GDS Holdings (GDS) is a leading Chinese data center provider, specializing in high-performance co-location and cloud services to meet the growing demand for digital infrastructure. GDS was recently added to the SIA Hypothetical 5-Stock ADR Model after the sale of Lufax Holdings (LU) was completed on August 23, 2024. At that time, shares of LU had slipped out of the Favored Zone on the SIA International ADR Index Report, prompting our rule-based methodology to eliminate the underperformer in favor of the top relative strength name in the ADR universe. On August 23rd, SIA market intelligence suggested shares of GDS, which had recently moved to the top of the matrix report. A total of 161,882 shares of GDS were purchased at a price of $16.90 and have since risen by 13.49% from that purchase price. Now that just over a month has passed since the purchase, it is noteworthy how the SIA Platform identifies money flows into an area (China) that is otherwise considered a no-fly zone for top-down technical analysis. Is this stock one of the early indicators of a turnaround in Chinese equities, or specific to GDS Holdings as a competitive company? In any case, it is now a key component of the SIA Hypothetical 5-ADR Model. To put this potential turnaround into perspective, please refer to the attached weekly candlestick chart with a 50-week moving average overlay. Notice the first red circle, indicating where shares began their underperformance in 2021, and the second black circle, which shows the resistance and strength of the negative trend as the shares bounced off this moving average. Then, observe the green circle, marking the significant break of the 50-week moving average, coinciding with shares turning Favored in the SIA International ADR Index Report. Combined with an SMAX score of 8 out of a possible 10, indicating strong short-term performance across various asset classes, shares of GDS are now showing strength against other classes of investments as well as names within the star-studded ADR universe.
For a further review of the SIA Hypothetical 5-Stock ADR Model, we have compiled diagnostics from the SIA Model Reports Tab to illustrate the outperformance of this concentrated strategy. This model has achieved a return of 1,740% compared to the benchmark of 114% (live trades emailed to clients for 10 years, backtested beyond that, and gross of fees). Other names in the portfolio include Embraer (ERJ), AngloGold Ashanti (AU), Rolls Royce (RYCEY), and Vista Oil & Gas (VIST). Notice that, outside of Embraer, the remaining equities are all in SIA Unfavored sectors, further demonstrating the power of the SIA intelligence system in identifying relative strength, somewhat independent of traditional top-down methodologies. All this results in a Compound Annual Growth Rate (CAGR) of 25.71% compared to the benchmark ACWX's CAGR of 6.17%. Finally, we have included month-by-month returns for the model going back as far as 2011, which shows that this strategy, like any other, has pitfalls and can experience drawdown periods. This is a reality, but when held against the long-term methodology of focusing only on a small number of outperformers and remaining disciplined, it has been key to the success we have experienced within our SIA Models. If you would like to explore this strategy further or understand "how we do it," please reach out to one of your SIA Agents; we are always more than happy to assist.
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