HEAD-TO-HEAD: Bosera vs E Fund

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Investment process

Both the Bosera and E Fund products belong to Morningstar’s aggressive bond category, in which fixed income funds can allocate up to 20% of assets to onshore equities.

Both funds are among the riskiest in the category, according to Wu, adding that the funds have always maintained a full 20% exposure to equities even during China’s stock market crash in mid-2015 and at the beginning of 2016.

Both funds still have 20% of assets in equities, according to Wu.

However, they are very different in terms of investment approach in both their fixed income and equity sleeves.

“Most different is their equity styles,” Wu said. The Bosera fund focuses on value stocks with high dividend ratios, while the E Fund manager prefers growth stocks.

The investment style in fixed income allocations is also different. The Bosera fund manager has a focus on capital gains, which are achieved through managing the fund’s duration, while the E Fund manager is more concerned about capital preservation, and prefers bonds with higher liquidity and credit quality, Wu explained.

“From an excess return perspective, the Bosera fund emphasises excess return in both equity and bond assets, while the E Fund only focuses on the equity assets,” Wu said.

The differences in investment approach have resulted in dissimilar sector allocations.

In equities, the Bosera Fund has more value stocks, such as consumer cyclical and financial services, while E fund has identified growth opportunities in different sectors, including healthcare, technology and industrials.

Equity sector allocation (%)

Source: Morningstar

In fixed income, the Bosera Fund has a huge allocation in policy bank bonds (64% of its fixed income assets), while the E Fund product has 83% in convertibles, according to Wu.

Wu explained that the Bosera Fund manager was concerned about credit defaults in China in the past two years, which explains the high allocation to the more stable policy bank bonds.

Turning to the E Fund vehicle, Wu said that the manager is seeing valuation opportunities in convertible bonds and she added that the market has become more liquid as supply rapidly increased in the past few years.

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