Moreover, the IMF are forecasting 6.7 per cent growth in 2009 – China is one of the few countries that economists are predicting will grow this year.
There are a small, but growing, number of UK based open ended investment funds which are seeking to benefit from this growth in China. Of these, the fund with the best performance record is the First State Greater China Growth fund, which is the top rated China fund over a three and five year period.
Performance of First State Greater China over 5-yr period
Source: Financial Express Analytics
The fund has the flexibility to invest in Chinese territories in addition to mainland China. At the present time the fund has 47 per cent of its portfolio allocated to the China, with 26 per cent in Hong Kong and 19 per cent in Taiwan.
This breadth of scope not usually adopted by other China-focused funds enables the offering from First State to benefit from the economic growth and diversity in the outlying Chinese territories.
First State Greater China Growth is managed by Martin Lau who has an excellent record as a stock picker. He has recently been awarded the status of 'Alpha Manager' by Trustnet in recognition of his consistent performance and ability to achieve alpha for his fund.
Best performing Alpha Managers over 3-yr period
| Rank | Alpha Manager | 3-yr (%) |
|---|---|---|
| 1 | Martin Lau | 74.0 |
| 2 | Angus Tulloch | 61.4 |
| 3 | Timothy Youngman | 40.1 |
| 4 | Shelley Kuhn | 39.7 |
| 5 | Kevin Adams | 31.9 |
Source: Trustnet.com
Over the last three years he has an annualised alpha of 4.59, meaning that he outperformed the MSCI China index by 4.59 per cent each year. He is the only manager of a China fund to consistently outperform the MSCI China index.
Top rated funds over 3-yr period
| Rank | Fund | 3-yr (%) |
|---|---|---|
| 1 | Neptune Japan Opportunities | 88.0 |
| 2 | First State Greater China Growth | 80.5 |
| 3 | Gartmore China Opportunities | 78.7 |
| 4 | CF Canlife Far East | 67.6 |
| 5 | Fidelity Institutional South East Asia | 62.6 |
Source: Trustnet.com
The second fund worth mentioning is Gartmore’s China Opportunities. Though its recent performance has been less than impressive, it is by far the oldest China fund and has an excellent performance record over the long-term. In the ten years to the end of July 2009 the fund returned 269.37 per cent whilst the MSCI China index returned 81.82 per cent. The fund’s recent poor performance is largely due to the overweight position that it chooses to hold in the volatile financials sector.
Performance of Gartmore's China Opportunities fund over 10-yr period
Source: Financial Express Analytics
In contrast, perhaps the most impressive feature of the First State Greater China Growth fund is its low volatility. Its peer and index beating performance has not been achieved by taking on a higher level of risk, rather it is less volatile than all other China-focused funds and significantly less volatile than the index. The relatively cautious stance is achieved through an underweight position in basic materials, and an overweight position in consumer products and TMT (telecommunications, media and technology).
Data from Financial Express shows that though some funds have done well - growing quickly in the good times, and not losing too much in the bad times – others did not make the most of the rising market and suffered significant losses as the markets began to tumble.