The universe of funds investing in China is divided into those which focus on mainland China and those which invest in Greater China which also includes Hong Kong and Taiwan. The offshore universe of Chinese equity funds is far larger than the onshore peer group; it comprises around 135 funds versus around 15 UK domiciled funds. The first equity funds to be launched in the region were from Gartmore, HSBC, Jardine Fleming, Allianz and Invesco. The fastest period of growth for the asset class in terms of the number of new fund launches was between 2007 and 2009.
OBSR, a Morningstar company, has researched Chinese equity funds for many years and has a number of ratings in the asset class; namely, First State Greater China Growth, Gartmore China Opportunities and Jupiter China in the onshore universe and Barings Hong Kong China Fund, First State China Growth, First State Greater China Growth, Jupiter China Sustainable Growth, Schroder ISF Greater China Fund and Templeton China in the offshore universe.
First State Greater China Growth and First State China Growth, run by the experienced portfolio manager Martin Lau, offer exposure to all-cap portfolios of equities in China, Hong Kong and Taiwan and China and Hong Kong, respectively. The funds are managed in line with the group’s Asian and Emerging Markets investment ethos and process, which seeks well-managed companies with sustainable business models, predictable growth and low valuations. Whilst the funds may lag during strong momentum rallies, over time they have steered a steady course across a wide range of market environments and have typically offered good downside protection in market downturns.
Gartmore China Opportunities offers investors exposure to a diversified portfolio of equities in Greater China. The group’s Global Emerging Markets is well resourced and the London-based manager Charlie Awdry runs the fund actively within a disciplined and benchmark-focused risk management framework. The fund has participated well in the long-term structural growth themes that are evolving in the Greater China region and the manager remains a passionate advocate of the asset class. The manager’s focus on the benchmark and the need to out-perform it result in a bias to large caps as investment in smaller cap stocks often add too much tracking error and their illiquidity renders them less attractive to the manager.
Jupiter China and Jupiter China Sustainable Growth offer investors portfolios of equities exposed to China and Hong Kong. Highly experienced portfolio manager Philip Ehrmann runs the funds from London using a growth-oriented style that is driven very much by bottom-up stock selection. Mr Ehrmann was in fact previously responsible for the emerging markets franchise at Gartmore. The approach is not benchmark focused, and the portfolios are essentially all-cap with a bias towards mid and small-cap stocks as this is where the manager finds the most attractive long-term investment opportunities. From a performance perspective the manager aims to deliver absolute returns over the long term, and consequently performance is likely to differ significantly from that of the index from time to time. Comparing the two funds, the China Sustainable Growth fund, which was launched in December 2009, and recently Rated by OBSR, is a more concentrated version of the major themes prevalent in the Jupiter China fund with an additional emphasis on companies that will benefit from sustainable development in China.
Additional funds Rated by OBSR include Baring Hong Kong China Fund, which offers investors exposure to a portfolio of large and mid-cap equities within the Greater China region. The investment approach is primarily bottom-up with macroeconomic and sector views providing an overlay to the fundamental stock analysis and informing the level of conviction in each company. Schroder ISF Greater China Fund, run by experienced manager Louisa Lo who is based in the region, offers investors a portfolio of Chinese, Hong Kong and Taiwanese equities with a large-cap bias. A flexible and active approach is undertaken; the emphasis is on identifying quality growth companies that grow shareholder value over the longer term. Finally, Templeton China, run by Hong-Kong based Eddie Chow, a member of the group’s Emerging Markets Research Team headed by Dr Mark Mobius, offers investors exposure to an all-cap portfolio of equities in China, Hong Kong and Taiwan. The team-based approach is bottom-up driven, with investments made on a long-term oriented, horizon. The preference is for undervalued companies that the team expects to rerate higher over time.
This article originally appeared in Professional Adviser.
