Alpha measures the fund’s outperformance with respect to the underlying benchmark. “Delivering alpha” is the paramount duty of an active fund manager.
FSA analysed the ratios of mutual funds authorised for sale to investors in Hong Kong, using data from FE. We excluded funds without stated benchmarks and total-return funds that use floating rates of return, such as Libor, as their benchmarks. We analysed the returns and ratios in US dollars.
According to this measure, in 2017, managers of many Chinese equities delivered on their promise, as eight out of ten funds with the highest alpha are in that category.
Funds with highest alpha in 2017
| Fund | Benchmark | 1-year Alpha | 1-year Return |
|---|---|---|---|
| ChinaAMC China Opportunities | MSCI China A Total Return | 47.28 | 55.86% |
| Matthews Asia China Dividend | MSCI China | 44.4 | 37.34% |
| First State New Era PRC | MSCI China | 43.85 | 47.21% |
| First State China Growth | MSCI China | 43.55 | 55.74% |
| Matthews Asia China Small Companies | MSCI China Small Cap | 38.93 | 55.73% |
| Investec All China Equity | MSCI All China | 35.59 | 69.01% |
| Invesco China Opportunity III | MSCI China A | 34.31 | 46.23% |
| Value Partners China Convergence | MSCI China | 30.07 | 41.25% |
| First State Japan Equity | MSCI Japan | 29.94 | 42.86% |
| JGF – Jupiter Global Financials | MSCI ACWI Financials | 29.32 | 30.87% |
Data: FE, 31 December 2017, in US dollars. Funds presented are from the Hong Kong SFC-registered universe. Alpha represents outperformance of the fund vs its respective benchmark
Sharpe ratio measures an investment’s return in relation to its volatility, or risk. Funds with the highest Sharpe ratio deliver most return for a given level of risk.
Among funds authorised for sale to investors in Hong Kong, China funds dominated the list of funds with the highest Sharpe ratios in 2017, with returns measured in US dollars.
The Fidelity China Consumer Fund has managed to deliver the highest return for a unit of volatility. The second fund in the ranking, the JPM China Fund delivered a higher return, but at the cost of higher volatility, which resulted in a lower Sharpe ratio.
Funds with highest Sharpe ratios in 2017
| Fund | Category | Sharpe Ratio | 1-year Return |
|---|---|---|---|
| Fidelity China Consumer | Greater China Equity | 10.21 | 52.91% |
| JPM China | China Equity | 9.43 | 59.11% |
| Baring Asia Growth | Asia Pacific ex-Japan Equity | 9.36 | 57.84% |
| JPM Greater China | Greater China Equity | 9.19 | 55.75% |
| Matthews Asia China Dividend | China Equity | 9.19 | 37.34% |
| First State China Growth | China Equity | 9.16 | 55.74% |
| Zeal Voyage China | China Equity | 9.15 | 41.64% |
| UBS (Lux) Equity Greater China | Greater China Equity | 8.84 | 54.34% |
| UBS(Lux) Equity China Opportunity | China Equity | 8.80 | 59.37% |
| HSBC GIF China Consumer Opportunities | Consumer Goods and Services | 8.66 | 32.76% |
