GaveKal UCITS Funds Newsletterfundpress.net/delcap/factsheets/2013/10/GAVEKAL_2013_10.pdfGaveKal UCITS Funds Newsletter October 2013 Page 1 Data Source: GaveKal Capital Limited/SGSS

GaveKal UCITS Funds Newsletter October 2013

Page 1

www.gavekal.com

Data Source: GaveKal Capital Limited/SGSS (Ireland) Limited/Morgan Stanley Capital International Inc. (“MSCI”)

Please see final pages for Important Disclosures

Louis-Vincent Gave

[email protected]

Contact

Suite 3101, Central Plaza

18 Harbour Road, Wanchai

Hong Kong

Tel: +852 3987 6255

Fax: +852 2877 5083

Fund Website:

http://www.gavekal.com/gcl-asia/

http://www.gavekalcapital.com/ucitsfund.php

Today’s key investment trends

From 2002 to 2011, investors only needed to have one idea to be

successful beyond their wildest dreams. And that idea was to simply buy

whatever Chinese people wanted to buy. With that single brain-wave, one

could build a portfolio of high-end Hong Kong or Vancouver real estate,

Bordeaux wines, gold, copper and oil, dairies in New Zealand, timber in

Canada, Chinese modern art, Hermes, LVMH, Caterpillar and Porsche

shares. In other words, put together a ‘diversified’ portfolio, which

nonetheless rotated mostly around two very important macro trends:

a) a 200m productive worker increase in China’s labor force and b) a

massive expansion in China’s balance sheets, starting with the central

government’s and trickling down to individual consumers’.

Unfortunately, with the Chinese labor force and Chinese balance sheets

no longer growing, the above investment thesis has now stalled and

investors have to structure portfolios around other key trends. For us, the

key trends of the coming years include:

Zero interest rate policies to stay in place for longer than people

expect, and the big question is whether this is inflationary, or

deflationary, for the global economy. At first glance, most investors

would probably assume that too low a cost of capital leads to high

money supply growth and, from there, to inflation. But what if,

simultaneously, too low a cost of capital allows zombie companies to

stay afloat, thereby lowering returns on capital for everyone? Or what

if no-cost capital encourages companies to replace ever more workers

with robots and machinery, thereby triggering long-term

unemployment amongst the unskilled and semi-skilled workforce? Or,

worse yet, what if the zero cost of money encourages companies to

leverage up in order to buy out their competitors and/or their own

shares, creating an economy with more leverage, and more

concentration of asset ownership, thereby leaving it prone to trip at the

slightest outside shock? For all these reasons, it seems that zero-

interest rate policies could actually end up being more deflationary,

and thus self-sustaining, then most expect?

The rapid internationalization of the renminbi, a frequent topic in

these pages, is increasingly encouraging Chinese exports to move up

the value chain. Combine this with China’s growing ability to finance

its emerging market customers’ purchases of machine tools,

excavators, roads, oil-rigs, ships etc… and increasingly China is

allowing the rest of the emerging world to industrialize ‘on the cheap’.

If nothing else, this means that capitalism’s deflationary ability to

produce more goods at cheaper costs is alive and well.

Commodity prices are falling. As we write, the CRB index is flirting

with a three-year low while the oil price stands at a four month low.

This is terrific news for a number of economies whose large current

account deficits—typically the direct result of high commodity

prices—have in recent months worried investors (whether India,

Southern Europe etc). At the same time, it is bad news for a lot of

emerging market indices where commodity-related equities are simply

too large a component in the index. As more commodity output

GaveKal UCITS Funds Newsletter October 2013

Page 2

www.gavekal.com



Louis-Vincent Gave

[email protected]

continues to come on stream, commodity prices will likely continue to

drag most countries’ inflation data lower, and will also rebalance trade

data that currently seems out of whack (for example, the US and

Canada trade deficit linked to energy is likely to continue shrinking

from the US$ 500bn per annum reached in 2007 to less than US$300bn

today and probably less than US$100bn by the end of the decade! )

Aggressive monetary policy under Abenomics entails that Japanese

private savers, with more than JPY 800 trillion sitting at the bank in

cash earning 0%, will continue to chase yield opportunities around the

world.

Putting it all together, it seems unlikely that the current global

deflationary trends will reverse in the coming quarters. Instead, investors

will likely return to chasing steady yield wherever that may be found; in

fact, we may be back to investors dreaming of portfolios that deliver

equity-like returns with bond-like volatility. Today, this is what we aim to

achieve, coming at the issue from different angles, in our various UCITS

funds.



Page 3

GaveKal Asian Opportunities UCITS Fund

The Fund’s Philosophy: Investing in Asia presents two major challenges for foreign investors: greater individual

company risk and abrupt changes in policies by governments whose processes are very different than those that

prevail in Western democracies. As a result, country risk tends to be a primary driver of return. Against this

landscape, we believe that two strategies fundamentally make sense for investors aiming to deliver better risk-

adjusted returns than equity benchmarks: a) a deep-value, bottom-up driven strategy or b) a strategy which aims to

identify where in Asia bull markets are the most likely to unfold, and then overweight the more aggressive, higher-

beta growth stocks in those countries. Of course, the downside of a focus on high-beta growth stocks is that when

equity bear markets occur, these can prove very damaging. This is why, in the GaveKal Asian Opportunities

UCITS Fund, we keep some of the fund’s capital invested in Asian fixed income. Through the combination of

these three books, the GaveKal Asian Opportunities UCITS fund aims to outperform the Asia-Pacific MSCI index

with a lower volatility. The fund offers daily liquidity with US$, Euro and GBP share classes.

Annualized Volatility and Returns Since Inception Historical Performance against Asia-Pacific MSCI

Review of the past month: As markets sold off yield instruments (whether bonds or dividend-paying stocks)

aggressively in the May-September period, the fund struggled and underperformed. Fortunately, this trend came to an

end in October and the fund outperformed the Asia MSCI by 94 basis points. Behind this outperformance, one finds: a)

the strong rebound in Philippines stocks (+7.92% for the MSCI Philippines) which helped contribute 75bp of relative

outperformance; b) a positive stock selection effect in Japan which contributed 25bp of outperformance. The fund has

now taken profits on some of the names that ran up the most (Softbank, Nomura) though maintains exposure to names

such as Panasonic (which should continue to curry investor favor as Tesla’s battery supplier), and other blue chips

(Honda, Toyota, Mitsubishi-UFJ, etc.). The fund’s very significant overweight on Chinese equity markets was not a

meaningful contributor to outperformance, though stock selection did contribute an addition +0.34% relative gain.

