HEAD-TO-HEAD: Tianhong vs JP Morgan

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The main differences between the funds are the investor base and asset allocation.

The Yuebao fund’s investor base consists of mainland retail investors who tended to join as e-commerce platforms were rolled out across the country. The fund has around 325 million subscribers.

The JPM USG MMF, by comparison, is predominantly a fund for institutional investors, according to Fitch.

Huge differences are also seen in asset allocation.

For example, the majority of the assets in the Yuebao fund are in time deposits with domestic Chinese banks and the JPM fund’s assets are invested mainly in repurchase agreements (repos) and bonds.

Source: Fitch Ratings

The credit risks in both funds are very different, according to Fitch, with Yuebao’s credit quality being “materially weaker” than the JPM USG MM.

The reason is that the JPM USG product is invested in ‘AAA’-rated US securities while assets in Yuebao carry a minimum rating of ‘AA+’ on a national scale, as assigned by local rating agencies.

“Credit ratings issued by Chinese local rating agencies are largely concentrated in the AA and AAA categories, which makes it difficult to differentiate the credit quality of the assets,” Li said.

China’s onshore national scale bond ratings rate 51% of all China bonds a AAA and less than 1% are rated A+ or below, according to data from BNP Paribas.

“It’s not meaningful to look at onshore ratings as too many are AAA-rated,” Pheona Tsang, head of fixed income at BEA Union Investment Management, said previously. The same AAA bonds could be rated by international rating agencies with grades from AA to BBB, she added.

Duration for the two money market funds is also different and contributes to the risk profile, according to the Fitch report.

The duration for the Yuebao fund has a weighted-average to maturity (WAM) of 60 days, with only 18% of the assets maturing within 30 days.

The JPM fund is shorter, with a WAM of 17 days (as of the end of September last year). Assets maturing within 30 days account for 85% of the total assets.

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