On February 15, HHLR, an independent fund management platform under Hillhouse Capital focusing on secondary market investments, disclosed its US stock holdings data up until the end of the fourth quarter of 2024. This report underscores a significant commitment towards Chinese stocks (known as "Chinext" stocks), which have garnered considerable attention in the investment community.

The figures reveal a remarkable increase in HHLR's exposure to Chinese equitiesIn the second quarter of the previous year, these holdings made up 85% of their portfolio, and by the third quarter, this figure surged to 93%. By the end of the fourth quarter, 8 out of HHLR's top ten holdings were Chinese firmsKey players in this lineup included BeiGene and Alibaba, which retained their spots as the primary holdings, with notable mentions for Pinduoduo, NetEase, Beike, Vipshop, Legend Biotech, and Futu Holdings.

The commitment to Chinese assets demonstrates a clear strategic inclination that HHLR has maintainedUnder regulations outlined by the SEC, fund managers with assets exceeding $100 million are required to file a “13F form” within 45 days past the end of each quarter, detailing their stock and bond holdingsThis serves as a barometer for investors seeking insights into market trends.

Diving deeper into HHLR’s trading activities, during the fourth quarter, they expanded their positions by buying four new stocks, of which two were in the Chinese market—Agora and Zhihu (Momo). Furthermore, among the ten stocks that saw increased stakes during this quarter, four were also from the Chinese market, namely JD.com, Beike, Futu Holdings, and Dada GroupNotably, Agora experienced a staggering increase of over 200% from the end of September 2024 to date.

Futu Holdings, another significant holding for HHLR, witnessed its stock price more than double since the fourth quarter, indicating strong market confidence in its future operations

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Alongside these investments, HHLR also ventured into a Mumbai-based business process management company, WNS, which cracked into their top ten holdings, appreciating over 30% since mid-January.

When we reflect on the dynamics over the past year, HHLR's adjustments illustrate an evolving strategy shaped by the ever-changing economic landscapeFrom the initial tech-oriented investments focused on semiconductor and AI stocks in the first quarter to a substantial refocus on Chinese internet companies by the second quarter, the trend continued to solidify with further emphasis on Chinese equities in the subsequent quarter, culminating in a diversified investment palette by the fourth quarter.

In the first quarter, HHLR’s focus was palpable as they gravitated towards tech stocks, especially in the semiconductor and AI sectorsOut of 20 newly purchased stocks, more than half belonged to prominent semiconductor and electronic firms, including giants like AMD, Nvidia, and TSMCThis allocation was driven by a global boom, particularly the surge in generative AI technologies that stimulated soaring demand for computational powerHowever, this spurred a considerable divestment from Chinese stocks, as HHLR nearly sold out positions in JD.com, Alibaba, and iQIYI.

In the second quarter, a marked shift in investment tactics occurredThe most striking move was HHLR's drastic increase in their stake in Alibaba, moving from nearly exiting the position at the end of the first quarter to acquiring an additional 5.24 million shares in the second quarter, making it the third largest holding at 9.55%. This pivot not only seized upon perceived valuation corrections but also anticipated a revival in consumer spendingConcurrently, HHLR increased their holdings in Vipshop, NetEase, Trip.com, and entered into Futu Holdings, resulting in the Chinese stocks dominating 85% of their portfolio.

By the third quarter, the strategy grew even more concentrated, as HHLR lifted Chinese stock representation to 93%. Nine out of their top ten holdings were Chinese companies, spanning e-commerce, biopharmaceuticals, and online travel services

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BeiGene led the pack with an impressive quarterly gain of 57.36%.

During this time, HHLR grew increasingly cautious regarding US tech stocks, divesting entirely from AMD and substantially reducing their stake in MicrosoftThey also began aggressively scouting for fresh opportunities within the realms of AI and cloud computingThis reflected HHLR’s belief that despite the prevailing market complexities, technological innovation remains the primary catalyst for economic growth.

In the fourth quarter, HHLR's strategies diversified further into various areas, including technology, renewable energy, high-end manufacturing, and integrated circuits, demonstrating a robust multi-faceted investment strategy.

To mitigate risks and ensure return stability, HHLR adopted proactive measuresFor instance, after a substantial upswing in Pinduoduo's price, they opted to nibble on their positions to lock in profits, reducing stakes in 11 stocks including BeiGene, Alibaba, Trip.com, and SohuThis divestment trend also saw them completely exiting positions in Baidu and a global uranium mining ETF known as URA, along with companies like Huazhu and Meta.

For an extended period, BeiGene has been HHLR’s leading investment, with Hillhouse participating in and backing eight rounds of financing since 2014. By the fourth quarter of 2024, BeiGene’s stock hit a historic high not seen in 18 months, experiencing an increase of over 80% from April to OctoberIn December of the preceding year, BeiGene disclosed that HHLR and affiliated entities had reduced their holdings to 9.02%. At the same time, Alibaba's stock saw a 63% rise from July to October 2024 amidst a broader wave of re-evaluating Chinese tech stocks.

Trip.com realized an approximately 80% increase since August 2024, while Sohu’s stock peaked at its annual high in the fourth quarter.

Currently, as the US stock market sits at historical highs, HHLR’s portfolio adjustments in the fourth quarter seem to reflect a dual motive—a blend of securing profits and managing risks.

Interestingly, a day earlier, Bridgewater Associates revealed in its latest filing that they had built a position of 153,500 shares in Tesla, while massively reducing holdings in the other six tech giants dubbed the “Tech Seven” of the US stock market.

Despite these reductions, Google, Nvidia, Meta, and Microsoft still sit among Bridgewater’s top ten holdings, while Amazon and Apple experienced declines from 9th and 10th to 11th and 22nd positions, respectively

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