Against that, the fund’s underweight in Australia once again was a drag (-44bp), as were the minimal exposure to

Taiwan, Malaysia and Indonesia.

GaveKal Asian Opportunities UCITS Fund - Euro share class

Inception date: January 2006

Latest NAV (EUR A) 161.50 Annualized returns since inception 6.31%

Monthly % change 3.23% Annualized volatility since inception 13.25%

12m % change 6.61% Number of equity positions 50

Returns since inception 61.50% Information ratio 0.46

Fund AUM EUR 457m Firm AUM USD 1.6b

50

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GAOUF (EUR) Since Inception

GAOUF (EUR) MSCI ASIA TR (EUR)

GAOUF (EUR), 13.25%, 6.31%

MSCI ASIA TR (EUR), 15.00%,

2.20%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

12.00% 13.00% 14.00% 15.00% 16.00% 17.00% 18.00%

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GAOUF (EUR)



Page 4


Market Cap Exposure in US$ as % of Total NAV Fixed Income Allocation by Country as % of Total NAV

Equity Allocation by Country as % of Total NAV Top Ten Equity Positions

Currency Exposure as % of Total NAV Asset Allocation Over the Past Two Years

0

10

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Nov-1

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EQUITIES (Including Futures) BONDS CASH

HKD, 26.80%

USD, 15.43%

CNY, 13.32%

PHP, 10.76%

SGD, 10.12%

KRW, 7.97%

MYR, 5.67%

AUD, 3.51%

INR, 2.94%

TWD, 1.02%

THB, 1.01%EUR, 0.84%

IDR, 0.53%

JPY, 0.13%

GBP, -0.04%

EQUITY % of NAV

CK Infrastructure 2.80%

Hutchison Whampoa Ltd 2.57%

Samsung Electronics 2.48%

Megaworld 2.43%

Guangdong Investment Ltd 2.30%

Panasonic Corp 2.23%

Techtronic 2.09%

Metro Bank And Trust 1.89%

Hyundai Heavy Industries Co., Ltd. 1.88%

Tencent Holdings Ltd 1.86%

Total 22.53%

Singapore, 9.02%

China, 7.69%

Malaysia, 6.01%

Hong Kong, 3.22%

Indonesia, 0.53%

Korea, 0.40%

India, 0.16%

0%

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50%

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80%

90%

<1bn 1-5bn >5bn

% N

AV

Market Cap in US$

China, 20.25%

Japan, 16.83%

Philippines, 9.81%

Korea, 7.97%

Hong Kong, 7.46%

Australia, 3.50%

India, 2.94%

Singapore, 1.42%

Taiwan, 1.02%Thailand, 1.01%



Page 5


Fund Share Class Details

Fund Management and Service Providers Fund Terms

Launch Date 11 January 2006

Domicile Ireland

Share Classes A and B (Institutional), C (Retail)

Denomination EUR/USD/GBP (Income & Accumulation Shares)

Issue Price €100/$100/£100

Minimum Subscription A & B €250,000/$250,000/£250,000

Minimum Subscription C €10,000/$10,000/£10,000

Fees A & B 1.5% management fee p.a., no performance fee

Fees C 2% management fee p.a., no performance fee

Dealing Day Daily (every day that is a Business Day in Dublin and Hong Kong)

Valuation Day The Business Day prior to the relevant Dealing Day

Subscription and

Redemption Deadline5pm (Irish time); 2 Business Days prior to the relevant Valuation Day

Redemption Fee None

Fund Reporting Status Yes (Share Class B GBP only)

Investment Advisor GaveKal Capital Limited

Auditor Deloitte & Touche

Administrator Societe Generale Securities Services, SGSS (Ireland) Limited

Custodian Societe Generale

Legal Advisor Dillon Eustace (Ireland)

GAOUF (EURO A Share Class)

Inception Date: 11 Jan 2006

Net Performance % -0.31% 1.18% -1.25% -1.15% -4.51% -0.18% 1.23% 1.09% 1.87% 3.67% 2.49% 3.53% 7.63% 7.63%

MSCI ASIA PAC TR (EURO) Return 0.21% 2.02% 0.26% 0.64% -7.94% -0.37% 0.01% 2.00% 0.69% 2.29% -0.60% 3.67% 2.44% 2.44%

Net Performance % 1.75% -1.48% 2.98% 3.29% 6.38% 5.75% 4.18% -4.19% 5.86% 7.00% -6.76% 0.10% 26.57% 36.23%

MSCI ASIA PAC TR (EURO) Return 1.53% 0.94% -0.39% -1.03% 4.60% 1.21% 0.99% -1.85% 3.14% 3.29% -6.91% -1.68% 3.36% 5.88%

Net Performance % -11.88% 0.49% -9.42% 4.30% -3.01% -9.35% 0.96% -0.67% -4.53% -7.19% 1.72% -0.28% -33.71% -9.69%

MSCI ASIA PAC TR (EURO) Return -10.62% 0.75% -8.90% 9.41% 0.38% -9.83% -2.13% 1.03% -10.59% -11.19% -3.52% -1.23% -39.22% -35.64%

Net Performance % 4.92% -1.55% -1.46% 9.52% 6.72% 3.43% 8.14% -3.53% 5.12% -0.74% 3.09% 5.83% 46.14% 31.98%

MSCI ASIA PAC TR (EURO) Return 0.99% -8.58% 4.03% 12.66% 5.21% 1.80% 7.09% 0.91% 2.32% -1.89% -0.45% 7.03% 33.96% -13.79%

Net Performance % -0.78% 1.62% 5.25% 2.68% 3.20% 1.00% -1.25% 0.74% 0.66% 1.16% 5.01% -0.20% 20.56% 59.12%

MSCI ASIA PAC TR (EURO) Return 0.12% 3.35% 6.99% 2.68% -2.42% -0.15% -0.62% 0.86% 1.48% 0.26% 6.30% 4.49% 25.46% 8.17%

