This U.K. Hedge Fund that Previously Avoided Chinese Stocks Explains What’s Different Now

The Contrarius Global Equity Fund lost 2.9% for the first quarter, versus the MSCI World Index's 13.8% gain and the 12% return recorded by the average global equity fund. On an annualized basis, the Contrarius fund is up 9% over the last five years and 13.4% over the last three.

The U.K. multi-billion dollar hedge fund founded by Thomas Perkins (not to be confused with the late Thomas Perkins who co-founded the well-known venture-capital fund Kleiner Perkins) is registered in Australia and aims to outperform the MSCI World Index over the long term. However, as Contrarius is an actively managed fund, its holdings typically vary widely from the MSCI index.

The fund's investment strategy is long-term, contrarian and valuation-based. The Contrarius Global Equity Fund is overweight on selected communication services and consumer discretionary stocks and overweight on stocks in North America and Asia excluding Japan.

Picking up a trio of Chinese stocks

In their first-quarter letter to investors, which was obtained by Hedge Fund Alpha, the Contrarius team said they have largely avoided Chinese stocks in recent years even though many of them seem reasonably valued.