Some investors might have come across Ezra Sun when he was at Newton, where he had a good track record managing Asian funds. In 2004 he joined Veritas Asset Management, a boutique investment firm established in 1993 and currently managing around $2.5 billion of assets.
Ezra Sun already manages two Asian funds for the firm, and it is now launching a specialised China Fund.
What makes this new fund unusual is that it is an absolute return fund – the first absolute return fund specialising in China which is available to UK private investors. It aims to produce a positive return in all market conditions, looking to take advantage of shares the manager believes will fall in value through a shorting strategy (please see below for an explanation), as well as profit from shares that rise in value.
As such, its performance will rely entirely on the ability of the manager to make the right decisions. If Ezra Sun’s stock picking proves positive, it could help lower volatility however, if he gets it wrong, losses will be magnified.
Ezra Sun is supported by a team of three individuals who will carry out economic and political analysis to help identify themes in the market. This is followed by analysis of individual companies to find those with stable dividend yields and strong earnings growth. It is these two factors which Ezra Sun believes will drive long-term returns in China.
On average the fund will have around 75% in larger companies, and it will also invest in smaller and medium sized companies as opportunities arise. The intention is to hold 50 to 100 companies depending on market conditions.
On a three to five year view, Ezra Sun aims to deliver an average annual return of 15-20%. The fund will have an annual charge of 1.5% plus a 20% performance fee on any positive return.
Ezra Sun has experience in managing a fund along similar lines since 2004 - the Veritas Real Return Asian Fund, although this fund has not been easily accessible to UK private investors. We are keen to see how this new fund performs, particularly during periods of volatility and falling markets. For this reason, the fund is not currently on the Wealth 150 list of our favourite funds in each sector.
Meera Patel, Senior Analyst
>> Key Features of the Veritas China Fund
>> Simplified Prospectus of the Veritas China Fund
Shorting – an explanation
Traditionally investors buy assets they believe will rise in value. Shorting is different.
The principle is that the fund manager actually sells shares they don’t own. This in effect means he owes the buyer the shares. The buyer agrees they will not take delivery of the shares for, say, six months and the fund manager hopes that by then the share price will have fallen. After six months the fund manager purchases the shares in the market and passes them on to his buyer. The difference between the two prices is the profit or loss. For example:
1. Fund manager sells short 10,000 shares at £2 each = £20,000
2. Purchase these shares six months later at 80p each = £8,000
3. Profit = £12,000
In this example had the share price risen by the same amount, it would have cost the manager more to purchase the shares than they made from selling them and they would have made a £12,000 loss. There are many ways of effecting this investment strategy and managers may short by entering into contracts with a broker and not actually take delivery of the shares. Therefore this is not an exact description of how it happens, and ignores transaction and other costs, but it hopefully explains the principle.
