-
1copyright C 2015. www.lvxresearch.com
What Drives Company Stock Price Out Performance? What
Fundamental Stock Investment Strategies Have Been Working
Consistently? What Ranked Metrics Have Historically Signalled Stock
Prices Will Outperform?
Our Paid Monthly Research Service on the Australian (ASX) and
Hong Kong Markets (HSE) Answers all these Questions in a Digestible
way : www.lvxresearch.com
We also Provide Bespoke Research Services for Brokerage Firms
and Institutional Investors on Countries and Industry Segments.
April 2015 Edge Hong Kong Report is Enclosed. Learn More on our
Website: www.lvxresearch.com
Analysis above and throughout the document do not include
transaction costs or dividends. Returns are not actual they are
based on mathematical calculations of the historical performance of
applying different ranked investment strategies/metrics for stock
selection. Each strategy has the top five ranked shares re-weighted
monthly or quarterly depending on the strategy. There are no
guarantees that the strategies shown in this document will generate
similar performance to what they have generated in the past. We
just provide the facts for strategies that are working historically
over the medium term. Our analysis does not include transaction
costs which could be substantial or the effect of dividends or
taxes. Please note with how our analysis is conducted using the
current indices, longer term performance statistics can be skewed
by survivorship bias and may enter the benchmark because of high
share price momentum for example. We have not adjusted historically
for that factor so shorter term factors are more accurate. We
provide historical market and financial information for
institutional, professional investors and advisors. We do not
provide general advice or specific advice. Past performance is no
guarantee of future performance. This publication is general in
nature and does not take your personal situation into
consideration. You should seek financial advice specific to your
situation before making any financial decision. Please see our
disclaimer on the main website www.lvxresearch.com for more
information. AFSL 338118.
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LVX Research - Edge Hong Kong - April 2015 Report
12/06/2015 2copyright C 2015. www.lvxresearch.com
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Edge Australia Executive Summary Our Methodology
copyright C 2015. www.lvxresearch.com
We analyse a raft of different stock strategies to determine
what has worked consistently over time to outperform the market.
Here we only present what has worked after sifting , so investors
can focus in on the strategies that resonate with their investment
style or generate ideas for further research. All of our analysis
is historical and factual without opinion and should be viewed as
such.
We look at strategies for market positioning, industry tilts and
at the top five companies ranked within the particular multiple or
metric, and focus on the most liquid stocks in the market. In the
analysis we re weight the positions with the highest or lowest
multiple/metric every quarter or month depending on the
strategy.
The strategies we look at can be broken into the following
buckets:Fundamental Medium Term Strategies: adjusted quarterly
looking the highest and lowest multiples and ranking the companies
accordingly for the top five companies and then seeing how they
performed over the following quarter re weighting consistently each
quarter to determine a return over one and two years.Valuation
Multiples: Enterprise Value(EV)( Equity Value +Net Debt)/EBITDA,
EV/EBIT, EV/Free Unlevered Cash Flow, EV/Sales, EV/Invested
Capital, PE Ratio, PE Est. CY, PE EST CY+1, Price to Book, Dividend
Yield Operating Performance: EBIT Margin, Return on Assets, Return
on Invested Capital, 5 Yr Growth in Operating Profit, 5 Yr Growth
in Net Profit, Largest EPS Upgrades % over Q CY/CY+1Balance Sheet
Strength: Net Debt/EBITMarket Performance: Volatility 360D,
Momentum (1Q,2Q,4Q,20Q and monthly), Momentum volatility adjustedWe
also analyse dispersions of the performance between the lowest and
highest multiples for long/short investors.
Market Anomalies/Flow Based Strategies: adjusting monthly we
analyse seasonal factors looking at which industries, stocks and
when the market has historically outperformed during different
months of the year and historical patterns intra month which are
consistent.
Dividend Stripping: Investing short term for dividends has
historically been lucrative particularly for specific industries
and companies. We analyse and present only the most lucrative and
consistent over recent history.
Market Specific Anomalies: e.g. Our Australian Bank strategy
which relies on the fact that they dominate the index creating
anomalies around their medium term performance.
Relative industry Trends: From a macro perspective we have
developed a relative trend following methodology to focus on what
industries are trending form a relative perspective
Characteristics of Top Performers: We analyse the top 20
performing shares every six months and see which characteristics
they shared six months previously over a medium term time horizon
i.e. where they ranked in certain multiples and metrics; thus
determining what has been the most influential metrics for
historical performance.