Net Performance % -2.57% -2.41% -1.97% -0.78% 1.46% -2.52% 2.47% -5.47% -1.42% -0.22% -0.32% 2.83% -10.66% 42.15%

MSCI ASIA PAC TR (EURO) Return -3.14% 0.11% -3.54% -1.58% 1.08% -1.71% 2.42% -8.53% -2.46% 4.71% -3.90% 4.12% -12.45% -5.30%

Net Performance % 2.82% 2.29% -0.52% 0.56% -1.83% -0.57% 4.73% -3.58% 3.41% -0.63% 3.56% 1.00% 11.47% 58.45%

MSCI ASIA PAC TR (EURO) Return 7.08% 2.91% -1.19% -0.16% -3.54% 2.05% 4.28% -2.58% 2.09% -1.10% 2.10% 2.33% 14.69% 8.61%

Net Performance % 2.03% 4.57% 2.22% 2.33% -0.86% -6.81% -3.21% -1.69% 0.64% 3.23% 1.92% 61.50%

MSCI ASIA PAC TR (EURO) Return 0.09% 5.45% 2.76% 2.32% -3.45% -3.15% -0.60% -0.79% 4.33% 2.23% 9.15% 18.55%

GAOUF (GBP Share Classes)

Class A Inception Date: 2 Feb 2010

Class B Inception Date: 1 Dec 2009

GBP B Share Class - Net Performance % 3.27% 3.27% 3.27%

MSCI ASIA PAC TR (GBP) Return B 3.91% 3.91% 3.91%

GBP A Share Class - Net Performance % 4.68% 5.88% 1.25% 2.41% -0.30% -1.71% 0.54% 0.71% 1.15% 4.68% 1.08% 22.05% 22.05%

GBP B Share Class - Net Performance % -3.13% 5.03% 5.86% 1.26% 2.41% -0.30% -1.70% 0.53% 0.70% 1.15% 4.69% 1.07% 18.60% 22.48%

MSCI ASIA PAC TR (GBP) Return B -2.14% 6.37% 6.76% 0.10% -4.93% -3.33% 0.86% 0.36% 6.23% 0.59% 2.38% 7.05% 21.20% 25.94%

GBP A Share Class - Net Performance % -2.67% -3.18% 2.20% -0.31% -0.37% 0.79% -0.66% -4.52% -3.99% 1.74% -2.83% 0.35% -12.91% 6.29%

GBP B Share Class - Net Performance % -2.67% -3.18% 2.19% -0.31% -0.37% 0.79% -0.67% -4.52% -3.98% 1.73% -2.84% 0.36% -12.92% 6.66%

MSCI ASIA PAC TR (GBP) Return B -3.48% -0.54% 0.39% -1.05% -0.50% 1.54% -0.75% -7.47% -5.32% 7.00% -6.35% 1.66% -14.66% 7.47%

GBP A Share Class - Net Performance % 2.11% 3.25% -0.99% -1.65% -3.24% 0.14% 1.74% -2.66% 3.82% 0.32% 4.49% 0.95% 8.23% 15.04%

GBP B Share Class - Net Performance % 2.11% 3.25% -1.00% -1.64% -3.25% 0.14% 1.73% -2.65% 3.82% 0.32% 4.50% 0.94% 8.22% 15.43%

MSCI ASIA PAC TR (GBP) Return B 6.35% 3.92% -1.70% -2.41% -5.07% 2.65% 1.52% -1.70% 2.70% -0.26% 3.00% 2.52% 11.51% 19.85%

GBP A Share Class - Net Performance % 7.69% 5.19% 0.38% 2.50% 0.04% -6.58% -1.09% -4.32% -1.31% 4.50% 6.34% 22.33%

GBP B Share Class - Net Performance % 7.69% 5.19% 0.37% 2.50% 0.05% -6.58% -1.08% -4.32% -1.31% 4.50% 6.32% 22.73%

MSCI ASIA PAC TR (GBP) Return B 5.41% 6.17% 0.68% 2.63% -2.52% -2.97% 1.52% -3.24% 2.25% 3.59% 13.81% 36.40%

* Note: MSCI Asia Pac TR (GBP) returns based off of 1 December 2009 start date

GAOUF (USD A Share Class)

Inception Date: 9 Mar 2010

Net Performance % 1.25% 0.18% 2.55% -0.03% 5.02% -1.72% 8.12% 2.99% -1.65% 2.85% 20.89% 20.89%

MSCI ASIA PAC TR (USD) Return 2.23% 0.70% -9.61% -0.45% 5.79% -1.92% 8.92% 2.44% -0.40% 7.11% 14.43% 14.43%

Net Performance % -0.43% -1.69% 0.72% 3.73% -1.69% -1.68% 1.56% -5.29% -8.13% 5.43% -5.34% -0.84% -13.56% 4.50%

MSCI ASIA PAC TR (USD) Return -0.74% 0.80% -0.75% 2.83% -2.05% -0.73% 1.51% -8.35% -8.97% 10.26% -8.75% 0.34% -15.11% -2.86%

Net Performance % 3.68% 4.52% -0.96% -0.05% -8.29% 2.04% 1.64% -1.31% 5.54% 0.09% 3.95% 2.38% 13.21% 18.30%

MSCI ASIA PAC TR (USD) Return 8.00% 5.16% -1.37% -0.93% -9.85% 4.42% 1.44% -0.48% 4.57% -0.38% 2.35% 3.86% 16.78% 13.44%

Net Performance % 5.05% 0.71% 0.41% 5.06% -2.55% -6.56% -1.13% -2.37% 3.32% 3.69% 5.08% 24.31%

MSCI ASIA PAC TR (USD) Return 3.02% 1.56% 0.71% 5.01% -4.82% -2.90% 1.47% -1.32% 6.91% 2.75% 12.47% 27.59%

Nov DecCalendar

Year

Perf. Since

InceptionJun Jul Aug Sep OctJan Feb Mar Apr May

MayPerf. Since

InceptionJun Jul Aug Sep Oct

2010

Nov DecCalendar

YearJan Feb Mar

Jun Jul

2010

2007

2008

2009

Jan Feb

2006

Mar Apr MayPerf. Since

Inception

Calendar

YearAug Sep Oct Nov Dec

2011

2012

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2009

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2013

2013

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Apr

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Page 6

GaveKal Knowledge Leaders UCITS Fund

The Fund’s Philosophy: The fund was launched on the belief that the world’s most undervalued asset was the

knowledge embedded in so many of the Western world’s leading companies. And the reason that “knowledge” is

undervalued is that all too often spending on research, development, branding, staff training, delivery processes,

big data, etc… is simply treated as expenses, run through the income statement, and not capitalized properly on the

balance sheet. The fund’s premise is thus that, by going through a given company’s R&D spending, branding

expenses and other key, yet poorly accounted for, investments, one can get an idea of a company’s “intangible

capital” net worth and a better picture of what should constitute fair value.

