This Hedge Fund Continues Betting on China-based Companies

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Feb 26, 2015

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 of the end of December. The total value of the portfolio amounted to $116.05 million, up from $106.7 million disclosed at the end of the previous quarter. Consequently, the fund's total return was $9.3 million in the last quarter. The filing revealed that at the end of December, the fund added four new positions to its equity portfolio and sold out one position. The top 10 portfolio holdings as of the end of the quarter represented 95.96%. The largest changes from previous 13-F´s fillings are in the telecom and technology 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 (CYD, Financial), in which the fund disclosed a $47.173 million stake with over 2.48 million shares.

Last year the company announced that its main operating subsidiary, Guangxi Yuchai Machinery Company Limited (GYMCL), has completed its acquisition of Yuchai Remanufacturing Services (Suzhou) Co., Ltd. (YRC). With the deal the firm seeks developed high-quality standards and good management processes. Further, the subsidiary has divested its total interest in Jining Yuchai Engine Company Limited (Jining Yuchai).

Today the company is having its earnings announcements for the fourth quarter. Revenues rose by 2.94%, and earnings per share increased in the third recent quarter compared to the same quarter a year ago ($0.63 vs. $0.47). During the past fiscal year, the company increased its bottom line. It earned $3.10 versus $2.44 in the prior year. For the next year, Wall Street is expecting a contraction of 16.2% in earnings ($2.60 versus $3.10).

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

UTStarcom Holdings Corp. (UTSI, Financial) comes in next, the fund owning over 10.73 million shares, worth $32.37 million. It is a telecom infrastructure provider, which offers broadband technologies that enable high-speed voice, video and data access and transport over IP-based networks.

Although we expected the company to improve in several of its businesses, profitability doesn´t improve. The gross profit margin is considered rather low, currently at 26.2%. Net profit margin is negative, and this is not attractive at all. Revenues fell by 21.6%, and earnings per share decreased from $0.01 to -$0.22. Finally, the firm decreased its ROE when compared to the previous quarter but is still negative.

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

In Coeur Mining Inc. (CDE, Financial) the fund disclosed ownership of over 1.48 million shares, worth $7.55 million. This company is a primary silver producer with growing gold production. It has assets located in important countries such as the U.S., Mexico, Bolivia, Argentina and Australia.

During the past fiscal year, the company continued to lose money by earning -$11.28 versus -$6.44 in the prior year. This year, Wall Street expects an improvement in earnings (-$1.10 versus -$11.28). Further, the firm reported significant earnings per share declined in the most recent quarter compared to the same quarter a year ago.

Hedge fund gurus like David Dreman (Trades, Portfolio), Donald Smith (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Jim Simons (Trades, Portfolio) reduced their positions in the last quarter of 2014.

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