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Edge Hong Kong April 2015 Executive Summary What Strategies Are
Working Best?
12/06/2015 4
As you can see below growth strategies on average did a little
better over both time periods compared to value strategies; which
you can see visually comparing the blue bars (growth) to the green
bars (value) over the two time periods. Each of the
fundamental/market strategies consist of five companies from the HK
top 100 typically reweighted quarterly/monthly ranked by the
highest or lowest metric. e.g for EV/Invested Capital - every
quarter the five stock portfolio consists of the companies with the
lowest EV/Invested Capital from the HK top 100 at that date, and
the portfolio is held for a quarter then rebalanced again etc. for
the last two years producing the return result; excluding dividends
and transaction costs.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Executive Summary What Growth
Strategies Are Working Best?
12/06/2015 5
As you can see within growth strategies over the two time
periods following the highest 6 mth momentum stocks was the most
consistent and highest returning strategy each year re weighting
the portfolio monthly ( current portfolio at 31/3/2015: China
Communications Construction (1800), China Railway Group ( 390),
China Railway Construction (1186) ,Great Wall Motors (2333) and
China Galaxy Securities (6881); followed by volatility adjusted
momentum ( current portfolio as at 31/03/2015: China Communications
Construction (1800),China Railway Group ( 390), Great Wall
Motor(2333), Ping An Insurance (2318), Fosun International
(656)
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 - Executive Summary What Value
Strategies Are Working Best?
12/06/2015 6
Within value strategies over the two time periods following the
lowest EV/Invested Capital ( current portfolio as at 31/3/2015: :
Sino Land (83), Hang Lung Properties (101),New World Development
(17), Wharf Holdings (4),Sinopec Engineering (2386)) was the most
consistent strategy
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Executive Summary- What Strategies Are
Working Best?
12/06/2015 7
Shown below is the data behind the top performing strategies and
the current portfolios for each strategy over the last two years
and one year respectively.
copyright C 2015. www.lvxresearch.com
Top Performing Strategies over the medium term - Last 2 Years -
HK - Top Ranked Five Shares
31/03/2015
Monthly Strategies L12M L12-24M L24M Current Portfolio
31/03/2015 Investing Style
Seasonality 20.7% 44.4% 74.3% 700 1169 135 27 2319 Industry
Rotation
Highest MomentumVol. Adj. 7.8% 19.2% 28.5% 1800 656 390 2318
1186 Growth
Highest Momentum 37.2% 14.6% 57.2% 3333 1800 390 656 6881
Growth
L12m ended
Quarterly Strategies 31/03/2015 L12-24M L24M Current Portfolio
31/03/2015 Investing Style
Lowest EV/L12M Sales 42.4% 4.2% 48.4% 2386 992 358 291 386
Value
Highest 4Q Momentum -5.5% 55.8% 47.3% 390 1800 6881 1186 388
Growth
Lowest 4Q Momentum 15.3% 24.8% 43.8% 1680 880 1128 27 2282
Value
Highest 20Q Momentum -6.1% 50.2% 41.1% 27 2333 1114 700 1169
Growth
Highest 5yr Grwth Net Inc CAGR 6.6% 29.5% 38.0% 27 2007 3333
1928 960 Growth
Lowest Return on Assets 14.4% 19.8% 37.0% 2600 291 1898 1211 991
Value
Highest 8Q Momentum 3.3% 29.6% 33.9% 700 656 257 2333 390
Growth
Highest Volatility 360D -2.4% 35.5% 32.3% 1211 1066 6881 1680
2333 Growth
Lowest EV/Invested Capital 41.3% -8.3% 29.6% 83 101 17 4 2386
Value
Highest Dividend Yield L12M 12.7% 14.5% 29.0% 3333 880 1928 2007
386 Value
Hang Seng 12.4% -0.7% 11.7%
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Edge Hong Kong April 2015 Executive Summary What Strategies Are
Working Best?
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Edge Hong Kong April 2015 Executive Summary- What Strategies Are
Working Best?
