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The three funds beating the MSCI China in each of the last three years

12 May 2017

FE Trustnet looks at the three China-focused funds outperforming the MSCI China in each of the last three calendar years.

By Jonathan Jones,

Reporter, FE Trustnet

Sentiment surrounding Chinese equities remains mixed, with some analysts expecting to see a return to growth while others fear that a slowdown has only just begun. 

At the beginning of 2016, investors were particularly worried about a potential slowdown for the Chinese economy, with the devaluation of renminbi at the end of 2015 causing widespread speculation that the economy could be on the brink of a bubble set to burst.

Since then the MSCI China index has risen 33.02 per cent as the economy grew faster than anticipated and investors have returned to the market.

Performance of index over 3yrs

 

Source: FE Analytics

While the outlook for China remains positive in the near term, some managers expect growth to slow further.

Speaking with FE Trustnet last month, Baillie Giffford’s Ewan Markson-Brown said while the short-term prospects for China were strong.

“Ever since I started looking at China in 2002, every year someone has told me the whole thing is a bubble about to collapse and periodically you get scares and it all goes down and then it recovers,” he said.

“The growth rate is rebounding this year because last year it was much lower than forecast and is probably much more in-line with what the government is telling you the growth rate actually is."

However, the manager warned that the Chinese economy and authorities faced significant headwinds in the form of growing debt levels and structural challenges.

Below, FE Trustnet looks at the three funds that have outperformed the MSCI China in each of the last three calendar years. The period included a bumper 2016 and a more challenging 2015: potentially demonstrating how they can perform under a variety of market conditions. Of course, past performance is no indication of future returns.


 

Julius Baer Multistock China Evolution

The best performer in the IA China/Greater China sector is Julius Baer Multistock China Evolution, which has outperformed the MSCI China in each of the past three years.

Performance of fund vs benchmark over 3 calendar years

 

Source: FE Analytics

The four-crown rated fund was one of only two funds in the sector to produce double-digit returns in 2015 (10.25 per cent) as the index contracted by 2.49 per cent; the other fund was Matthews Asia China Dividend.

The $49.6m fund, run by Jian Shi Cortesi since it launched in 2013, aims to provide long-term capital growth by capturing evolving growth opportunities in the Chinese market.

The unconstrained active investment approach is based on bottom-up stock selection with in-depth company analysis and top-down portfolio construction taking into consideration sector attractiveness and broader macro trends.

Its largest holding is Chinese technology giant Tencent, while online marketplace Alibaba the second largest; together they represent 14.3 per cent of the fund's holdings.

Technology is the largest component of the portfolio at 29.6 per cent while it is 20.3 per cent invested in consumer discretionary and 15.5 per cent in financials.

The fund, which has outperformed in each calendar year since its launch has a clean ongoing charges figure (OCF) of 1.90 per cent.

 

Fidelity China Focus 

Next up is the $3.8bn, five-crown rated Fidelity China Focus run by Jing Ning, which has returned 90.60 per cent over the last three years – making it a top quartile performer.

The fund, which is also a top quartile performer over five years, is run with a value investing style and must be at least 70 per cent invested in Chinese companies.

The manager’s bottom-up approach focuses on determining the intrinsic value of a company rather than themes and the starting point is to identify intrinsic value at market extremes.

She searches for quality business models or management teams that are out of favour due to short-term macro factors and combines this with her long-term investment horizon giving her the ability to identify stocks that are undervalued, but should be beneficiaries of China’s structural growth dynamics.


The fund outperformed in the bull markets of 2016 and 2014 and was able to make a positive return (5.42 per cent) in 2015 when the index posted a loss.

The fund, whose largest holdings include China Construction Bank (7.3 per cent), Industrial & Commercial Bank of China (5.8 per cent) and China Life Insurance (5.1 per cent) has an OCF of 1.06 per cent.

 

Schroder ISF Greater China

Fellow five-crown rated fund Schroder ISF Greater China rounds out the three that have beaten the MSCI China index in each of the past three calendar years.

The $781m strategy overseen by Louisa Lo aims to provide capital growth by investing in China, Hong Kong and Taiwanese companies with at least two-thirds of the fund invested in China.

Over the last three years the fund has outperformed the MSCI China by 9.19 percentage points and has outperformed in each calendar year during the period.

Performance of fund vs index over 3yrs

 

Source: FE Analytics

However, it should be noted that the fund is benchmarked against the MSCI Golden Dragon Index not the MSCI China.

Its largest overweight holding compared to its benchmark is HSBC, which makes up 2.9 per cent of the fund, while its largest underweight is Tencent which represents 5.1 per cent of the portfolio.

The fund is underweight in the technology and financials sectors and overweight consumer discretionary and industrials. It is also overweight Chinese equities compared to its benchmark at 68.3 per cent (vs 54.2 per cent).

The fund has an OCF of 1.32 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.