Greater China equity funds boosted by TMT exposure

FSA Analysis

The best performing Greater China equity funds over the long-term have made substantial allocations to the TMT sector.

However, there are few funds that have earned higher cumulative returns than the regional MSCI indices during the past three years.

Only five funds out of 50 available to Hong Kong and/or Singapore retail investors have outperformed the MSCI China and MSCI Taiwan indices, eight have produced better returns than the MSCI Golden Dragon index and 20 have exceeded the performance of the regional laggard, the MSCI Hong Kong Index.

The average three-year return of the sector is 32.19%, 20 percentage points less than the average of the three country indices, 25 percentage points less over five years and half the return on the indices average over 10 years, according to FE Analytics data.

The top five performing funds all produced  strong returns during the bull market for Greater China equities in 2017. This was especially true of the best three funds: CUAM China Hong Kong Strategy, UBS Equity Greater China, and NB China Equity.

The funds also shared another feature during that calendar year: a high exposure to the TMT (technology, media and telecom) sector. The top three held at least 30% of their portfolio in TMT stocks, with holdings in leading tech firms such as Tencent, Alibaba and Taiwan Semiconductor.

Their core weighting to sector also helped drive their performance during the rally in regional markets in the first quarter of this year. However, it is likely to have contributed significantly to the greater volatility of the funds compared with the sector average.


Performance of top 3 Greater China funds

Fund

3-year cumulative return %

Annualised volatility %

2017 calendar year return %

CUAM China Hong Kong Strategy

98.20

18.54

63.38

UBS Equity Greater China

81.59

19.53

54.34

NB China Equity

75.63

19.80

68.08

First State Greater China Growth

66.49

17.19

49.89

First State China All Cap

63.34

18.35

47.89

Sector average

39.53

16.50

41.19

Source: FE Analytics. Data in US dollars

Comparative returns of Greater China equity funds and MSCI indices

1 year

3 years5 years

10 years

Greater China Sector Average*

-7.85

39.5332.19

74.20

MSCI China

-7.89

63.0162.46

111.12

MSCI Hong Kong

6.57

54.2661.05

192.75

MSCI Taiwan

3.32

62.5350.00

154.78

Average return of the 3 MSCI country indices

0.67

59.9357.84

152.88

MSCI Golden Dragon**

-2.79

60.9057.71

138.75

Source: FE Analytics. Cumulative returns (%) in US dollars to 8 May 2019.
*Funds authorised for sale to retail investors in Hong Kong and/or Singapore **Includes large and mid-cap China securities (H shares, B shares, RedChips and P-Chips), large cap A-shares in stock connect, and securities in Hong Kong and Taiwan.

Performance of top 5 Greater China equity funds

Source: FE Analytics. Three-year cumulative performance in US dollars

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