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Top Performing Strategies over the medium term - Last 1 Year -
HK- Top Ranked Five Shares
31/03/2015
Monthly Strategies L12M L12-24M L24M Current Portfolio
31/03/2015 Investing Style
Seasonality 20.7% 44.4% 74.3% 700 1169 135 27 2319 Industry
Rotation
Highest Momentum Vol. Adj. 7.8% 19.2% 28.5% 1800 656 390 2318
1186 Growth
Highest Momentum 37.2% 14.6% 57.2% 3333 1800 390 656 6881
Growth
L12m ended
Quarterly Strategies 31/03/2015 L12-24M L24M Current Portfolio
31/03/2015 Investing Style
Lowest EV/L12M Sales 42.4% 4.2% 48.4% 2386 992 358 291 386
Value
Lowest 20Q Momentum 41.4% -10.0% 27.2% 1898 2600 494 1211 291
Value
Lowest EV/Invested Capital 41.3% -8.3% 29.6% 83 101 17 4 2386
Value
Lowest EV/L12M EBITDA 38.7% -7.8% 27.9% 2386 883 762 388 728
Value
Lowest EV/L12M EBIT 30.6% -9.0% 18.9% 2386 388 880 883 688
Value
Lowest 5yr Grwth Sales CAGR 28.9% -0.9% 27.7% 6 1114 2628 2600
489 Value
Lowest PE Est Current CY 27.3% -3.5% 22.9% 813 2007 998 939 3988
Value
Lowest PE Ratio 27.2% -8.2% 16.8% 6 20 3333 823 4 Value
Lowest PE Est. Next CY 22.1% 3.3% 26.1% 813 2007 998 939 3988
Value
Lowest Volatility 360D 18.4% -10.5% 5.9% 2 11 3 66 19 Value
Hang Seng 12.4% -0.7% 11.7%
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Edge Hong Kong April 2015 Executive Summary- What Strategies Are
Working Best? Top 14
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Edge Hong Kong April 2015 Executive Summary What Strategies Are
Working Best?
12/06/2015 11
Below are the recent stock charts by strategy for the companies
that are in the top strategies.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Executive Summary What Strategies Are
Working Best?
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Below are the recent stock charts by strategy for the companies
that are in the top strategies.
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Edge Hong Kong April 2015 Executive Summary- What Strategies Are
Working Best?
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Below are the recent stock charts by strategy for the companies
that are in the top strategies.
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Edge Hong Kong April 2015 Executive Summary What Strategies Are
Working Best?
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Below are the recent stock charts by strategy for the companies
that are in the top strategies.
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Edge Hong Kong April 2015 Executive Summary What Strategies Are
Working Best?
12/06/2015 15
Below are the key valuation multiples as at 31/03/2015 for all
the companies that currently appear this month in the top
strategies over two years
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Executive Summary- What Strategies Are
Working Best?
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Below are the key valuation multiples as at 31/03/2015 for all
the companies that currently appear this month in the top
strategies over two years
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Edge Hong Kong April 2015 Executive Summary What Strategies Are
Working Best?
12/06/2015 17copyright C 2015. www.lvxresearch.com
1) ) Price Momentum and Contrarian strategies were the best
performing strategies over the last two years. Buying the five
companies with the best six month share price performance and re
weighting each month would have generated +57.2% over the last two
years compared to the Hang Seng performance of +11.7 % ignoring
dividends and transaction costs for both. Adjusting for volatility
the top 5 shares adjusted monthly generated a return over two years
of +28.5%. Buying the top five momentum stocks ( iethose with the
largest price increases) over the last four quarters and five years
respectively would have generated +47.3% and +41.1% over two years
. Buying the bottom five momentum stocks ( ie those with the
largest price decreases) in the Hong Kong top 100 over the last
four quarters would have generated +43.8% over two years .
Following these methodologies the top five stocks this month would
be
-Highest 6 Month Momentum re weighted monthly: China
Communications Construction (1800), China Railway Group ( 390),
China Railway Construction (1186) ,Great Wall Motors (2333) and
China Galaxy Securities (6881). -Highest 6 Month Momentum
volatility adjusted re weighted monthly: China Communications
Construction (1800),China Railway Group ( 390), Great Wall
Motor(2333), Ping An Insurance (2318), Fosun International (656)
-Highest 4Q Momentum Q adj: China Railway Group (390), China
Communications Construction (1800), China Galaxy Securities (6881),
China Railway Construction (1186), Hong Kong Exchanges &
Clearing (388).-Highest 20Q Momentum Mthly adj: Galaxy
Entertainment (27), Great Wall Motor Company (2333), Brilliance
China (1114), TenCent Holdings (700), Haier Electronics
(1169)-Lowest 4Q Momentum Q adj: Macau Legend Development(1680),
SJM Holdings (880), (1128), Galaxy Entertainment (27), MGM China
(2282).