Companies with a large stock of unrecognized and undervalued intangible capital should typically generate

recurrent cash flows with a lower volatility than companies which depend on a stock of physical capital to generate

cash-flows. As such, the share price performance of what we have come to call “platform companies” and

“knowledge leaders” should prove less volatile than that of the overall market. And a well-diversified, non-

concentrated, portfolio of “knowledge leaders” should, over the life of cycle, deliver better risk-adjusted returns

then that of the global equity markets.

GaveKal Knowledge Leaders Fund - USD share class

Inception date: September 2006

Latest NAV 151.53 Annualized returns since inception 6.02%

Monthly % change 3.15% Average monthly returns 0.59%

12m % change 14.87% 12m volatility 7.55%

Returns since inception 51.53% Sharpe ratio (12 months) 1.96%

Fund AUM USD 161m Firm AUM USD 1.6b

Annualized Volatility and Returns Since Inception Historical Performance against MSCI World

Review of the past month: As stable, cash-flow generating and dividend payment companies once again gained

the market’s favor (after a tough May to September period), October was a better month for the Knowledge

Leaders UCITS fund. The fund gained +3.15% against a gain the World MSCI of +3.91%. Behind this mild under-

performance, a few key factors, not least of which was the allocation to cash & treasury bill ETF (-128bp drag).

Still, with stocks continuing to display very high levels of correlations, diversification through cash remains the

only way to genuinely cushion volatility. The second largest source of underperformance was to be found in the

-55bp stock selection effect in the Information Technology sector. Indeed, in October, the MSCI World Info Tech

Index rose +3.6% but Apple accounted for more than 30% of that return. Unfortunately, the fund did not own

Apple. Against this, the fund’s overweight to the healthcare sector was rewarded as the sector bounced back,

allowing the fund to trim position and take profits on such names as Zimmer Holding, Medtronic & Bristol-Myers

Squibb. As a group, the allocation to healthcare stocks contributed 96bp of relative outperformance.

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GKLF (USD) Since Inception

GKLF (USD) MSCI DAILY TR NET WORLD (USD)

GKLF (USD), 15.47%, 6.02%

MSCI DAILY TR NET WORLD

(USD), 18.35%, 4.41%

-2.00%

0.00%

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Page 7


Currency Exposure as % of Total NAV Market Cap Exposure as % of Total NAV

Sector Exposure as % of Equity Positions

Country Exposure as % of Equity Positions

Asset Allocation Over the Past Two Years

Top Ten Equity Positions

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EQUITIES CASH

EQUITY % of NAV

Bristol Myers Squibb Co 2.14%

Henry Schein Inc 2.10%

Koninklijke Ahold Nv 2.10%

St Jude Medical Inc 2.08%

Qiagen Nv 2.04%

Illinois Tool Works Inc 2.04%

Stryker Corp 2.02%

Medtronic Inc 1.99%

Pepsico Inc 1.95%

Zimmer Holding Inc 1.94%

Total 20.42%

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Market Cap in US$

USD, 70.68%

JPY, 9.52%

EUR, 9.38%

GBP, 5.74%

CHF, 3.31% SEK, 1.36%

United States, 57.46%Cash, 19.27%

Netherlands, 5.62%

United Kingdom,

4.37%

Japan, 4.15%

Switzerland, 3.43%

Germany, 3.38%

Ireland, 1.25%

France, 1.07%

Health Care, 31.81%

Information Technology, 21.21%

Cash, 19.27%

Consumer Staples, 9.91%

Consumer Discretionary, 9.37%

Industrials, 7.36%

Telecommunication, 1.07%



Page 8




Investment Advisor GaveKal Capital Limited Non-discretionary Sub Advisor GaveKal Capital, LLC


Administrator Societe Generale Securities Services, SGSS (Ireland) Limited Custodian Societe Generale Legal Advisor Dillon Eustace (Ireland)

Launch Date 1 September 2006 Domicile Ireland

Share Classes A and B

Denomination USD/GBP

Issue Price $100/£100 Minimum Subscription A $20,000 or its equivalent

Fees A & B 2% management fee p.a., no performance fee Dealing Day Daily (every day that is a Business Day in Dublin and Hong Kong) Valuation Day The Business Day prior to the relevant Dealing Day Subscription and Re-

demption Deadline 5pm (Irish time); 2 Business Days prior to the relevant Valuation

Day Redemption Fee None

Share Class ISIN Share Class A USD IE00B1DS1042 Share Class B GBP IE00B895LT75

Net Performance % 0.16% 2.84% 0.96% 2.16% 6.24% 6.24%

MSCI WORLD (USD) Return 0.72% 3.67% 2.45% 2.03% 9.15% 9.15%

Net Performance % 2.94% -0.07% 2.84% 2.72% 2.62% 1.71% 0.29% -1.11% 8.14% 6.59% -4.59% 0.78% 24.67% 32.45%

MSCI WORLD (USD) Return 1.18% -0.52% 1.83% 4.41% 2.80% -0.77% -2.21% -0.08% 4.76% 3.07% -4.09% -1.29% 9.04% 19.02%

Net Performance % -12.14% -0.10% -1.07% 4.12% 1.20% -7.01% 2.72% 0.10% -6.71% -17.65% -7.91% 3.16% -36.16% -15.44%

MSCI WORLD (USD) Return -7.64% -0.58% -0.96% 5.26% 1.52% -7.98% -2.44% -1.40% -11.89% -18.96% -6.47% 3.21% -40.71% -29.44%

