Hao Capital, a small hedge fund managed by electronics engineer Zhang Hao, delivered a strong performance—doubling investors’ money amid the market volatility this year.
According to Reuters, Hao Capital achieved 97.8% returns year-to-date from its long positions in appliance companies and short bets in the solar industry. The hedge fund did not join the pack of investors, who made investments in China A shares that crashed in August.
Hao Capital delivered 132.5% returns since its establishment in August 2014. The hedge fund left its peers in the dust with its nearly triple-digit performance. Data from eVestment, an industry tracker showed that the average China-oriented fund recorded 1.09% return during the first eight months of this year.
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Hao Capital shorts solar industry
Hao Capital has long positions in Haier Electronics Group and Gree Electric Appliances and short bets in the solar industry, according to individuals who invested in the hedge fund.
One of the investors said, “This fund has made money in both the long and the short side, and the manager has been very excited about short positions in the solar industry, which he did not name.”
In August, Mr. Hao informed investors that his firm lost 9.5% amid the broader market decline, but its portfolio achieved a 7.63% gain driven by its short bets.
The hedge fund managers said he stayed on the sidelines in May when most investors rushed into Chinese A shares. According to him, he was concerned about the emotional nature of individual investors, who account more than three-quarters of the trading volume.
“From a cultural perspective, these investors are less prone to logical thinking, and prefer stories of a company to its market value calculation,” according to the hedge fund manager.
Based on Hao Capital’s investment document, its long positions and short positions generated returns of 9.4% and 6.02%, respectively in May. His instinct for avoiding the pack probably helped the hedge fund to outperform its peers in the industry.
Hao Capital looks for “significantly mispriced targets”
Hao Capital is looking for “significantly mispriced targets.” The hedge fund aims to deliver an annual return of 30% to clients.
Mr. Hao said he made some big bets on large and mega-cap companies. He also makes the significant amount of investments in Chinese equities trading in Hong Kong and the United States.
Last month, he said, “We should be buying as the market falls. Cheap valuations represent the greatest opportunity for the Fund.”