2) Contrarian Strategies - Investing in cyclicals and turn
around/recovery potential has been lucrative over the past two
years . The five companies in the Hong Kong Top 100 with the lowest
EV/Sales, and Return on Assets has generated respectively +48.4%,
and +37.0% . Following this methodology the top five stocks this
quarter would be : Lowest Enterprise Value to Sales: Sinopec
Engineering(2386), Jiangxi Copper (358), Lenovo Group (992), China
Resources Enterprise (291), China Petroleum & Chemical
(386).Lowest Return on Assets: Aluminium Corp of China (2600),
China Resources Enterprise (291), China Coal Energy (1898), BYD
Co(1211), Datang International Power (991).
3) Investing behind the five companies with the highest five
year growth in net income has generated +38.0% over the last two
years. The five top stocks this quarter following this methodology
would be : Galaxy Entertainment(27), Country
Garden(2007),Evergrande Real Estate (3333),Sands China
(1928),Longfor Properties (960)
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Edge Hong Kong April 2015 - Executive Summary What Strategies
Are Working Best?
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5) Investing behind the companies with the volatility generated
respectively +32.3%. Following this methodology the top five stocks
this quarter would be : BYD Co (1211), Shandong Weigao1066), China
Galaxy Securities( 6881), Macau Legend ( 1680), Great Wall Motor
(2333)
6) Hong Kong Top 100 Seasonality goes into the anomaly bucket .
Industries in particular exhibit seasonal performance effects that
are consistent from year to year for a variety of reasons. Buying
the five top performers in a month historically over the last ten
years, adjusting the portfolio monthly generated +74.3% over the
last two years and +20.7% over the last twelve months. Following
this methodology the top five stocks this month would be: Weichai
Power (2338), Wheelock & Co (20), Enn Energy Holdings (2688),
Tencent Holdings(700) and China Unicom(762)
7) The overall seasonal patterns of when the market historically
performs well and which industries do well in certain months has
also been a consistent driver of excess returns. As has the intra
month timing effect for when to buy and sell historically or indeed
increase of decrease exposures. All the back up figures for those
who are interested are in our appendices.
8) Fundamental Characteristics of Top performers: We analyse the
top 20 performers in the Hong Kong Top 100 each half and the
operating and financial multiples at the time, six months
previously, to see which metrics the companies shared. Over a three
year period the four metrics that were most present consistently
(25%+ of the time the outperforming companies were ranked in the
top 20 of the relevant metric) The most important metrics
historically are the highest volatility 360D (33.3%), highest 5
year growth in sales (33.3%), highest net debt/EBIT (28.3%),
highest return on assets (26.7%).
These strategies have worked well over the last 12 and 24 months
to generate above average rates of return but there are no
guarantees similar performance will be generate in the future. We
just provide the facts for strategies that are working historically
over the medium term.
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Edge Hong Kong April 2015 Monthly Seasonal Re Weighting -
Index
12/06/2015 19
What is the Strategy? Re weighting each month buy the stocks
that have outperformed in the relevant month historically over the
last ten trailing years. Industries in particular exhibit seasonal
performance effects that are consistent from year to year for a
variety of reasons The reasons could be timing of earnings
releases, major macro data, end of quarters or year end fund
manager adjustments, and holiday activity periods for example that
all affect liquidity and money flows and manager industry
tilts.This is the best month for the Hang Seng index on average
historically over the last ten years generating +4.3% making a
positive gain 80% of the time. Over the last five years has
generated a positive return; +0.94% generating a positive return
60% of the time.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Monthly Seasonal Reweighting -
Companies
12/06/2015 20
Following this methodology the top five stocks this month would
be: Weichai Power (2338) (+14.8%, 80% win ratio), Wheelock & Co
(20) (+9.1%, 100% win ratio), Enn Energy Holdings (2688) (+9.0%,
90% win ratio), Tencent Holdings (700) (4.8%, 60% win ratio) and
China Unicom ( 762) (+8.4%, 100% win ratio). Following this
approach for the last twelve months would have delivered +20.7%
compared to the Hang Seng Index return of 12.4%.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Monthly Re Weighting Momentum
12/06/2015 21
What is the Strategy? For mid cap and small cap stocks in
particular investing behind strong momentum trends has generated
good returns particularly in the last few years in industrials,
retail concept/business roll outs, buy and build strategies and
cyclical turnarounds, and prior to this resources and service
providers were major momentum beneficiaries. Using the HK top 100
as the universe, adjusting the portfolio monthly based on the best
trends in the market. Pure six month share price momentum as a
strategy performs well over long periods of time. More recently
momentum has performed extremely well with a concentrated portfolio
. Following the momentum methodology the top five stocks this month
are China Communications Construction (1800), China Railway Group (
390), China Railway Construction (1186) ,Great Wall Motors (2333)
and China Galaxy Securities (6881). Following this approach for the
last twelve months would have delivered +37.2% compared to the Hang
Seng return of +12.4%.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Monthly Re Weighting Momentum
Volatility Adjusted
12/06/2015 22
In the HK top 100 adjusting the portfolio for volatility i.e.