Net Performance % -7.33% -8.44% 6.36% 7.23% 3.53% 1.58% 8.30% 0.68% 5.36% -1.93% 3.76% 3.43% 23.05% 4.05%

MSCI WORLD (USD) Return -8.76% -10.24% 7.54% 11.22% 9.06% -0.45% 8.47% 4.13% 3.99% -1.78% 4.09% 1.80% 29.99% -8.28%

Net Performance % -4.09% 2.01% 5.72% 1.90% -7.68% -3.82% 5.92% -4.11% 8.71% 3.77% -1.56% 4.18% 9.95% 14.40%

MSCI WORLD (USD) Return -4.13% 1.41% 6.19% 0.01% -9.54% -3.47% 8.11% -3.73% 9.32% 3.73% -2.16% 7.35% 11.76% 2.51%

Net Performance % -0.20% 3.14% -0.61% 4.20% 1.00% -0.15% -0.37% -3.90% -1.50% 5.99% -2.07% 0.89% 6.18% 21.47%

MSCI WORLD (USD) Return 2.26% 3.50% -0.99% 4.25% -2.07% -1.58% -1.81% -7.05% -8.64% 13.69% -8.91% 3.89% -5.54% -3.17%

Net Performance % 4.39% 1.57% 2.55% -0.70% -3.94% 2.65% 0.49% 1.79% 1.90% -2.12% 0.59% -1.23% 7.90% 31.07%

MSCI WORLD (USD) Return 5.02% 5.21% 0.97% -1.14% -8.63% 5.10% 1.29% 2.54% 2.75% -0.68% 1.28% 1.88% 15.83% 12.16%

Net Performance % 3.77% 1.01% 3.70% 1.87% -0.86% -0.38% 3.21% -2.91% 2.28% 3.15% 15.61% 51.53%

MSCI WORLD (USD) Return 5.09% 0.17% 2.35% 3.14% 0.04% -2.46% 5.26% -2.13% 5.00% 3.91% 21.89% 36.70%

NovGKLF (USD A Share Class)

Jan Feb Mar Apr Jun Jul Aug Sep OctMay

2013

Dec

2008

2009

2010

2011

2012

Calendar

Year

Perf. Since

InceptionInception Date: 1 Sept 2006

2006

2007



The Fund’s Philosophy: The 2008 crisis, along with the aggressive quantitative easing policies which ensued,

were a wake-up call for most emerging markets, not least of which was China. Basically, relying on an uncertain

US dollar to finance the rapidly growing intra-emerging market trade no longer made sense. Just as Europe had to

start embracing the deutschmark as a means of exchange in the 1970s, emerging markets have begun to embrace

the renminbi. For China, transforming the RMB into a trading currency presents some risk (namely the gradual loss

of control over the domestic financial industry), but it is also key in helping China move up the export value chain,

away from high volume and low margin consumer goods, and towards high margin capital goods. Indeed, in order

to help boost capital goods exports, China needs to be able to offer financing terms; and one would always rather

do this in one’s own currency rather than that of the competitor’s. Thus, the internationalization of the RMB is key

to China’s continued export growth. But this internationalization can only occur if the RMB is perceived as being a

strong currency, and if the RMB bond market is seen as stable. This is why, in recent years, the Chinese

government has proven itself willing to sacrifice the Chinese equity market, and even growth, to ensure stability in

the fixed income and exchange rate markets. The RMB bond market offers one of the more attractive risk-reward

investment propositions today.

Page 9

GaveKal China Fixed Income UCITS Fund

GaveKal China Fixed Income Fund - USD share class

Inception date: March 2012

Latest NAV 113.49 60-Day Realized Daily Volatility 1.66%

Monthly % change 1.75% Weighted Modified Duration 2.34

12m % change 9.32% Weighted Yield to Maturity 4.68%

Returns since inception 13.49% Number of positions 53

Fund AUM USD 181m Sharpe Ratio 2.32

Strategy AUM USD 335m Firm AUM USD 1.6b

Annualized Volatility and Returns Since Inception Historical Performance vs. Benchmark

Review of the past month: Another very solid month for the GaveKal China fixed income UCITS fund. In fact,

since June of 2012 (when Christine Cheung joined GaveKal as PM of the Asian fixed income books), the fund has

recorded 16 months of positive monthly performance (out of 17) and 15 months (out of 17) of relative

outperformance. The pictures below tell the story best: how many asset classes have delivered, in the past two years,

roughly 8% annualized returns with a volatility below 3.5%? Indeed, as the chart on the right illustrates, Chinese

offshore bonds have, in the past two years, not only provided higher returns than either short-dated, or long-dated,

US treasuries, but have in fact provided better diversification for portfolios.

As our reader might recall, this was the core belief that led us to launch the GaveKal China Fixed Income UCITS

fund. Indeed, as China looks to internationalize the RMB, and move its exports up the value chain, delivering a

strong currency, and a stable bond market, is essential. In turn, this offers a great opportunity to investors.

GCFIF (USD), 3.35%, 7.89%

HSBC OFFSHORE

RMB INVESTMENT

GRADE BOND (USD), 2.83%,

4.46%3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2.80% 3.00% 3.20% 3.40% 3.60% 3.80%

An

nu

alize

d R

etu

rn


GCFIF (USD)

90

95

100

105

110

115

Fe

b-1

2

Ma

r-1

2

Ap

r-1

2

Ma

y-1

2

Ju

n-1

2

Ju

l-1

2

Au

g-1

2

Se

p-1

2

Oct-

12

No

v-1

2

De

c-1

2

Ja

n-1

3

Fe

b-1

3

Ma

r-1

3

Ap

r-1

3

Ma

y-1

3

Ju

n-1

3

Ju

l-1

3

Au

g-1

3

Se

p-1

3

Oct-

13

GCFIF (USD) Since Inception

GCFIF (USD)

HSBC Offshore RMB Investment Grade Total Return (USD)

