HEAD-TO-HEAD: HSBC Jintrust vs Invesco Great Wall

123456

Despite the “mixed assets” label and Morningstar placing both funds in the “aggressive allocation” category, they are essentially equity funds, Li said. As of 30 June, the most recent data available, the IGW fund held no bonds in its portfolio, while the HSBC Jintrust fund’s bond exposure was around 5%.

“The purpose of the fixed income part of these two funds is just to provide liquidity,” Li commented. “The portfolio managers mostly concentrate on the equity part.”

Although both funds hold 55-60 stocks in their portfolios, there’s a striking difference in the annual turnover. The IGW fund has a turnover of 68%, while the HSBC Jintrust fund’s turnover is a whopping 455%, according to data from Morningstar. It means that the whole portfolio is churned over 4-5 times a year. (It’s still lower than the category average of 481%).

“Chinese A-shares have much higher volatility than shares in Hong Kong or on the US exchanges,” Li noted. “Investors in this market trade more frequently, sector rotation is more frequent and theme investing is very active.”

Managers who are skilled at timing the sector rotation and identifying themes perform, on average, better than those who ignore this approach, Li commented.

The management of the HSBC Jintrust fund, led by Min Guo, is more focused on market timing and sector rotation, while Guang Yu, the portfolio manager of the IGW fund, is a bottom-up stock picker, who prefers to hold stocks for a longer time.

While following a mix of a top-down and bottom-up approaches, “the portfolio manager [of the HSBC Jintrust fund] adopts the same stock selection outlook that has been used at HSBC for a long time,” Li said. In particular, they use the “PBRE” framework, which has at its core analysis of the price-to-book and return-on-equity ratios.

The HSBC Jintrust portfolio is currently overweight financial services, at 31% of the portfolio, compared to the category average of 9%. This is an example of theme investing, according to Li.

He linked it to MSCI’s decision to include China A-shares in its emerging market indices starting in mid-2018. “Investors in China think that the foreign capital is going to flow into China at a faster pace, and that it will be invested in banks and insurance companies,” he said. The fund wants to capture the expected increase of valuations, even though it is not driven by improvement in fundamentals, Li said.

In contrast, IGW’s Yu “does not pay too much attention to other investors”, said Li. “He just invests in stocks he thinks have stable earnings and very promising growth, while avoiding ‘hot’ stocks.”

Neither fund has the ability to invest in offshore equities, therefore neither holds shares of the internet giants Alibaba or Tencent, which are listed in the US and Hong Kong, respectively.

123456