Head To Head – Fullerton vs ChinaAMC

Fund performance

The Fullerton fund’s performance is vulnerable to concerns over China’s growth slowdown, Lim said. For example, in September, Chinese bond yields ended lower than the previous month while the onshore bond curve was relatively stable. 

The Fullerton team reduced the fund’s holdings in Chinese government bonds, China Merchant Land and Banyan Tree Holdings to adjust the cash level higher. The team chose to adopt a defensive stance in view of the uncertain investment climate, which could lead to large changes in investors’ asset allocations, Lim said.

“We will continue to look for opportunities in reasonably strong corporates trading at good valuations,” Fullerton said in a note to clients. 

Lim agreed with the fund team’s assessment. She expects the RMB to remain stable against the US dollar. The PBOC is likely to manage the RMB with stability in mind to ensure inclusion into the IMF’s Special Drawing Rights basket of currencies. 

“After inclusion into the SDR, the RMB may weaken against the US dollar, but it will still outperform other Asian currencies,” Lim said.

She also likes the Fullerton fund’s call to focus on corporates. 

“Corporates currently provide a good pick-up over government bonds, while offshore CNH bonds are attractive given their cheaper valuations,” Lim said.

In the case of the ChinaAMC fund, Lim noted that Zhu, the manager, also became more cautious in the third quarter of this year. 

“The current credit spread is too narrow to provide sufficient cushion for correction. [Zhu] therefore stayed relatively defensive on the duration. He has also reduced [the fund’s] credit exposure,” Lim said.

A look at the ratings breakdown for the Fullerton Fund (ratings are internally generated):

Source: BSI Bank, Fullerton Fund Management

A look at the ratings breakdown for the ChinaAMC Fund (local credit rating):

Source: BSI Bank, ChinaAMC