HEAD-TO-HEAD: Bosera versus Huatai-Pinebridge

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Investment process

Both the Bosera and the Huatai-Pinebridge funds are enhanced passive funds that track the CSI 300 Index.

Unlike traditional passive funds, which replicate the performance of an index, enhanced passive funds track an index but seek to deliver moderate excess returns by having a higher tracking error, Huang explained.

Enhanced passive funds are able to do so by using a multi-factor model.

“Multi-factor models look at various factors, such as value factors, growth factors and technical factors,” Huang said.

Although both the Bosera and Huatai-Pinebridge funds are very similar products, the main difference is their targeted tracking error.

The Bosera fund targets a tracking error of 3%, while the Huatai-Pinebridge sets its target at 5%.

“The difference depends on the investment philosophy of the fund manager,” Huang said.

“The view of the fund manager of the Pinebridge team is that since enhanced index funds charge higher fees than passive index funds, he prefers to seek higher excess returns.”

Because of the difference in the tracking error, the Bosera fund is less flexible in terms of following the constituents of the CSI 300 Index.

At least 80% of the CSI 300 Index constituents can be found in the Bosera fund, while the Huatai-Pinebridge fund only has 40%-60% of the index constituents, Huang explained.

“The Huatai-Pinebridge manager has more flexibility to select stocks outside the CSI 300 because of its higher tracking error,” he said.

There are also differences in the multi-factor models that both managers are using.

For the Bosera fund, the main factors of the model are value, small-cap, momentum, growth, analyst and quality, according to Huang, adding that the fund manager can adjust the factor weightings according to changes in market behaviour.

Turning to the Huatai-Pinebridge fund, he said that its multi-factor model has more sub-factors.

“There are seven groups of factors, including value, growth, profit quality, momentum, market expectation, valuations and event factors. But each factor has different sub-factors, and at present, there are around 80 sub-factors,” he said.

The Bosera fund also has sub-factors in its multi-factor model, but not as much as the Huatai-Pinebridge fund, Huang added.

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