Home Asia Funds China equity funds – comparing three of the best strategies

China equity funds – comparing three of the best strategies

Shenzhen stock market (Source: zhu difeng/Shutterstock.com)

The coronavirus casts its shadow on the international stock markets. It has also left its mark on the Chinese markets. However, China is already showing the first signs of recovery and experts expect that China, as one of the world’s largest economies, will remain an important driver of the global economy.

According to the IMF, China added an estimated 28% to global economic growth in 2019, and rapid urbanization, an expanding middle class and innovative ideas are driving a shift in China’s economic model away from investments and exports towards consumption and services.

China equity funds offer investors the chance to invest in leading companies at the forefront of China’s growth story and in this profile we compare three of the best on the market: UBS (Lux) EF Greater China, Pictet Greater China, and Invesco Greater China.

China Equity Funds - Fund Size

UBS (Lux) EF Greater China (N-Acc, USD, EUR, ISIN: LU0577510026)

UBS Greater China equity fund is the largest of the three profiled funds with assets under management (AUM) of EUR 1.19bn.

The fund is managed by Bin Shi, Head of China Equities, who has managed the fund since inception in 2009 and who is based in Hong Kong.

The fund is actively managed, with key sector overweight allocations to consumer and financial sectors, or what the strategy describes as ‘new economy’ sectors, while being underweight ‘old economy’ sectors like real estate, materials, and industrials.

While advertised as a Greater China fund that invests in mainland China, Hong Kong and Taiwan, the fund is heavily concentrated in the China A-shares market, i.e. stocks listed on either the Shanghai and Shenzhen stock exchanges.

China Equity Funds - UBS Lux EF Greater China USD EUR N - Equity Composition

The UBS Greater China equity fund scores 84.12 out of 100 in the Fund Scoring of AsiaFundManagers.com*, ranking it in first place of the three funds profiled.

The fund scores highly for total returns over one, three and five year time periods.

The fund has an information ratio of 1.07 over a five-year period, signifying that it has a long track record of sustained outperformance against index benchmarks.

Total Score vs. Inf Ratio 5Y

However, investors will pay for performance, the fund charges the highest management fee (2.2%) of the three funds profiled.

Pictet-Greater China (P-Acc, EUR, ISIN: LU0255978347)

Dating from 2006, the Pictet-Greater China equity fund is the longest-running of the three funds in this profile, but is also the smallest with an AUM of EUR 190.3m.

Benchmarked against the MSCI Golden Dragon index, the fund is truer to the concept of a Greater China fund since it has the greatest allocation (38.0%) to Hong Kong and Taiwan markets of the three funds profiled.

The fund has overweight allocations to technology and financial Services sectors, while being underweight industrials, healthcare and real estate, according to aggregated of competing funds in the sector.

David Chen and James Kenney co-manage the fund and are both based in Hong Kong. David has managed the fund since 2013, while James took over joint-management duties in 2017.

China Equity Funds - Pictet-Greater China P EUR - Equity Composition

The Pictet-Greater China equity fund takes second place out of the three funds profiled in our Fund Scoring with a score of 69.6 out of 100.

Long-term performance drags on the fund’s overall score, since it has delivered the weakest total returns and has the lowest information ratio of the three funds over a five year period.

Importantly, however, the fund has delivered improved performance relatively recently, which may be worth consideration.

Invesco Greater China Equity Fund (Z-Acc, EUR, ISIN: LU0955862791)

Invesco Greater China Equity Fund is benchmarked against the MSCI Golden Dragon index, diversified across the Greater China region, and had EUR 948.1m AUM as of March 15, 2020.

Jointly managed on an active basis by Mike Shiao and Lorraine Kuo, the fund is overweight to consumer, communications and healthcare sectors, while underweight to financial services, industrials, and technology.

China Equity Funds - Invesco Greater China Equity Z EUR Acc - Equity Composition

The Invesco Greater China Equity Fund ranks third of the funds profiled, scoring 64.6 out of 100.

Compared to the other two funds, Invesco Greater China has a poorer track record of outperforming its benchmark and delivering sustained total return. But it has the lowest fee.

Conclusion

Comparing the three funds, we can summarize as follows:

If investors are solely concerned about total return, the UBS Greater China equity fund has the strongest track record over one, three, and five years. Additionally, the fund’s high information ratio score shows it has a sustained track record of outperforming its benchmark.

Total Score vs. Total Return 5Y

However, some investors might prefer to have more diversified exposure to the Greater China region; if so, Invesco and Pictet Greater China funds may be more suitable as they have higher total allocations to Hong Kong and Taiwan.

Should investors require decent returns and diversification, then the Pictet Greater China strategy may be preferable, since it has the highest allocation to Hong Kong and Taiwan markets, yet scores higher than Invesco for returns over a one and three-year time period.

Following on from the above point, the UBS Greater China equity fund may not suit volatility-averse investors, since it has a major emphasis on mainland China markets. China A-shares have historically been more volatile than Hong Kong and Taiwan markets, largely because of its retail-driven investor base.

But the UBS Greater China equity fund’s mainland focus may suit those investors who: are convinced of China’s long-term growth prospects, want exposure to new emerging Chinese companies (which tend to list first in the A-share market), see opportunity for active returns in mainland China markets, and remain comfortable with volatility.

China Equity Funds - Fund Scoring Comparison

*About the Fund Scoring

To help investors find the best investment funds from a variety of registered products, the AsiaFundManagers.com team has developed its own quantitative fund scoring system. The Fund Scoring is based on current scientific findings on the quality of actively managed investment funds. An algorithm is used to weight different factors that provide information about the quality of the fund. The parameters include return, risk and cost ratios. The Fund Scoring calculates 8 sub-indices and an overall score, which is made up of the weighted sub-indices. Investment funds can achieve a maximum of 100 points for sub-indices and the overall score.