trying to find smooth upward trends generates good returns over the
medium term ( we use 2 year daily volatility to rank the highest
momentum for a given unit of volatility). Following the volatility
adjusted momentum methodology the top five stocks this month would
be China Communications Construction (1800),China Railway Group (
390), Great Wall Motor(2333), Ping An Insurance (2318), Fosun
International (656) . Following this approach for the last twelve
months would have delivered +7.8% compared to the Hang Seng return
of +12.4%.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Quarterly Re Weighting Momentum
12/06/2015 23
What is the Strategy? As a part of our quarterly fundamental
analysis we assessed different measures of quarterly price momentum
and contrarian strategies re weighting the portfolio quarterly;
which all generated strong returns. Following the highest 4Q
Momentum the portfolio this quarter would be China Railway Group
(390), China Communications Construction (1800), China Galaxy
Securities (6881), China Railway Construction (1186), Hong Kong
Exchanges & Clearing (388). Following this approach for the
last twelve months would have delivered +3.3% compared to the Hang
Seng return of 12.4%.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Quarterly Reweighting Momentum
12/06/2015 24
Following the highest 20Q Momentum the portfolio this quarter
would be : Highest 20Q Momentum Mthly adj: Galaxy Entertainment
(27), Great Wall Motor Company (2333), Brilliance China (1114),
TenCent Holdings (700), Haier Electronics (1169). Following this
approach for the last twelve months would have delivered -6.1%
compared to the Hnag Seng return of +12.4%.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Quarterly Re Weighting Momentum
12/06/2015 25
Lowest 4Q Momentum Q adj: Macau Legend Development(1680), SJM
Holdings (880), (1128), Galaxy Entertainment (27), MGM China
(2282). Following this approach for the last twelve months would
have delivered +15.3% compared to the Hand Seng return of
+12.4%.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
12/06/2015 26
What is the Strategy? We look at the fundamental multiples in
the market at the end of each quarter and rank the companies with
the highest and lowest metric and look at the
return results at the end of the next quarter continuing the
process. Over the last year in the market, what has performed from
a fundamental valuation perspective are
cyclical/contrarian strategies and hence companies with high
multiples of EBITDA, EBIT and PE have outperformed when compared to
low trailing and forward multiples. Non
mining companies that are turnaround candidates or expecting
cyclical lows performed very well, with low price to book ratios ,
low return on assets, low EBIT margins, low
multiples of invested capital, low price to sales ratios driving
extremely positive performance.
The other successful strategy was following quarterly earnings
increases which produced good successive quarter gains; many of the
companies being the cyclicals mentioned
previously.
Please note all of our analysis represents at the time data.
When the relevant decision point was taken we use the data was
present in the market at that date e.g. decision point 30
June 2013 would be based on L12M data to 31 December 2012 as the
30 June numbers would not have been released then; so they are a
true reflection of a decision at a point in
time.
