2017 was a stellar year for China’s internet giants. Tencent increased 114%, Alibaba was up 96.4% for the year and Baidu gained 42.7%.
Tencent and Alibaba are now the top two constituents of the MSCI China Index of Chinese companies listed offshore, at 18.4% and 12.3%, respectively. Baidu is the fifth at 3.7%.
Together, the three internet firms represent 34% of the MSCI China.
As fund managers are usually restricted in the amount of exposure to individual stocks, in most cases to no more than 10%, is it possible for them to deliver returns that surpass those of the index, which the three giants dominate?
FSA used FE data to test that premise. We identified nine China or Greater China equity funds available for sale in Hong Kong and/or Singapore, with Baidu, Alibaba and Tencent among their top ten holdings at the end of March 2018 (the assumption is that the funds held the stocks during calendar year 2017).
We’ve found out that none of the funds that currently hold BATs was able to outperform the MSCI China index in 2017.
| Fund / Index | 2017 return (%) | Baidu holding (%) | Alibaba holding (%) | Tencent holding (%) |
| MSCI China Index | 54.33 | 3.43 | 12.83 | 18.04 |
| Robeco – Chinese Equities | 53.05 | 3.35 | 9.89 | 9.61 |
| Pictet – China Index | 52.82 | 3.7 | 12.8 | 18 |
| GAM – Multistock – China Evolution Equity | 52.14 | 5.45 | 9.3 | 9.01 |
| Threadneedle – China Opportunities | 51.05 | 5.3 | 8.6 | 9.2 |
| Pictet – Greater China | 50.27 | 3.1 | 8.5 | 8.8 |
| BOCHK – NCB China Equity | 45.41 | 5.1 | 9.7 | 9.5 |
| Deutsche – Invest I Chinese Equities | 43.33 | 4.4 | 9.4 | 9.5 |
| JGF-Jupiter – China Select | 36.67 | 4.3 | 3.41 | 3.84 |
| BlackRock – GF China | 35.06 | 3.42 | 8.98 | 8.06 |