Barclays US Aggregate Government - Long - Index



Page 10


Top Ten Positions

Duration Exposure

Ratings Breakdown vs. Benchmark

Underlying Country Exposure

Sector Exposure Currency Exposure

BONDS % of NAV

GLOBAL LOGISTIC PROPERTI (GLPSP 4 05/11/18) 5.28%

BANCO BTG PACTUAL/CAYMAN (BTGPBZ 4.1 03/26/16) 4.95%

CHINA GENERAL NUCLEAR (CHGDNU 3 3/4 11/01/15) 4.51%

CIFI HOLDINGS GRP (CIFIHG 12 1/4 04/15/18) 4.47%

AVIC INTL FINANCE INVEST (CATIC 4.8 07/09/15) 3.66%

SUNAC CHINA HOLDINGS LTD (SUNAC 9 3/8 04/05/18) 3.28%

BP CAPITAL MARKETS PLC (BPLN 3.95 10/08/18) 3.24%

VEOLIA ENVIRONNEMENT (VIEFP 4 1/2 06/28/17) 2.84%

YUZHOU PROPERTIES CO (YUZHOU 8 3/4 10/04/18) 2.84%

SK GLOBAL CHEMICAL INVES (SKGLCH 4 1/8 09/26/16) 2.77%

Total 37.83%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

Fund Benchmark

China, 39.25%

Latin America, 10.94%

India, 10.13%

Singapore, 7.73%

UK, 5.38%

France, 4.04%

Russia, 3.59%

Korea, 2.77%

Hong Kong, 2.44%

Germany, 2.10%

Japan, 1.89%USA, 1.85% Malaysia,

1.19%Middle East,

0.47%

CNH75.02%

USD22.76%

EUR2.19%

SGD0.03%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

0-1 1-2 2-3 3-4 4-5 10-11

Duration Exposure of GCFIF

0% 5% 10% 15% 20% 25% 30%

Water

Transportation

Telecommunications

Real Estate

Oil&Gas Services

Oil&Gas

Multi-National

Miscellaneous Manufactur

Machinery-Diversif ied

Insurance

Home Furnishings

Electric

Diversif ied Finan Serv

Commercial Services

Chemicals

Banks

Auto Manufacturers

Aerospace/Defense



Page 11




Launch Date 1 March 2012 Domicile Ireland Share Classes A

Denomination USD/EUR Issue Price $100/€100 Minimum Subscription A $50,000 Fees A & B 0.5% management fee p.a., no performance fee Dealing Day Daily (every day that is a Business Day in Dublin and Hong Kong) Valuation Day The Business Day prior to the relevant Dealing Day

Subscription and Re-


Day 5pm (Irish time); 5 Business Days prior to the relevant Valuation

Redemption Fee None

Share Class Bloomberg Ticker ISIN

Share Class A USD GACHFIU ID IE00B734TY42

Share Class A EURO GACHFIE ID IE00B7LZ3N65

Investment Advisor GaveKal Capital Limited


Administrator Societe Generale Securities Services, SGSS (Ireland) Limited

Custodian Societe Generale

Legal Advisor Dillon Eustace (Ireland)

Net Performance % -0.69% -0.17% -1.28% 0.80% 0.72% 0.85% 1.63% 1.94% 1.41% 0.92% 6.24% 6.24%

HSBC Offshore Renminbi Investment

Grade Total Return (USD)0.02% 0.08% -1.15% 0.60% -0.06% 0.24% 0.64% 1.59% 0.74% 0.48% 3.20% 3.20%

Net Performance % 1.15% 0.49% 0.38% 1.59% 0.56% -1.91% 0.73% 0.92% 1.01% 1.75% 6.82% 13.49%


Grade Total Return (USD)1.03% 0.17% 0.67% 1.29% 0.58% -2.18% 0.70% 0.43% 0.38% 1.09% 4.21% 7.54%

Net Performance % -0.58% 0.44% 5.68% -1.79% 3.79% -1.48% -0.42% 1.21% 1.03% -0.44% 7.43% 7.43%


Grade Total Return (EUR)-0.10% 0.86% 5.77% -1.69% 2.75% -1.87% -1.74% 0.85% 0.50% -1.00% 4.14% 4.14%

Net Performance % -1.76% 4.34% 2.20% -1.05% 2.30% -2.19% -1.40% 1.64% -1.61% 1.30% 3.60% 11.30%


Grade Total Return (EUR)-1.84% 4.00% 2.72% -1.29% 2.03% -2.43% -1.36% 0.98% -2.05% 0.58% 1.12% 5.31%

Perf. Since

Inception

2012

Nov DecCalendar

YearInception Date: 1 March 2012Jun Jul Aug Sep Oct

GCFIF (EUR A Share Class)

Jan Feb Mar

2013

2013

Perf. Since

InceptionInception Date: 1 March 2012

2012

Jun Jul Aug Sep Oct Nov

GCFIF (USD A Share Class)

Jan Feb DecCalendar

YearMar Apr May

Apr May



GaveKal Dynamic Futures Fund - USD share class

Inception date: February 2013

Latest NAV 129.09 VaR (99%,20 days) as of 29 October 2013 10.43%

Monthly % change 4.17% Gross Exposure at month end 145.4%

3m % change 5.44% Net Exposure at month end +112.8%

Returns since inception 29.09% Number of Positions 12

Fund AUM USD 19.72m Firm AUM USD 1.5b

Review of the past month: With global equity market

positive momentum gaining traction following a tough

summer, the month of October was rewarding for most

CTA strategies, including the GaveKal Dynamic Futures

UCITS Fund. Indeed, the fund posted its ninth positive

month in a row, with an encouraging +4.17% gain. This

helped bring returns to almost 30% since launch in

February. For the month, positions in the S&P500 futures,

the Booster Eurozone and the FTSE 100 were the largest 3

positive contributors to performance.

The Fund’s Philosophy: The Fund’s objective is to achieve capital growth by investing in, or gaining exposure to diversified portfolio of international equity indices primarily through the use of futures. The Fund uses futures contracts to take a directional view on particular equity indices, whether by (i) being short futures in order to benefit from anticipated downward corrections in the pricing of equity indices; or (ii) being long futures in order to benefit from upwards movements in the pricing of equity indices. In order to identify trends, and shifts in trends, the Fund relies on technical and quantitative indicators and models. Those indicators/models include data or signals related to prices, volume, breadth, investor sentiment and volatility. In a first place, the manager identifies a trend. In the second place, the manager will estimate the probability for the trend to continue by using a series of indicators. If a trend is anticipated to continue with a good degree of probability, the manager takes a position in a corresponding futures.

