Caroline Maurer, manager of the BNP Paribas China Equity Classic Fund, believes China’s economic activity should be at normal levels by April-May.
“We think the coronavirus situation appears largely under control now in China as it has already passed the peak in terms of the number of infected cases and new infections,” Hong Kong-based Maurer told FSA.
“So our base case is that we are going to see economic activity levels resume to close to normal, say 70-80%, towards the end of this month.”
But she added that she’s monitoring the biggest risk: the rise of confirmed cases outside of China — which can dampen global demand and affect mainland businesses.
Fund strategy
Maurer said her fund mainly invests in quality-growth companies, which typically are industry leaders.
The investment universe includes onshore and offshore China equities. Currently, around 30% of the fund’s assets are listed in China, 50% in Hong Kong and 20% in ADRs.
The fund’s strategy mixes companies with stable long-term earnings, which make up the bulk of the portfolio, with “transformative” companies, which she defines as those that are changing their business models or strategies to expand market share.
While transformative companies only account for up to 30% of the portfolio, their alpha contribution in the fund is around 60-70%, she said in a previous interview.
Maurer took over management of the fund in 2015, when she joined the firm from Henderson Global Investors.
Although the fund is negative for the year and the top ten holdings contain some widely-held names such as Alibaba, Tencent and PingAn, annual performance has been better than the benchmark and category average since 2016, according to data from FE Fundinfo.
Discreet calendar year performance (%)
|
YTD 2020 |
2019 | 2018 | 2017 | 2016 |
2015 |
|
| BNP Paribas China Equity Classic |
-2.89 |
35.02 | -17.98 | 50.67 | -0.36 |
-12.3 |
| Sector: HKM Equity Greater China |
-4.28 |
31.12 | -18.84 | 41.19 | -3.82 |
-7.01 |
| Index: MSCI China 10/40 GTR |
-4.78 |
22.41 | -18.11 | 49.62 | 0.65 |
-7.81 |
Source: FE Fundinfo. In US dollars. SFC-registered funds in Hong Kong.
Top five Greater China funds
| Fund |
Fund Manager/s |
Fund size ($m) | Three-year annualised performance | Three-year annualised alpha |
Three-year annualised volatility |
| UBS (Lux) Equity Greater China |
Bin Shi, Morris Wu |
1,317.6 | 19.2 | 7.62 |
18.41 |
| CUAM China Hong Kong Strategy |
Michael Wan, Daisy Kong, Sunny Yang |
17 | 15.21 | 3.37 |
19.23 |
| JPM Greater China |
Howard Wang, Rebecca Jiang |
713.3 | 14.65 | 3.05 |
19.03 |
| NB China Equity |
Frank Yao, Lihui Tang |
821.5 | 13.71 | 1.23 |
20.68 |
| BNP Paribas China Equity Classic Cap |
Caroline Maurer |
708.8 | 13.67 | 2.73 |
18.1 |
Source: FE Fundinfo. In US dollars. SFC-registered funds in Hong Kong
Concentration
Morningstar Direct data shows that the BNP Paribas fund’s quartile ranking under the China equity category gradually increased from the lowest in 2014 and 2015 to the highest in 2019.
Maurer said that what helped the fund’s performance in recent years is increasing the concentration of portfolio holdings, which number 40, down from 60 in 2015.
“When I took over the portfolio, I basically removed all the low-conviction stocks with marginal weightings,” she said.
The top 10 holdings of the fund account for nearly half of the portfolio, according to the fund factsheet.
Indeed, the top Greater China funds have portfolio concentration as a common characteristic. The UBS AM fund has 42 holdings, the CUAM fund only 23 and the Neuberger Berman fund has 32, according to data from Morningstar Direct. Only the JP Morgan AM fund is more diversified, which has 69 holdings.
Having a dedicated analyst team for the fund has also helped performance, according to Maurer.
“Previously, there were sector analysts, [but they weren’t dedicated to the strategy]. So there was not much interaction between the analysts to have a broader view of the market, only a narrow view of the sectors they were covering.”
Now, five Greater China analysts support Maurer, with two based in the firm’s Shanghai-based wholly-owned foreign enterprise and three in Hong Kong.
BNP Paribas AM has a 49% stake in mainland-based HFT Investment, but it is not involved with management of the fund, she said.
Secular theme
In terms of investment opportunities, Maurer prefers companies that fall under secular themes. These are consumer discretionary, information technology and healthcare, which also have the largest overweights relative to the index
“We have been focusing on sectors in China that are underpenetrated,” she said. “These are things like online education and insurance.”
The secular growth theme has become popular among fund managers investing in China and the whole of Asia, which include JP Morgan AM, Axa Investment Managers and Blackrock.
The BNP Paribas China Equity Classic Fund versus its benchmark index and sector in Hong Kong.
