Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Thematic (Sector/Industry)

Energy is a lightly held sector, a bit part player in a world dominated by Tech, Financials and the EM Consumer.  The average holding weight among the active EM funds in our analysis stands at just 3.81%, underweight the benchmark by -2.11% on average.The fact that nearly a quarter of active EM managers have no exposure to the Energy sector is perhaps the most telling statistic of just how under-owned the sector is.  Part of that reason, we believe, lies in the risk of not holding Energy when index weights are so low. With Oil prices at multi-year highs, the Energy sector has started to outperform in a big way, with EM Energy outperforming the broader MSCI EM index by over 30% over the last 12 months.  With just 22.7% of funds overweight the benchmark, active EM managers are feeling the pinch.  The risk of being underweight or avoiding the sector completely has moved significantly higher.One of the factors that has driven Energy to the margins of EM investment is the rise of secular growth opportunities in Technology, Consumer Discretionary and Communication Services.  Indeed, the current investor base in Energy is heavily skewed towards the Value and Yield end of the spectrum.  Instead, Aggressive Growth managers have rotated towards the secular growth opportunities within Packaged Software, Internet Retail, Biotechnology and Internet Software/Services.Can the lure of a cyclical growth opportunity such as Energy be enough to win back investment from Growth investors?  If Energy keeps outperforming it will undoubtedly push Growth investors to look for opportunities within the sector.  We identify 2 stocks that already have an investor base among both Aggressive Growth and Growth funds, whilst also appealing to Value investors.  As such, we would expect both to be on the shortlist of the many underweights and non-investors looking to ramp up allocations in the Energy sector as we shift to a new ownership regime.Analysis taken from our EM research, covering 247 active GEM funds with combined AUM of $500bn

Energy is a lightly held sector, a bit part player in a world dominated by Tech, Financials and the EM Consumer.  The average holding weight among the active EM funds in our analysis stands at just 3.81%, underweight the benchmark by -2.11% on average.The fact that nearly a quarter of active EM managers have no exposure to the Energy sector is perhaps the most telling statistic of just how under-owned the sector is.  Part of that reason, we believe, lies in the risk of not holding Energy when index weights are so low. With Oil prices at multi-year highs, the Energy sector has started to outperform in a big way, with EM Energy outperforming the broader MSCI EM index by over 30% over the last 12 months.  With just 22.7% of funds overweight the benchmark, active EM managers are feeling the pinch.  The risk of being underweight or avoiding the sector completely has moved significantly higher.One of the factors that has driven Energy to the margins of EM investment is the rise of secular growth opportunities in Technology, Consumer Discretionary and Communication Services.  Indeed, the current investor base in Energy is heavily skewed towards the Value and Yield end of the spectrum.  Instead, Aggressive Growth managers have rotated towards the secular growth opportunities within Packaged Software, Internet Retail, Biotechnology and Internet Software/Services.Can the lure of a cyclical growth opportunity such as Energy be enough to win back investment from Growth investors?  If Energy keeps outperforming it will undoubtedly push Growth investors to look for opportunities within the sector.  We identify 2 stocks that already have an investor base among both Aggressive Growth and Growth funds, whilst also appealing to Value investors.  As such, we would expect both to be on the shortlist of the many underweights and non-investors looking to ramp up allocations in the Energy sector as we shift to a new ownership regime.Analysis taken from our EM research, covering 247 active GEM funds with combined AUM of $500bn

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/kunlun-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:10054:1" rel="noopener">Kunlun Energy (135 HK)</a> disclosed that it has reached agreement to dispose of its 25% stake in the K&amp;K oilfields in Azerbaijan. Although the transaction is relatively small given that it does not pass the 5% threshold of the listing rule, we still think such a small move has big positive meaning. In our view, the disposal marks an important step in its plan to exit the volatile Exploration &amp; Production segment which dragged on its valuation; and the market should welcome this.The current high oil price environment is good for Kunlun from both an operational and a transactional point of view. We estimate that at crude oil price of US$75/bbl, the E&amp;P segment may bring in an addition of at least Rmb300-400m of pre-tax profit in 2H21. Despite the good share price movement YTD (+73% including dividends), it is still trading on just 11x PER for FY21, the cheapest among its key peers. The removal of a volatile E&amp;P segment from its business portfolio should narrow Kunlun's discount, in our view.

Kunlun Energy (135 HK) disclosed that it has reached agreement to dispose of its 25% stake in the K&amp;K oilfields in Azerbaijan. Although the transaction is relatively small given that it does not pass the 5% threshold of the listing rule, we still think such a small move has big positive meaning. In our view, the disposal marks an important step in its plan to exit the volatile Exploration &amp; Production segment which dragged on its valuation; and the market should welcome this.The current high oil price environment is good for Kunlun from both an operational and a transactional point of view. We estimate that at crude oil price of US$75/bbl, the E&amp;P segment may bring in an addition of at least Rmb300-400m of pre-tax profit in 2H21. Despite the good share price movement YTD (+73% including dividends), it is still trading on just 11x PER for FY21, the cheapest among its key peers. The removal of a volatile E&amp;P segment from its business portfolio should narrow Kunlun's discount, in our view. 

