Aroau Capital Holding
ACH A-Share Fund No.8
Fund Overview
The ACH A-Share Fund No.8 is a wholesale managed investment scheme designed for investors seeking active management exposure to securities related to China. The fund predominantly invests in companies listed on the A-Share market and the Hong Kong Stock Exchange.
Investment Philosophy
China has often been a controversial investment destination due to its sentiment fluctuations. We believe that simply having passive exposure to China could expose investors to excessive downside risk as the economy undergoes a deleveraging cycle that may last for an extended period.
Conversely, having no allocation to China could result in opportunity costs. In such a dynamic economy undergoing structural shifts, capital misallocation from one sector to another occurs more frequently. This happens when returns from one sector have greater prospects than another, and when equities are generally out of favor, capital tends to shift towards government debt.
We invest based on a bottom-up, first principles approach and ignore sentiment noises from the broader market.
Our Approach
Investing in China, like any form of investing, should focus on mitigating downside risks. We invest in a concentrated portfolio of 5-7 high-conviction positions, all selected based on their limited downsides. Only after this assessment do we estimate a conservative path for growth, a derivate of the total addressable market for a company's products and the brand value of those products.
This approach leads us to conduct fundamental analysis of the core nature of demand and the potential for substitution. Conviction only forms when our analysis of the downside and our research confirm the upside in a meaningful manner.
Market Dynamics
In China, it may take time for investment theses to be reflected in specific securities. Many institutional investors are passive holders of indexes with little incentive to conduct bottom-up research. From a top-down perspective, the proliferation of pessimistic theories about China—often presented by "social scientists" whodo not have skin in the game—can cause investing in China to be influenced by emotions and so-called "scientific facts."
Additionally, regulation in China can contribute to market volatility, as decisions made by individuals without direct investment stakes can introduce randomness (volatility), or according to market theory, risk.
Our Commitment
The ACH A-Share Fund invests based on first principles, and it is crucial that our qualitative judgments on management's ability to operate on these principles are accurate. Our goal is to deliver superior returns for investors over a long investment horizon without exposing principal capital to excessive risk. While the market may experience significant volatility, the fund's objectives and investment approach remain steadfast.