HEAD-TO-HEAD: CCB Principal vs E Fund

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The two funds are very different with regards to their asset allocation, investment selection and risk control strategy, said Yao.

The CCB Principal fund, launched in 2011 with RMB 3.75bn ($544m) of assets under management, is flexible on asset allocation, duration management and bond selection by using both bottom-up and top-down investment strategies, he said.

“Among the three aspects, asset allocation is the most important criterion, followed by duration decisions.

“The fund uses credit bonds that provide long-term coupon yield as its main position [in the portfolio],” he noted.

The fund manager is also responsible for picking the stocks for its equity allocation, using research opinions, he added. “The manager makes industry and stock selection in accordance with the market risks. The fund is also sometimes involved in thematic investment, but only with a limited position.”

The fund usually holds less than 15% of assets in equities. It has a five-year average stock position of 10.2%, he added.

The E Fund product, on the other hand, focuses on relative return with a flexible and aggressive investment style, Yao said. Debuted in 2011, the fund has now RMB 4.22bn ($612m) of AUM.

For the bond portfolio, E Fund’s product tends to include more middle and high credit quality bonds, given its emphasis on bond liquidity rather than coupon rate, he noted.

It also has a preference for long duration (normally more than 10 years) “rate securities” − government bonds, policy bank financial bonds, local government bonds and central banks bills that have lower risks than corporate credits.

“The fund has a stable and high stock position that is close to the 20% limit on average,” he continued.

Another key difference is risk control. The CCB Principal fund has a relatively conservative leverage strategy, and adjusts the portfolio duration based on multiple macro-economic factors, Yao said.

Also, CCB’s allocation to individual stocks is diversified and comparatively small, he added.

In contrast, the E Fund product usually runs an aggressive leverage strategy, which currently approaches the regulatory upper limit of 140% of the total net assets, he noted.

Moreover, “the individual bond position of the fund is relatively concentrated,” Yao added.

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