Kunlun Energy (135 HK): Small Move, Big Meaning

<ul>
<li>We doubt if <a href="https://www.smartkarma.com/entities/petrochina-co-ltd-h" target="_blank" data-smartkarma-citation="entities:262:1" rel="noopener">PetroChina (857 HK)</a> can sustain good performance in 2024. On historical patterns, it has never sustained as one of HSI's best-performing stocks for two consecutive years. </li>
<li>Consensus growth forecasts of 4.4% and 4.3% for FY24-25 are likely wrong as this means FY25 will be the 5th straight year of growth. PetroChina does not behave like that. </li>
<li>Crude oil price has got back to the end-2022 level, but PetroChina's share price is still 50% higher. A return to their high correlation before 2023 will lead to underperformance. </li>
</ul>


We doubt if PetroChina (857 HK) can sustain good performance in 2024. On historical patterns, it has never sustained as one of HSI's best-performing stocks for two consecutive years. 
Consensus growth forecasts of 4.4% and 4.3% for FY24-25 are likely wrong as this means FY25 will be the 5th straight year of growth. PetroChina does not behave like that. 
Crude oil price has got back to the end-2022 level, but PetroChina's share price is still 50% higher. A return to their high correlation before 2023 will lead to underperformance. 


PetroChina (857 HK): An Interesting Contrarian View

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

<ul>
<li>China’s economic data is continuing to surprise on the upside.</li>
<li>Investors are starting to take notice and good news is not being ignored – a sign of a change in sentiment.</li>
<li>Economically sensitive and commodity-related sectors a good hunting ground for absolute returns</li>
</ul>


China’s economic data is continuing to surprise on the upside.
Investors are starting to take notice and good news is not being ignored – a sign of a change in sentiment.
Economically sensitive and commodity-related sectors a good hunting ground for absolute returns


What's up with Hong Kong? Bull Market Dude!

Cross Asset Strategy

<ul>
<li>Industrials and Consumer Staples Remain Top Overweights, Though Sentiment Fragile for Both.</li>
<li>Energy sector shows signs of a turnaround from long-term decline, whilst Financials remain unloved by China investors.</li>
<li>Real Estate allocations have hit record lows, with average holdings at just 2.93%, while Consumer Discretionary sector approaches all-time highs.</li>
</ul>


Industrials and Consumer Staples Remain Top Overweights, Though Sentiment Fragile for Both.
Energy sector shows signs of a turnaround from long-term decline, whilst Financials remain unloved by China investors.
Real Estate allocations have hit record lows, with average holdings at just 2.93%, while Consumer Discretionary sector approaches all-time highs.


China

CNOOC Limited, through its subsidiaries, explores, develops, produces, and sells crude oil and natural gas. The Company focuses in the areas such as Bohai, Western South China Sea, Eastern South China Sea and East China Sea in offshore China. Internationally, the Group has oil and gas assets in Asia, Africa, North America, South America, and Oceania.

China Petroleum & Chemical Corporation produces and trades petroleum and petrochemical products. The Company offers gasoline, diesel, jet fuel, kerosene, ethylene, synthetic fibers, synthetic rubber, synthetic resins, and chemical fertilizers. China Petroleum & Chemical markets its products throughout China.

China Shenhua Energy Company Limited is an integrated coal-based energy company focusing on the coal and power businesses in China. The Company also owns and operates an integrated coal transportation network consisting of dedicated rail lines and port facilities.

Shaanxi Coal Industry Company Limited produces, sells and transports coal. The Company offers coal used by the power, chemical, and metallurgical industries.

Yankuang Energy Group Company Limited operates coal businesses. The Company produces fine coal, blown coal, power coal, and coal chemical products. Yankuang Energy Group also conducts power generation, railway transport, machinery manufacturing, and heating businesses.

China Coal Energy Company Limited mines and processes coal products. The Company produces thermal coal and coking coal products. China Coal Energy also conducts coal chemicals production, coal mining equipment manufacturing, pit mouth power generation, and coal mine design businesses.

China Merchants Energy Shipping Co., Ltd. mainly engages in the Ocean Shipping of Crude Oil and other energy sources such as Coal and Iron Ore. Through its subsidiary CLNG, the Company also provides the Ocean Shipping service of Liquefied Natural Gas.

Huolinhe Opencut Coal Industry Corporation Limited of Inner Mongolia is mainly involved in the production and selling of coal in China.

Huolinhe Opencut Coal Ind Corp Ltd. (002128 CH)

Shanxi Xishan Coal & Electricity Power Co., Ltd. mines and processes coal. The Company also generates electric power.

Guanghui Energy Co., Ltd. is principally engaged in energy development, automotive services and real estate property leasing. The Company is in the business of coal mining and related coal chemical manufacturing. The Company is also engaged in the processing and distributing of granite materials and trading of general merchandise such as plastic doors and windows.

