Every week, the GRP ranks stocks from 1 to 100 for each sector based on Wang’s three criteria. Wang’s team uses the data to conduct company visits and perform deeper fundamental analysis on the top 20% of companies ranked by the system.
Wang then selects 50-100 names for the portfolio based on the analyst recommendations. Given that the fund is also a Hong Kong pension fund, it is not allowed to invest in any securities listed on non-approved exchanges (such as American Depository Recepits).
Due to the nature of Wang’s stock selection method, the fund’s holdings are not long-term. Rather, the fund seeks to actively capture pricing inconsistencies and cyclical opportunities on a short-term basis.
Turning to the Schroder fund, portfolio manager Tony Hudson uses a growth-oriented process. He aims to identify companies that increase shareholder value in the long-term. Share noted that Hudson has maintained several holdings for over a decade.
The stock selection process involves Hudson’s team applying both quantitative and qualitative screening processes, together with company visits, to narrow its universe to around 250 stocks.
The analysts classify stocks into four categories (ranked 1 to 4, with 1 representing a strong conviction that the stock will outperform) according to their growth prospects. Hudson’s team favours stocks that are able to generate higher returns on investment capital than their weighted average cost of capital.
Hudson’s team of analysts are given the freedom to use a range of valuation methods, although discounted cash flow remains as one of the primary tools. Hudson usually selects stocks that are graded 1 or 2 for inclusion in the fund’s portfolio.
Unlike Wang, Hudson believes in holding a more concentrated portfolio with 40-70 names at any given time.
A snapshot of portfolio allocation:
| Principal fund | Schroder fund | |
| Launch | 1 November 2005 | 9 August 2002 |
| AUM | $671.5m | $2.67bn |
| Number of holdings | 91 | 43 |
| Top sectors |
Real estate – 27.7% Financial services – 27.3% Industrials – 13.3% Consumer cyclical – 12.2% Communication service – 5.9% |
Financial services – 36.0% Real estate – 16.1% Industrials – 8.9% Technology – 8.4% Consumer cyclical – 7.7%
|
| Top holdings |
HSBC Holdings – 7.3% AIA Group – 5.84% Tencent Holdings – 5.16% China Mobile – 4.45% CK Hutchison – 3.44%
|
AIA Group – 9.50% HSBC Holdings – 8.43% CK Hutchison – 5.43% Cheung Kong Property – 4.61% Sun Hung Kai Properties – 4.49% |
