Citywire + rated Rory Dickson has cut consumer exposure by two-thirds in his Asia equity fund as he believes the retail sector has become an increasingly difficult market to navigate.
Dickson made the comments in the latest update for his CC Asian Evolution fund.
Consumer holdings have fallen from 31% at the start of the year to 12% at the end of October 2014, as Dickson believes there are greater opportunities elsewhere.
‘Sector-wise, we’ve concluded that retail – particularly big box format – is simply a difficult business with less room for error than higher margin fast moving goods and services, especially in a slowing environment when operating leverage can reverse.
‘Furthermore we now have the wildcard of ecommerce to take into account,’ Dickson added.
Dickson has instead put cash to work in his $240 million fund in Chinese companies, as well as off-benchmark bets on India. China/Hong Kong accounts for 23% of the fund, while India makes up 19%.
This compares with a 20% position in China/Hong Kong at the end of September, while India was increased by one percentage point. He reduced Singapore from 10% to 6%, while Indonesia dropped from 12% to 11%.
Picking up performance
Dickson said part of the reorganisation of the portfolio was to address recent ‘soft performance’, which has lost 1.9% over the 12 months to the end of November, while its benchmark, the MSCI AC Asia Pacific ex Japan TR USD, rose nearly 4%.
‘Notwithstanding this year’s lacklustre performance we believe the portfolio to be as well positioned now as it’s ever been, and during difficult periods like this we find it helpful to step back and view the bigger picture,’ he said.
‘We like the balance that the portfolio offers in term of growth, valuation and liquidity, and 45% returns on capital is testament to its quality.
‘Given the impact on this year’s earnings from weak sentiment and wage and rental inflation, we feel comfortable that 19x 2015 PER offers good value and may underestimate the rebound in margins we can look forward to.’
The CC Asian Evolution fund returned 39% over the three years to the end of November 2014. This compares with a rise of 33.8% by its benchmark over the same period in US dollar terms.