Inspired by the semi-annual SPIVA Japan research report published by S&P Dow Jones to evaluate performance of active fund managers versus their benchmarks, FSA took a similar approach to active China equity funds available for sale to investors in Hong Kong and/or Singapore, which are mainly from global fund houses.
There are 20 active China equity funds with a ten-year track record for which relative return data versus the fund’s benchmark are available in FE.
There are 43 such funds with a five-year track record, 47 with a three-year track record and 52 funds with a one-year track record, as of 23 March.
We have found that less than half of the funds in all four samples outperformed their benchmarks during the respective periods, as measured by a positive relative return.
|Number of funds
|Funds outperforming their benchmark
Data: FE, as of 23 March 2018.
Analysis of long-term fund performance based on funds available for sale at the end of the period is affected by the survivorship bias. Unsuccessful funds that would have been for sale at the beginning of a period, but have since been closed, are not included. This tends to skew the results upward, as only the more successful, presumably better-performing funds are included.
While the data from FE include only funds that are available for sale today, FSA attempted to correct for the survivorship bias by estimating the number of funds that are no longer for sale using the availability of historical net asset value of funds in Morningstar data.
We estimated that around 6.3% of China equity funds available for sale ten years ago are no longer around. The ratio is 6.5% for the five-year period, and slightly higher, 7.1% for the three-year period. We used these numbers to estimate the share of the funds that have survived and outperformed their benchmark in the table above.
China vs Japan
A comparison with the SPIVA Japan results yields an interesting observation. The long-term success rate of China equity managers in outperforming the benchmark is roughly in line with that of Japanese domestic equity funds managers.
However, the short-term performance comparison is much less favourable for the Chinese equity managers. More than 80% of Japanese domestic equity managers outperformed on the one-year basis and around 60% did so on the three-year basis, compared to only 48% of China equity managers in both periods.
The volatile, idiosyncratic and opaque Chinese equity market seems to be presenting the bigger challenge in generating alpha.