Keywise Capital Bullish on China, Tech

Fang Zheng‘s Hong Kong-based long/short fund Keywise Capital employs a fundamental, bottom-up approach to investing with the aim of delivering superior returns to its clients, which primarily consist of global institutional investors. The firm has a fairly concentrated U.S equity portfolio comprised of just 11 holdings as of March 31, with 78% of the value of the portfolio being invested in the technology sector, many of which also happen to be Chinese tech firms. With that mind, we decided to dig a little deeper into Keywise’s top stock picks as of March 31 to see how it is positioned in each of these stocks and how they have performed so far this year.

Our research determined that following the small-cap stocks, that hedge funds are collectively bullish on, can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

#5 NetEase Inc (ADR) (NASDAQ:NTES)

 – Shares Owned by Keywise Capital (as of March 31): 64,400

 – Value of Holding (as of March 31): $9.25 Million

NetEase represents a new holding added to Keywise Capital’s portfolio during the first quarter, and amounted to 7.73% of the value of the portfolio on March 31. Even though NetEase Inc (ADR) (NASDAQ:NTES)’s stock has appreciated by more than 9.3% over the last 12 months, it has cratered by over 26% on a year-to-date basis, which likely compelled Keywise to purchase shares. The $17.6 billion provider of Chinese language content and services through online games, an Internet portal, e-mail, e-commerce and other businesses, handily beat both top and bottom-line estimates in its financial results for the fourth quarter, but its margins shrank to 53%, which is considerably lower than the 72% figure from the same quarter a year earlier. Growth in the company’s lower-margin mobile games led to the large decline in the overall figure. William B. Gray‘s Orbis Investment Management slashed its NetEase Inc (ADR) (NASDAQ:NTES) holding by 11% to 10.23 million shares during the final three months of 2015.

#4 Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP)

 – Shares Owned by Keywise Capital (as of March 31): 269,700

 – Value of Holding (as of March 31): $11.94 Million

Keywise was bullish on Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) during the first quarter, as it raised its stake by a hefty 88% during the period. The Shanghai-based travel service provider recently announced that it will purchase a 3.55% stake in China’s second-largest carrier by passengers, China Eastern Airlines Corp., for 3 billion yuan ($463 million) through a private placement. Ctrip.com may also choose to raise its stake to 10% by acquiring stock on the open market, in which case it will also get a seat on the company’s board. Ctrip.com International, Ltd. (ADR) (NASDAQ:CTRP) shares are down by nearly 2% this year, having rebounded strongly from being down by over 22% year-to-date as of February 11. Ken Fisher‘s Fisher Asset Management upped its holding in Ctrip.com by 6% to 9.32 million shares during the first quarter.

We study Keywise Capital’s top three stock picks on the next page.

#3 Alibaba Group Holding Ltd (NYSE:BABA)

 – Shares Owned by Keywise Capital (as of March 31): 194,200

 – Value of Holding (as of March 31): $15.35 Million

Another new addition to Keywise’s portfolio was Alibaba, a holding which represented 12.8% of the value of its portfolio on March 31. Shares of the Chinese e-commerce giant are down by 4.9% this year but have also rebounded strongly from an early-February low point. Alibaba’s financial arm, Ant Financial Services recently raised $4.5 billion in what has become the world’s largest fundraising round for an Internet company, one which puts its valuation at a whooping $60 billion. Investors included a Chinese sovereign wealth fund and some of China’s biggest insurers. Barry Dargan‘s Intermede Investment Partners is also upbeat about Alibaba Group Holding Ltd (NYSE:BABA)’s future prospects, as it doubled its holding in the e-commerce giant to over 465,300 shares during the first quarter.

#2 Vipshop Holdings Ltd – ADR (NYSE:VIPS)

 – Shares Owned by Keywise Capital (as of March 31): 1.65 Million

 – Value of Holding (as of March 31): $21.28 Million

Keywise made a 15% boost to its position in Vipshop Holdings Ltd – ADR (NYSE:VIPS) during the first quarter, propelling it to a 17.79% slice of the portfolio’s value. Shares of the $7.7 billion online discount retailer for Chinese brands have not only fallen by more than 12% since the start of this year, but have also plummeted by nearly 54% in the last 12 months. The most recent setback came after the company issued light guidance for the first quarter, the results of which are scheduled to be announced on May 11. However, the stock has started to rebound recently on news of an 11.5% year-over-year spike in Chinese overseas sales during March. Chase Coleman‘s Tiger Global Management was the largest stockholder of Vipshop Holdings Ltd – ADR (NYSE:VIPS) at the end of December, holding 49.5 million shares.

#1 NVIDIA Corporation (NASDAQ:NVDA)

 – Shares Owned by Keywise Capital (as of March 31): 1.08 Million

 – Value of Holding (as of March 31): $38.42 Million

Keywise Capital’s bullish new stake in the $19.9 billion visual-computing company represented more than 32% of its portfolio’s value at the end of March. Shares of the semiconductor company have risen by more than 11% this year and by a whopping 66% in the last year. In a market that is tough for semiconductor companies, NVIDIA Corporation (NASDAQ:NVDA) managed to expand its top line by 7% in the last fiscal year and could significantly benefit from its focus on the connected-car market, as according to PWC, the market’s revenue will quadruple to $130 billion by 2020. Other bullish investors that held NVIDIA Corporation (NASDAQ:NVDA) in their funds’ portfolios at the end of last year include David Harding’s Winton Capital Management and Cliff Asness’ AQR Capital Management.

Disclosure: None