October Contribution

Topix

Hang Seng

CAC 40

DAX 30

EuroStoxx 50

FTSE 100

SMI 30

S&P 500

DJIA 30

Nasdaq 100

Russell 2000

Booster EZ

Booster US

October Top 10 Active Position

DJIA 30 Futures +19.3 %

S&P500 E-mini Fut. + 19.2 %

SP500 Futures + 17.4 %

FTSE 100 Futures + 16.5 %

Nasdaq 100 Fut. + 12.4 %

SMI Futures + 10.2 %

EURO STOXX 50 Fut. -9.8 %

Topix Futures + 8.4 %

DAX 30 Futures + 6.0 %

Hang Seng Fut. + 5.2 %

Exposure: By the end of October, the Fund had a long

position, having kept a moderately leveraged position

the whole month. 0.02%

0.03%

0.24%

0.23%

0.46%

0.56%

0.08%

0.83%

0.43%

0.34%

0.20%

0.63%

0.12%

Page 12

GaveKal Dynamic Futures UCITS Fund



Launch Date 21 February 2013 Domicile Ireland Denomination USD Issue Price $100 Minimum Subscription $20,000 Fees 0% management fee p.a., 20% performance fee with High Water

Mark Dealing Day Weekly (every Wednesday that is a Business Day in Dublin) Valuation Day The Business Day prior to the relevant Dealing Day Subscription and Re-



Investment Advisor GaveKal Capital Limited Sub Investment Advisor GaveKal Investments Auditor Deloitte & Touche Administrator Societe Generale Securities Services, SGSS (Ireland) Limited Custodian Societe Generale Legal Advisor Dillon Eustace (Ireland)


Share Class Bloomberg Ticker ISIN Share Class A USD GAVDYNA ID IE00B7LBLW93


Leverage is double-edged sword which, when mis-

managed, can destroy a good performance in a few

days. Still, when carefully integrated, leverage helps

improve returns while keeping overall risk under con-

trol. Of course, under control does not mean zero risk,

as the fund can testify! In the chart on the right, the

red circles represent bad weekly performance num-

bers linked to being in the wrong direction, made

worse through the use of leverage.

The use of leverage must be controlled and timely.

Since the inception of the fund nine months ago, lev-

erage has been used only part of the time and most of

the time with accuracy and with positive results.

After the late October rally, what’s next?

Trend: Trends gained momentum in most markets.

Without a formal reversal, the “trend is your friend”.

Sentiment: We are approaching the warning level of

over confidence. Sentiment should be the key element

to spot the next correction.

Exhaustion/Technicals: While oscillators like the

weekly RSI remain within the typical range of a bull

market, small negative divergences arose in October.

Breadth: The Global Breadth measure (the percent of

indices above their 100-day MA—see chart) shows

gradual progression of higher highs and higher lows.

This indicates a reasonably healthy environment,

though it does not rule out small corrections.

Focus On The Leverage

What’s Next?

Jan Feb Mar May Jun Jul Aug Sep GDFF

Inception Date: 21 Feb 2013 Nov Dec Oct

Calendar

Year

Perf. Since

Inception Apr

Net Performance %

2013 0.47% 3.13% 7.19% 2.62% 4.36% 0.74% 0.47% 4.17% 29.09% 29.09% 2.93%

NAV 100.47 103.61 114.32 117.32 122.43 123.34 123.92 129.09 106.65

Page 13

GaveKal Dynamic Futures UCITS Fund



GaveKal Dynamic Futures Euro Currency Fund - EUR share class

Inception date: September 2013

Latest NAV 102.61 VaR (99%,20 days) as of 29 October 2013 10.61%

Monthly % change 4.00% Gross Exposure at month end 143.8%

3m % change N/A Net Exposure at month end +112.8%

Returns since inception 2.61% Number of Positions 12

Fund AUM EUR 18.44m Firm AUM USD 1.5b

Review of the past month: With global equity markets

gaining momentum, October was a rewarding for most

CTA type strategies, including the GaveKal Dynamic

Futures (Euro) UCITS Fund which gained + 4.0%. In term

of indices, the S&P500, the Booster Eurozone and the

Footsie 100 were the top 3 performers.

The Fund’s Philosophy: The Fund’s objective is to achieve capital growth by investing in, or gaining exposure to diversified portfolio of international equity indices primarily through the use of futures. The Fund uses futures contracts to take a directional view on particular equity indices, whether by (i) being short futures in order to benefit from anticipated downward corrections in the pricing of equity indices; or (ii) being long futures in order to benefit from upwards movements in the pricing of equity indices. In order to identify trends, and shifts in trends, the Fund relies on technical and quantitative indicators and models. Those indicators/models include data or signals related to prices, volume, breadth, investor sentiment and volatility. In a first place, the manager identifies a trend. In the second place, the manager will estimate the probability for the trend to continue by using a series of indicators. If a trend is anticipated to continue with a good degree of probability, the manager takes a position in a corresponding futures.

October Contribution

Topix

Hang Seng

CAC 40

DAX 30

EuroStoxx 50

FTSE 100

SMI 30

S&P 500

DJIA 30

Nasdaq 100

Russell 2000

Booster EZ

Booster US

October Top 10 Active Position

DJIA 30 Futures +19.3 %

S&P500 E-mini Fut. + 19.2 %

SP500 Futures + 17.4 %

FTSE 100 Futures + 16.5 %

Nasdaq 100 Fut. + 12.4 %

SMI Futures + 10.2 %

EURO STOXX 50 Fut. -9.8 %

Topix Futures + 8.4 %

DAX 30 Futures + 6.0 %

Hang Seng Fut. + 5.2 %

Exposure: By the end of October, the Fund had a long

position. It actually kept a moderately leveraged

position the whole month. That allowed the fund to

deliver a good performance for October. 0.02%

0.03%

0.24%

0.23%

0.46%

0.54%

0.08%

0.80%

0.40%

0.31%

0.17%

0.63%

0.09%

Page 14

GaveKal Dynamic Futures (Euro) UCITS

Fund



Launch Date 3 September 2013 Domicile Ireland Denomination EUR Issue Price €100 Minimum Subscription €20,000 Fees 0% management fee p.a., 20% performance fee with High Water

