. And current valuations are not demanding - 8.8x PER on an LTM basis. I would buy...

David Blennerhassett

China Longyuan (916 HK): Record-Breaking Jan, and Strategically Positioned for the Long Term

China Longyuan has a strong Jan generation with 50.8% YoY growth in wind generation. We expect it to benefit from China's clean energy initiatives...

Osbert Tang, CFA

China Everbright Environment (257 HK): Compelling Story yet to Fully Appreciate

China Everbright Enviornment continued to demonstrate strong capability to secure new projects and it will also benefit hugely from the...

Osbert Tang, CFA

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