Our CIO Charlie Chen once said, if more than half the trading days you feel you’re doing something wrong, or the market just works against you, that’s perfectly normal.
Unless you’re Bernie Madoff, the market will work against you. Down after you buy. Up after you sell. The pains of both holding out and missing out can be immense, especially in a volatile market like this. Hedging can reduce some pain but there is no perfect solution.
On one hand, we need to develop a high conviction to increase the risk tolerance. On the other hand, it’s important to control risk and aim for a superior risk-adjusted return. Today, the risk-adjusted return is not just an abstract number. It is the only attainable return perhaps. Without downside protection, you’d be out before the upside comes in, willingly or unwillingly.
In December 2022, we launched two stock indices to capture the potential opportunities from the reopening of Hong Kong and Macau.
MegaTrust Hong Kong Reopening Index, a portfolio of 39 stocks spanning gaming, tourism, retail, transportation, real estate and financial services etc. All companies are based in Hong Kong or Macau (e.g. Galaxy Entertainment), as opposed to those from mainland China (e.g. China Mobile). For more information, please click here.
MegaTrust Hong Kong Reopening Select Index, an actively managed subindex with 14 stocks currently. Consider this an “enhanced version” of the first index. Both indices are priced in HKD and managed by my colleague Anson Chau. You can reach Anson here.
Performance Summary
The Reopening Select Index is up nearly 2% in Q1 2023, while the original Reopening Index is roughly flat in the same period. This compares to a negative 2.28% return of the MSCI Hong Kong Index, which is the most appropriate benchmark, in our view. Our Hong Kong Reopening Select Index beat the MSCI benchmark by 4.2% so far.
The Reopening Select Index underperformed Hang Seng by around 1% in Q1. To be fair, our index contains mostly local Hong Kong stocks (at least 70% of the portfolio). Currently, it has no direct exposure to Chinese stocks in the Hang Seng Index, such as PetroChina (0857.HK, +34% in Q1), China Mobile (0941.HK, +27%), or Tencent (0700.HK, +21%). See below for full constituents of our Hong Kong Reopening Select Index.
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