Mark Dealing Day Weekly (every Wednesday that is a Business Day in Dublin) Valuation Day The Business Day prior to the relevant Dealing Day Subscription and Re-



Investment Advisor GaveKal Capital Limited Sub Investment Advisor GaveKal Investments Auditor Deloitte & Touche Administrator Societe Generale Securities Services, SGSS (Ireland) Limited Custodian Societe Generale Legal Advisor Dillon Eustace (Ireland)


Share Class Bloomberg Ticker ISIN Share Class A EUR GAVDYNE ID IE00BBX47710


Jan Feb Mar May Jun Jul Aug Sep GDFFEC

Inception Date: 3 Sep 2013 Nov Dec Oct

Calendar

Year

Perf. Since

Inception Apr

Net Performance %

2013 -1.34% 4.00% 2.61% 2.61%

NAV 98.66 102.61

Page 15

GaveKal Dynamic Futures (Euro) UCITS

Fund

Page 16

GaveKal UCITS Funds Newsletter

Important Disclaimers

This Newsletter has been approved by GaveKal Capital Limited for information purposes only and may only be communicated to persons who are of a kind

to whom unregulated collective investment scheme may be promoted. It does not constitute an offer or solicitation to any person in any jurisdiction to

purchase or sell any investment. No information in this document should be construed as providing financial, investment or other professional advice.

The GaveKal Asian Opportunities UCITS Fund, the GaveKal Knowledge Leaders UCITS Fund, the GaveKal Greater China Fund, the GaveKal Asian Growth

UCITS Fund, the GaveKal China Fixed Income UCITS Fund and the GaveKal Dynamic Futures UCITS Fund (the “Funds”) are sub-funds of the GaveKal UCITS Fund, an open-ended umbrella unit trust established as an undertaking for collective investment in transferable securities pursuant to the European Communities

(Undertakings for Collective Investment in Transferable Securities) Regulations, 2003 (as amended). The GaveKal Knowledge Leaders Fund is a sub-fund of

GaveKal Multi-Fund PLC, an open-ended umbrella variable investment company established as an undertaking for collective investment in transferable securities

pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003 (as amended). GaveKal Capital

Limited has been appointed as investment adviser to the GaveKal UCITS Fund and the GaveKal Multi-Fund PLC. The distribution of the prospectuses relating to the

Funds (each the “Prospectus”) is restricted in certain jurisdictions and accordingly it is the responsibility of any person or persons wishing to make an application to invest therein to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information below is for general guidance

only and further information is available in the Prospectus. The taxation implications of investing in the Funds will depend on individual financial circumstances and

the investor’s country of residence. Application to invest in the Funds must only be made on the basis of the Prospectus and subscription documentation.

United Kingdom: The GaveKal Asian Opportunities UCITS Fund is authorised as a UCITS scheme and has been recognised in the UK for the purposes of section

264 of the Financial Services and Markets Act 2000. The promotion of the Fund and the distribution of the Prospectus is restricted by law. Many of the protections provided by the United Kingdom’s regulatory regime will not apply to investors in the Fund, including access to the Financial Ombudsman Service and the Financial

Services Compensation Scheme.

United States: The shares of the Funds (the “Shares”) have not been and will not be registered under the Securities Act 1933 of the United States (as amended) (the

“1933 Act”), or the securities laws of any of the States of the United States. The Shares may not be offered, sold or delivered directly or indirectly in the United States

or to or for the account or benefit of any “US Person“ as defined in Regulation S under the 1933 Act except pursuant to an exemption from, or in a transaction not

subject to, the registration requirements of the 1933 Act and any applicable State laws. The Fund has not been and will not be registered under the United States

Investment Company Act of 1940 (as amended) (the “1940 Act”) since Shares will only be sold to United States persons who are “qualified purchasers”, as defined in the 1940 Act. There has not been and will not be any public offering of the Shares in the United States.

Investment Risks Investment in the Funds carries substantial risk. There can be no assurance that the investment objectives of the Funds will be achieved and investment results may

vary substantially over time. Investment in the Funds is not intended to be a complete investment programme for any investor. Investment in the Funds is intended for

experienced investors who are able to understand and accept the risks involved. The value of all investments and the income derived there from can decrease as well as increase. This may be due, in part, to exchange rate fluctuations in

investments that have an exposure to currencies other than the base currency of the Funds. Past performance is no guide to or guarantee of future performance. The

value of commodity and derivative investments such as options and futures can be extremely volatile. The Funds may invest in securities of distressed companies, illiquid securities and non-publicly traded securities.

Persons considering investing in the Funds should read the risk disclosure in the Prospectus.

Copyright and Other Rights The copyright, trademarks and all similar rights of this Newsletter and the contents, including all information, graphics, code, text and design, are owned by GaveKal Capital Limited. Information contained in this Newsletter must not be reproduced, copied or redistributed in whole or in part.

Limitation of Liability and Indemnity GaveKal Capital Limited does not warrant the accuracy, adequacy or completeness of the information and data contained herein and expressly disclaims liability for

errors or omissions in this information and data. No warranty of any kind, implied, expressed or statutory, is given in conjunction with the information and data.

GaveKal Capital Limited accepts no liability for any loss or damage arising out of the use or misuse of or reliance on the information provided including, without limitation, any loss of profits or any other damage, direct or consequential.

You agree to indemnify and hold harmless GaveKal Capital Limited and its affiliates, and the partners and employees of GaveKal Capital Limited and its affiliates from and against any and all liabilities, claims, damages, losses or expenses, including legal fees and expenses, (together, “Losses”) arising out of your access to or

use of the information in this Newsletter, save to the extent that such Losses may not be excluded pursuant to relevant law or regulation.

Any opinions contained in this Newsletter may be changed after issue at any time without notice.

GaveKal Capital Limited, whose registered address is: Suite 3101, Central Plaza, 18 Harbour Road, Wanchai, Hong Kong, is licensed by the Securities and Futures

Commission of Hong Kong.

Documents

GaveKal UCITS Funds Newsletterfundpress.net/delcap/factsheets/2013/10/GAVEKAL_2013_10.pdfGaveKal UCITS Funds Newsletter October 2013 Page 1 Data Source: GaveKal Capital Limited/SGSS