A lot has happened in China over the last three years. The sustained slowdown in GDP, inclusion of the RMB in the IMF’s currency basket, retail market volatility and surprise devaluation of the currency last year are just a few of the events that sent China’s markets on a wild ride.
Was an investor better off with an active or passive fund?
FE data suggests that investment in a passive vehicle would have been the better strategy. Twenty Chinese equity ETFs and tracker funds that are available for sale in Hong Kong generated a return of 20% or more over the past three years. Returns ranged from 23.8% to 55.9%, FE data shows.
That compares to 13 actively-managed Chinese equity funds that had a three-year return of 20% or more, ranging between 20.7% and 80%.
The top passive vehicle was the Harvest-MSCI China A Index ETF with a 55.9% three-year return.
Source: FE
The Allianz China A-Shares Fund was the top actively-managed fund during the period, with an 80% return.
Source: FE
Active vs passive
A look at the sector weightings of the top-performing active and passive funds shows that they have similar sector allocations, which include financials, industrials and consumer products.
Sector weightings of the two funds:
| Allianz (Actively managed) | % | Harvest (ETF) | % |
| Financials | 32.3 | Financials | 29.05 |
| Industrials | 20.4 | Industrials | 20.1 |
| Consumer Products | 19.3 | Consumer Products | 15.84 |
| Telecom, Media, Technology | 12.2 | Basic Materials | 11.7 |
| Basic Materials | 10.0 | Telecom, Media, Technology | 11.0 |
| Healthcare | 5.7 | Healthcare | 6.9 |
| Utilities | 3.9 | ||
| Money Market | 1.5 |
Source: FE; funds’ factsheet
While the Allianz fund had the higher return of the two, it also came with higher fees than the ETF, eroding the return to the investor.
The Allianz product has an annual management charge (AMC) of 2.25% maximum. That is far higher than the top-performing passive fund, the Harvest ETF, with an AMC of 0.6% maximum.
Although investors in the Allianz fund can point to its outperformance, the same cannot be said for investors in the other top four actively-managed funds. They all significantly underperformed their passive counterparts over the three-year period, as the charts above show.
