The secular drivers of the world’s second-largest economy remain intact: attractive demographics, competitive advantages from low labour costs, an abundance of natural resources and increasing entrepreneurialism.
However, there are still few proven UK-domiciled funds that invest exclusively in the region. The IMA China/Greater China sector, which was only officially launched in January of this year, is home to just 22 funds with at least a three-year track record.
Of these, FE Alpha Manager Martin Lau’s First State Greater China Growth fund is arguably the most consistent and high profile.
According to FE Analytics data, it is the best-performing vehicle in the sector over five years, with returns of 120.85 per cent. The average China/Greater China fund returned 79.88 per cent during this time, while its benchmark delivered 61.26 per cent.
Performance of fund vs sector and index over 5-yrs
| Name |
1-yr (%) |
3-yr (%) |
5-yr (%) |
| First State Greater China Growth |
-5.87 |
59.45 |
120.85 |
| IMA China/Greater China |
-12.36 |
44.15 |
79.88 |
| MSCI Golden Dragon |
-7.97 |
39.48 |
61.26 |
Source: FE Analytics
This feat is particularly impressive given that the manager seeks to outperform his benchmark by only 2 per cent net over a rolling five-year period.
Only GAM Star China Equity and Henderson Horizon China have returned more than First State Greater China Growth over three years, but both have been a far riskier investment.
Lau’s vehicle is the least volatile in the entire sector over a three-year period, and the second least-volatile over five. It has also weathered the storm better than the vast majority of China/Greater China funds in the last 12 months. According to FE Analytics, First State Greater China Growth has lost investors 5.87 per cent in the last year – around half as much as the sector average.
Predictably, such consistency has resulted in huge inflows. Since 1 September 2007, assets under management (AUM) have grown from £271m to £577m.
However, those who are interested in adding Lau’s fund to their portfolio need to act quickly, as First State is set to soft close the vehicle from 1 January 2012 to avoid capacity constraints.
The fund aims to achieve long-term capital growth by investing in a portfolio of 40 to 70 stocks that operate in China, Hong Kong and Taiwan.
Lau has an absolute-return mindset and invests in companies based on a three- to five-year outlook. While sentiment often dominates in the short-term, he believes share prices revert to levels reflecting earnings streams over the longer-term.
The manager is wary of holding more than a quarter of his portfolio in a single sector. According to FE Analytics, utilities and consumer staples are his biggest overweight positions.
The fund has a total expense ratio of 1.87 per cent and a one-year historic yield of 0.87 per cent.
Performance of manager vs peer group over 5-yrs
Source: FE Analytics
Lau works alongside star manager Angus Tulloch on the emerging markets team at First State. With returns of 120.7 per cent, he is the best-performing manager in the entire IMA unit trust and OEIC universe over the last five years.
An investment of £1,000 in Lau five years ago would have returned £2,206.98, compared with £1,814.50 if the same amount was invested in his peer group composite.