Apollo Asia Fund

Upheaval and new perspectives
Apollo Asia Fund: the manager's report for 4Q2015

The Apollo Asia Fund's NAV rebounded by 5.0% in the fourth quarter, to US$1,839.82. A glance at the chart page will show that our markets have been weak and that relative performance remains respectable - but our objective is to make absolute returns, so it is disappointing to note that in US$ terms we have made little net headway over the last three years, and that the NAV is now 13.4% below the high of August 2014.

Geographical breakdown
by listing; 31 Dec 15
% of assets
Hong Kong
Vietnam, incl funds
Net cash & receivables

We have no confidence that markets will become easier any time soon. Many of the macro headwinds are intractable, political responses have been disappointing, and valuations remain high. We will continue to focus on the search for individual businesses of high quality, with managers of integrity, with the potential to prosper despite the challenges, and where valuations provide a reasonable prospect of reward.

We look mainly for companies that we hope to hold for ever - but then monitor changing conditions and the management response, and change our minds when necessary. Portfolio turnover in 2015 remained unusually low at 13%; we'd guess that it may be higher in the year ahead.

These words are being dictated to my computer. The last couple of months have been disrupted for me personally. A moment of inattention led to a minor fall and a remarkable amount of damage to my right wrist. There is plenty of jagged pavement outside our office, unrepaired since the insanity of the KL City Grand Prix, but the one that caught me out was in the south of Guangdong province. I was fortunate to receive excellent medical care in Yangjiang, and intriguing insights into the strengths of Chinese bonesetting and traditional medicine. I am not sure that this will be of any direct use to the fund, but you never know. The annual reports for one supplier of orthopaedic equipment have been downloaded and await my attention - although they seem to have strong competition in Asia from copycats.

I had been wishing that I had more time to read books, and will now remember to be careful what I wish for... but some of the books have been excellent:

Six Months in 1945 and Down with Big Brother by Michael Dobbs;
The Airmen and the Headhunters by Judith Heimann;
Hui Gui by Elsie Sze;
and the novels of C.J. Sansom.

I would also highlight After the Sheikhs by Christopher Davidson, and Early Voyaging in the South China Sea by Michael Flecker, both relevant to current political risks in Southeast Asia.

Our new global custodian, Northern Trust, took over from HSBC on 1 January. The Custodian is responsible for safeguarding the underlying assets of the Fund, and has no direct contact with our investors. There is no change in the Administrator: Apex Fund Services continues to serve in that capacity, handling subscriptions, redemptions, transfers and correspondence. Our auditor, KPMG, and legal advisor, Harneys, are unchanged since inception. We thank all of our current service providers for their professionalism and ongoing assistance.

After a long period of lacklustre performance, we also thank our investors for the confidence they have placed in us. We would like to manage expectations: market conditions remain difficult and the good returns achieved since inception seem most unlikely to be repeatable. However we can assure you that our interests are aligned with yours, and that we will redouble the search for good investments in 2016. Ideas from our investors remain, as always, most welcome.

Claire Barnes, 10 Jan 2016

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