Reliance Industries Ltd. manufactures petrochemicals, synthetic fibers, fiber intermediates, textiles, blended yarn and polyester staple fiber. The Company also owns a petroleum refinery cum petrochemicals complex in Jamnagar, India that produces a wide range of products such as gasoline, superior kerosene oil and liquefied petroleum gas.

TOTAL S.A. explores for, produces, refines, transports, and markets oil and natural gas. The Company also operates a chemical division which produces polypropylene, polyethylene, polystyrene, rubber, paint, ink, adhesives, and resins. TOTAL operates gasoline filling stations in Europe, the United States, and Africa.

Phillips 66 is a downstream energy company.  The Company's operations include oil refining, marketing and transportation.  Phillips 66's operations also include chemical manufacturing and power generation.

Oil and Natural Gas Corporation Limited specializes in the exploration and production of crude oil and gas. The Company has joint ventures in oil fields in Vietnam, Norway, Egypt, Tunisia, Iran and Australia. The Group's other activities include deep sea explorations on the east and west coasts of India, and the exploration of coal bed methane.

Marathon Petroleum Corporation refines, transports, and markets petroleum products. The Company sells its products to resellers and consumers in the mid-west, gulf coast, and southeast United States.

Pioneer Natural Resources Company is an independent oil and gas exploration and production company. The Company engages in onshore oil and gas drilling, exploration and production in the United States.

Chevron Corporation is an integrated energy company with operations in countries located around the world.  The Company produces and transports crude oil and natural gas.  Chevron also refines, markets, and distributes fuels as well as is involved in chemical operations, mining operations, power generation and energy services.

EOG Resources, Inc. explores for, develops, produces and markets natural gas and crude oil. The Company operates in major producing basins in the United States, Canada, Trinidad, the United Kingdom North Sea, China and, from time to time, select other international areas.

Valero Energy Corporation is an independent petroleum refining and marketing company that owns and operates refineries in the United States, Canada, and Aruba.  The Company produces conventional gasolines, distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined products as well as diesel fuel, low-sulfur and ultra-low-sulfur diesel fuel, and oxygenates.

Kinder Morgan, Inc. of Delaware operates as a pipeline transportation and energy storage company. The Company owns and operates pipelines that transport natural gas, gasoline, crude oil, carbon dioxide, and other products, as well as terminals that store petroleum products and chemicals and handle bulk materials like coal and petroleum coke.

PetroChina Company Limited operates as an oil and gas company. The Company offers crude oil and oil products exploration, development, production and marketing. PetroChina also markets petrochemical products and derivative chemicals.

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PetroChina (601857 CH)

EM Energy: Regime Shift

A quarter of active EM managers have no exposure to the Energy sector and only 23% are overweight. With Oil prices at multi-year highs, active EM...

Steven Holden

Kunlun Energy (135 HK): Small Move, Big Meaning

The disposal of the Azerbaijan oilfields, though a small transaction, has significant implication. Kunlun will increasingly become a pure gas...

Osbert Tang, CFA

PetroChina (857 HK): An Interesting Contrarian View

Doubts arise over PetroChina's ability to sustain good performance in 2024 due to historical patterns, over-aggressive growth forecasts, and a...

Osbert Tang, CFA

What's up with Hong Kong? Bull Market Dude!

China's stronger economic data is catching investors' attention, signalling a shift in sentiment and highlighting opportunities in economically...

Rikki Malik

China Macro: Sector Positioning Update

Sector positioning among active China Funds. Industrials and Consumer Staples Remain Top Overweights, Energy shows signs of a turnaround, whilst...

Steven Holden

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

EM Energy: Regime Shift

A quarter of active EM managers have no exposure to the Energy sector and only 23% are overweight. With Oil prices at multi-year highs, active EM...

Steven Holden

Kunlun Energy (135 HK): Small Move, Big Meaning

The disposal of the Azerbaijan oilfields, though a small transaction, has significant implication. Kunlun will increasingly become a pure gas...

Osbert Tang, CFA

PetroChina (857 HK): An Interesting Contrarian View

​Doubts arise over PetroChina's ability to sustain good performance in 2024 due to historical patterns, over-aggressive growth forecasts, and a...

Osbert Tang, CFA

What's up with Hong Kong? Bull Market Dude!

​China's stronger economic data is catching investors' attention, signalling a shift in sentiment and highlighting opportunities in economically...

Rikki Malik

China Macro: Sector Positioning Update

Sector positioning among active China Funds. Industrials and Consumer Staples Remain Top Overweights, Energy shows signs of a turnaround, whilst...

Steven Holden

Doubts arise over PetroChina's ability to sustain good performance in 2024 due to historical patterns, over-aggressive growth forecasts, and a...

China's stronger economic data is catching investors' attention, signalling a shift in sentiment and highlighting opportunities in economically...