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
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Edge Hong Kong April 2015 Fundamental Drivers - Quarterly Re
Weighting
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
12/06/2015 31
Following this methodology the top five stocks with the Lowest
Enterprise Value to Sales: Sinopec Engineering(2386), Jiangxi
Copper (358), Lenovo Group (992), China Resources Enterprise (291),
China Petroleum & Chemical (386). This methodology has
generated +42.4% in the last twelve months.Investing behind the
five companies with the highest five year growth in net income has
generated +6.6% over the last twelve months. The five top stocks
this quarter following this methodology would be : Galaxy
Entertainment(27), Country Garden(2007),Evergrande Real Estate
(3333),Sands China (1928),Longfor Properties (960)
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Fundamental Drivers - Quarterly Re
Weighting
12/06/2015 32copyright C 2015. www.lvxresearch.com
Investing behind the companies with the Lowest Return on Assets
generated +14.4% in the last twelve months Following this
methodology the top five stocks this quarter would be : Aluminium
Corp of China (2600), China Resources Enterprise (291), China Coal
Energy (1898), BYD Co(1211), Datang International Power
(991).Investing behind the companies with the highest volatility
generated -2.4% in the last twelve months. Following this
methodology the top five stocks this quarter would be : BYD Co
(1211), Shandong Weigao ( 1066), China Galaxy Securities( 6881),
Macau Legend ( 1680), Great Wall Motor (2333)
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
12/06/2015 33copyright C 2015. www.lvxresearch.com
Investing behind the companies with the EV/Invested Capital
generated +41.3% in the last twelve months Following this
methodology the top five stocks this quarter would be : Sino Land
(83), Hang Lung Properties (101),New World Development (17), Wharf
Holdings (4),Sinopec Engineering (2386).Investing behind the
companies with the highest divided yield generated +7.4% in the
last twelve months. Following this methodology the top five stocks
this quarter would be : Evergrande Real Estate(3333), SJM Holdings
(880), Sands China(1928), Country Garden (2007)
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
12/06/2015 34copyright C 2015. www.lvxresearch.com
Top 10 Fundamental/Market Strategies over the medium term - Last
2 Years HK
31/03/2015
Quarterly Strategies LQ L12M L12-24M L24M Current Portfolio
31/03/2015 Investing Style
Lowest EV/L12M Sales 11.4% 42.4% 4.2% 48.4% 2386 992 358 291 386
Value
Highest 4Q Momentum 2.8% -5.5% 55.8% 47.3% 390 1800 6881 1186
388 Growth
Lowest 4Q Momentum 0.2% 15.3% 24.8% 43.8% 1680 880 1128 27 2282
Value
Highest 20Q Momentum 3.8% -6.1% 50.2% 41.1% 27 2333 1114 700
1169 Growth
Highest 5yr Grwth Net Inc CAGR 0.8% 6.6% 29.5% 38.0% 27 2007
3333 1928 960 Value
Lowest Return on Assets 3.1% 14.4% 19.8% 37.0% 2600 291 1898
1211 991 Growth
Highest 8Q Momentum 23.3% 3.3% 29.6% 33.9% 700 656 257 2333 390
Growth
Highest Volatility 360D 9.6% -2.4% 35.5% 32.3% 1211 1066 6881
1680 2333 Value
Lowest EV/Invested Capital 8.2% 41.3% -8.3% 29.6% 83 101 17 4
2386 Value
Highest Dividend Yield L12M 7.4% 12.7% 14.5% 29.0% 3333 880 1928
2007 386 Growth
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly
Reweighting
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
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Edge Hong Kong April 2015 Fundamental Drivers Quarterly Re
Weighting
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Edge Hong Kong April 2015 Fundamental Characteristics of Top 20
Performing HK top 100 Companies
12/06/2015 40
What is the Strategy? We analyse the top 20 performers each
trailing six months measured monthly in the HK top 100 over the
previous trailing three years and determine what ranking within
operating and fundamental metrics they shared six months
previously. We then calculate the percentage of the time the top
performing 20 companies in the period were also ranked in the top
20 of that metric. The highest number shows what financial and
operating multiples are most important in driving subsequent
performance over the last three years over a broad portfolio.The
most important metrics historically are the highest volatility 360D
(33.3%), highest 5 year growth in sales (33.3%), highest net
debt/EBIT (28.3%), highest return on assets (26.7%).
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Fundamental Characteristics of Top 20
Performing HK top 100 Companies
12/06/2015 41
What is the Strategy? We analyse the top 20 performers each
trailing six months measured monthly in the HK top 100 over the
previous trailing three years and determine what ranking within
operating and fundamental metrics they shared six months
previously. We then calculate the percentage of the time the top
performing 20 companies in the period were also ranked in the top
20 of that metric. The highest number shows what financial and
operating multiples are most important in driving subsequent
performance over the last three years over a broad portfolio. This
analysis shows the metrics which have the least impact on
favourable performance.The least important metrics historically for
performance are the lowest volatility 360D (9.2%), lowest EV/Free
Cash flow (14.2%), and EPS Estimated next year (14.2%).
