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Shah Capital’s Top Global Picks For First Quarter

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Himanshu H. Shah‘s Shah Capital Management recently filed a 13F form with the Securities and Exchange Commission. Let us have a look at how well the fund’s top holdings are poised for the second quarter.

China Yuchai International Limited

Founded in 2005, Shah Capital is a global investor seeking out companies that pose as the best candidates for growth as compared to both their local and global competitors. Its founder, Himanshu H. Shah, worked for the Swiss financial services company UBS, for 10 years before launching his own venture. The fund is of a rather modest size with assets under management amounting to $194 million. The market value of Shah Capital’s equity portfolio stood at $114.61 million at the end of the first quarter. The fund’s top picks were: China Yuchai International Limited (NYSE:CYD), UTStarcom Holdings Corp (NASDAQ:UTSI), Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) and VimpelCom Ltd (ADR) (NASDAQ:VIP).

Insider Monkey tracks hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of 6 basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of 7 basis points per month between 1999 and 2012. These stocks were able to generate alpha because of their lower risk profile. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the Sx&P 500 Index by an average of 95 basis points per month. These stocks were slightly riskier, so their monthly alpha was 80 basis points (read the details here). We believe investors will be better off by focusing on small-cap stocks rather than large-cap stocks.

Shah Capital initiated a stake in China Yuchai International Limited (NYSE:CYD) in the first quarter of 2012 with some 2.27 million shares. Currently the stake stands at 2.51 million shares valued at $49.62 million and represents 43.30% of the fund’s equity portfolio. The manufacturer of diesel engines has been up by about 25% since it was added to Shah’s equity portfolio. Back in June 2013, Shah sent a letter to China Yuchai International Limited (NYSE:CYD)’s board of directors, urging them to unlock the true value of the company by taking steps such as increasing its stake in the subsidiary, Guangxi Yuchai to 100% from the 76.4% stake back then. A complete sale of holdings in real estate company HL Global Enterprises, as well as consumer electronics distribution company Thakral Corp was also advised. China Yuchai International Limited (NYSE: CYD) has recently announced its agreement with the Hong Kong based Shentou Investments for a joint venture YC Europe, which essentially involves selling Guangxi Yuchai’s off-road engines in Europe. Among other funds betting on China Yuchai’s prosperity is Jean-Marie Eveillard‘s First Eagle Investment Management.

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