Fund performance
As Invesco’s holdings are quite concentrated, it is possible that the fund can underperform when there is a sector rally. Ng pointed to 2014 as an example. He noted that from end-2014 to mid-2015, Shiao made a tactical call to increase his holdings in the financial sector.
“In Shiao’s case, this is a very unusual decision as he does not favour the financial sector. But in the period of end-2014 to mid-2015, the Chinese market rallied on the back of the financial sector. Hence, Shiao’s underweight position on the financial market became the fund’s main detractor. In such a situation, Invesco’s tight sector focus can negatively affect the fund’s performance,” Ng said.
He noted that Shiao has since reverted to his usual style and decreased his holdings in the financial sector.
“Shiao thinks that the Chinese financial sector will underperform in 2016 due to the rise in non-performing loans,” Ng said.
For the JP Morgan fund, its performance tends to track the movements of the benchmark. Ng noted that the team’s overweight and underweight positions do not deviate by more than 5% from the benchmark.
“Wang likes the financial, information technology and healthcare sectors. These are the new economic drivers for China,” Ng said.
Ng noted that market timing skills and ground intelligence are extremely important when focusing on China’s ‘new economy’ plays as the performance of stocks in these sectors is prone to wild fluctuations and can underperform based on uncontrollable factors such as a change in the central government’s policies.
Ng pointed out that in 2013, JP Morgan’s bets on the information technology and healthcare sectors paid off when ‘new economy’ stocks were in favour. But the fund’s performance was negatively affected in 2014 when Wang could not rotate out of these sectors quickly enough to capitalise on a renewed interest in the industrial sector.