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Intra Month Timing Effect - Index
12/06/2015 42
What is the Strategy? Stock performance in Hong Kong depending
on the month is tilted [Strategy for subscribers only]
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Intra Month Timing Effect - Index
12/06/2015 43
In Hong Kong, [strategy for subscribers only]
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Intra Month Timing Effect -
Companies
12/06/2015 44
The top five performing stocks from the HK top 100 on average
over ten years: [Strategy for subscribers only]
copyright C 2015. www.lvxresearch.com
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Edge Hong Kong April 2015 Market Review and Health Check
12/06/2015 45copyright C 2015. www.lvxresearch.com
Long dated treasury bonds in the US act as a safe haven
attracting capital when markets get nervous or when economic
conditions are expected to turn down over the medium term. Looking
at simple trends of the 20 year bond price divided by the broad
market index historically has given an early warning of a
correction, comparing it to its moving average. This was the case
in 2008, in 2011, 2012. Medium term increases in volatility have in
the past signalled more difficult markets ahead, particularly as
the moving average starts to accelerate upwards.
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Edge Hong Kong April 2015 Market Review and Health Check
12/06/2015 46copyright C 2015. www.lvxresearch.com
Job growth in the US has been a focus of central banks and a
gauge of the health of the economy. Watching trends in its
deterioration particularly through moving average increases has
been a good indicator for more difficult markets and a trend
reversal in the US historically. Industrial production and leading
economic indicators when they breach their moving averages have
historically shown difficult markets ahead. The fed credit officer
survey for small business as to whether banks are tightening credit
is also a good indicator of the health of the economy because if
banks aren't lending to the biggest job creatorsin the economy
(small business) historically has been a predictor of a correction
in the markets
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Edge Hong Kong April 2015 Market Review and Health Check
12/06/2015 47copyright C 2015. www.lvxresearch.com
Watching the trend in earnings and the components of growth ,
have historically driven market performance and whilst there is a
lag, focusing on the most economically sensitive areas has
historically been accurate. US earnings growth has out performed
the rest of the world substantially since 2008, whereas Latin
America and Russia have underperformed as has Hong Kong. Asia has
performed well from an earnings perspective but not from a market
perspective
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Edge Hong Kong April 2015 Market Review and Health Check
12/06/2015 48copyright C 2015. www.lvxresearch.com
The US has been the strongest performer against the MSCI all
Country World index since the end of 2008
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Edge Hong Kong April 2015 Market Review and Health Check
12/06/2015 49copyright C 2015. www.lvxresearch.com
This chart shows the percentage of companies in the S&P 500
that are showing positive sales growth and those showing positive
earnings growth for 2014. These charts line up against the
performance during 2007 going into 2008. The internals of the
market look worse 2008 in terms of the percentage of companies
showing positive growth.
The right hand chart shows the percentage of consumer goods
companies in the S&P 500( the consumer makes up 70% of GDP)
that are showing positive sales growth and those showing positive
earnings growth for 2014. These charts line up against 2007 going
into 2008. The internals of the market are deteriorating in terms
of companies showing positive growth.
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Edge Hong Kong April 2015 Appendices
12/06/2015 50copyright C 2015. www.lvxresearch.com
Analysis throughout the document does not include transaction
costs or dividends. Returns are not actual they are based on
mathematical calculations of the historical performance of applying
different ranked investment strategies/metrics for stock selection.
Each strategy has the top five ranked shares re-weighted monthly or
quarterly depending on the strategy. There are no guarantees that
the strategies shown in this document will generate similar
performance to what they have generated in the past. We just
provide the facts for strategies that are working historically over
the medium term. Our analysis does not include transaction costs
which could be substantial or the effect of dividends or taxes.
Please note with how our analysis is conducted using the current
indices, longer term performance statistics can be skewed by
survivorship bias and may enter the benchmark because of high share
price momentum for example. We have not adjusted historically for
that factor so shorter term factors are more accurate. We provide
historical market and financial information for institutional,
professional investors and advisors. We do not provide general
advice or specific advice. Past performance is no guarantee of
future performance. This publication is general in nature and does
not take your personal situation into consideration. You should
seek financial advice specific to your situation before making any
financial decision. Please see our disclaimer on the main website
www.lvxresearch.com for more information. AFSL 338118.