“Anthony was much more bullish in his market view. For example he bought into airlines, a position we’ve significantly reduced,” he said.
Since formally taking over Anthony Bolton’s £817m China Special Situations Fund on 1 April, Nicholls has started to introduce changes to the fund, which suffered notoriously in recent years.
He has reduced the fund’s exposure to financials, selling stocks from Wing Hang Bank after the Hong Kong bank was taken over by a Singapore financial.
Meanwhile he has added stocks in the consumer appliance sector.
“In the next few years Asia will be a much bigger stock-picking market. There is a huge premium on growth, and retail continues to be a main driver,” he said.
In the IT space, he has seen some profit opportunities and has “taken money off the table”. He bought into Tencent, a Chinese investment holding company primarily because of its WeChat platform, a mobile text and voice messaging communication service developed by Tencent.
“We do think there is significant value in the WeChat platform, which is approaching 400m active users and has one of the best track records in internet monetization,” according to Dale.
He added that e-commerce is a space he expects to grow, and an area that Tencent is expanding into after buying a 15% stake in Chinese electronic commerce company JD.com.
Policy reform
Commenting on China’s policies, Dale said key reforms announced at the government’s third plenary have set out a number of initiatives that are likely to level the playing field between state-owned enterprises (SOEs) and private companies. For example, the government is encouraging SOEs to seek private investor participation and boost dividends.
“SOEs pose a number of risks, it will be interesting to watch developments in the next 12 months,” Dale said.
He is currently using his full quota in China’s A shares, which is a fixed quota of 15%.
“There are still limits on quotas but this is expanding. It’s possible to work through securities companies, using their quotas to access greater exposure to A shares but we are staying with the 15%. It will be interesting to see developments as the fixed quota expands,” he added.
Over the past three years, the fund has seen a cumulative performance of 6.9%, compared to the IMA Country Specialists Asia Pacific Index of 17.4%. In the past year, the fund has grown 20.5% compared to the 13.4% of the index, according to FE Analytics. The fund's portfolio is made up primarily of securities issued by companies listed in China or Hong Kong and Chinese companies listed elsewhere
