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A closer look at CIFM’s southbound fund

The Morningstar China research team analyses the CIFM China Multi-Assets Fund, which is sold through the Mutual Recognition of Funds scheme.

Among the 22 fund picks from Morningstar’s “China Best Ideas” report last month, the CIFM fund is the only moderate allocation fund listed in the report and available for sale in the SAR at the moment (another one, the Harvest Growth Income Fund, was approved in April, but sales are yet to start).

Funds within the moderate allocation category are considered to have less volatility than the aggressive ones, as the former typically have 50-70% equity holdings. The latter have a ratio of more than 70%.

China International Fund Management (CIFM) is a joint venture between JP Morgan Asset Management and Shanghai International Trust set up in 2004. The CIFM China
Multi Assets Fund launched in 2006 and has assets under management of RMB 2.59bn ($398.2m).

Li Yiming, Morningstar analyst, said that Fang Sun, who has managed the fund since December 2011, is consistent with her investment style despite market cycles. Sun has four years of portfolio management experience in China, a relatively long tenure, he said.

“Sun constructs her portfolio by adopting a core and satellite approach, using growth stocks as her core holdings and having satellite allocations in cyclical and thematic names,” according to a Morningstar report on the fund.

“The fund manager would prefer stocks with strong fundamentals and high quality growth,” Li said.

In terms of sectors, as of 31 March, the fund invested nearly 40% of its assets in manufacturing-related companies. But Li said the fund actually has a quite diversified approach.

“The manufacturing is too broad and includes many sub-sectors. In fact, the fund holdings are very much diversified, with individual companies accounting for less than 5% of the total assets.”

Since the market downturn during the third quarter of 2015, Li said the fund has trimmed holdings in equities by roughly 10%, as compared to its historical average of 60-70%.

The level stood at 66% as of the first quarter, slightly lower than the previous quarter, Li said.

Higher volatility

Li noted the fund’s higher-than-average holdings in stocks, as well as heavier weighting on small to mid-cap stocks, led to a worse return than the category benchmark in the first quarter of this year. But when the market rebounded (Q4 2015), the fund again outperformed the benchmark.

Director of manager research Rachel Wang told FSA the fund tends to have higher volatility than peer funds in the same category, but is also likely to pay off for investors with a long-term investment horizon. “However, investors need to have a relatively high risk tolerance and patience,” she said.

The turnover rate of holdings and an expense ratio of 1.5% a year are also above the moderate-allocation category average.

“CIFM’s funds have, in general, average performance compared to peers. The products focus more on growth companies, versus other fund managers who look into value stocks,” Wang said.

The JP Morgan brand, shown in its Chinese name (although not its English one), is also likely to help promote the fund, she noted. What mainland investors value most is brand, performance and fund manager.

Morningstar rated the fund three stars for its three- and five-year performance. The backward-looking rating is based on a fund’s past risk- and fee-adjusted returns versus category peers, and three stars designate an average rating.

“The rating [highlights] the underlying risks of the fund, which has a higher standard deviation and volatility when compared to funds in the same category, despite better returns.”



(Source: Morningstar China) 


Part of Mark Allen.