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A Hedge Fund with Strong Focus on China-based Companies

July 18, 2014 | About:

Over the past days hedge funds have been filing their form 13-F, which is a quarterly report of equity holdings by filed institutional investment managers with at least $100 million in equity assets under management, as required by the United States Securities and Exchange Commission (SEC). In this article, let´s concentrate in one particular hedge fund and try to see the principal holdings in its portfolio. I will look into Shah Capital Management LLC.

Recently the fund reported its equity portfolio, as at the end of June. The total value of the portfolio amounted to $134.9 million, up from $131.6 million disclosed at the end of the previous quarter. Consequently, the fund's total return was 2.5% in the last quarter. The filing revealed that at the end of June, the fund added 15 new positions to its equity portfolio. The top ten portfolio holdings as of the end of the quarter represented 95.31%. The largest changes from previous 13-F´s fillings are in the tech and consumer discretionary sectors.

In this article, we have selected three companies, in which the fund holds the largest stakes, in terms of market value.

The first on the list is China Yuchai International Limited (NYSE:CYD), in which the fund disclosed a $49.83 million stake with over 2.34 million shares.

Strategic Announcements

Recently, the company made two important announcements. Firstly, it announced that its main operating subsidiary, Guangxi Yuchai Machinery Company Limited, has entered into an equity transfer agreement to restructure the ownership of its joint venture company - Yuchai Remanufacturing Services (Suzhou) Co., Ltd. The latter will become a wholly-owned subsidiary of Guangxi. Further, the firm announced that new-energy buses running on engines supplied by Guangxi Yuchai have been launched in a city located in the Northeast China.

Since the same quarter one year prior, revenues rose by 18.3%. Also, it has improved earnings per share by 3 cents in the most recent quarter compared to the same quarter a year ago. The net income increased by 3.6% when compared to the same quarter one year prior, going from $27.94 million to $28.95 million. As a matter of fact, the share price is higher by 6.39% to $21.97 after the company announcement.

Other hedge fund gurus have also been active in the company. Jean-Marie Eveillard (Trades, Portfolio) has taken long positions too.

UTStarcom Holdings Corp. (NASDAQ:UTSI) comes in next, the fund owning over 10.25 million shares, worth $30.02 million.

Good Sales

The Company has sold over $250 million of packet optical transport products that form the backbone of telecommunications network infrastructure. We expect the company to improve in several on its businesses.

It reported earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The firm has increased its ROE despite is still negative.

Other hedge fund gurus have also been active in the company. Chuck Royce (Trades, Portfolio) and Jim Simons (Trades, Portfolio) have taken long positions in the first quarter of 2014.

In Chiquita Brands International Inc. (CBQ) the fund disclosed ownership of over 1.23 million shares, worth $13.34 million.

Ten Years

Its biodiversity partnership at the Nogal Nature and Community Project, created ten years ago in Costa Rica as a pilot contributing to the conservation of the region`s exceptional biodiversity continues to be an important driver for the company.

Revenues and EPS declined in the most recent quarter compared to the same. Although its ROE greatly increased when compared to its ROE from the same quarter one year prior, is still negative.

Other hedge fund gurus have also been active in the company. Steven Cohen (Trades, Portfolio) has taken long positions.

Final Comment

Probably the worst mistake a new investor can make is to not properly diversify their portfolio. But we already saw that this hedge fund has almost 70% of its portfolio in three stocks. The stock portion of the hedge fund portfolio won't be diversified, because it invests in a few individual stocks.

Investors need at least twenty or thirty carefully selected individual stocks to be truly diversified. Diversify your portfolio asset allocation by spreading money amongst a variety of stocks is what I recommend, because it’s simple, diversification can work and can prevent your entire portfolio from losing value.

Disclosure: Omar Venerio holds no position in any stocks or funds mentioned.

About the author:

Omar Venerio is a capital markets, derivatives, corporate finance and financial management professor and Area Head of Finance. He is passionate about the stock market and providing independent fundamental research and hedge fund and insider trading-focused investigation.

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