Rachel Wang, Morningstar
Ten of 16 selected funds are available for sale for eligible investors in Hong Kong and abroad via the Mutual Recognition of Funds (MRF) programme.
Rachel Wang, director of manager research in China based in Shenzhen, said her team’s analysis found Invesco Great Wall Core Competence Fund is “best of the best” among peer products. The fund was also chosen in her previous review in December.
The fund’s top three sector allocations are to A-shares in consumer defensive at 19.53%, consumer cyclical (16.5%) and financial services (11.72%), according to data from the research firm.
“We continue to have strong conviction on the team’s long-term focus on consumption, and financial stocks have also been our conviction. The stable strategy has translated into sustainability and consistency of performance, despite the small scale of the on-the-ground research team.”
The mixed-asset fund has been managed by Yu Guang since 2012. She added that the fund is prone to short-term volatility and lags in the rally driven by China’s growth stocks, such as those in the technology and media sector.
Morningstar’s China Best Ideas
Source: Morningstar
Aggressive portfolios
In the list of best ideas, nine out of 16 selected funds belong to the category of aggressive allocation. Wang explained that this category contains the largest number of funds managed by Chinese managers.
“Aggressive allocation funds have a dominant presence in China’s fund market. They are also the most competitive type of funds because aggressive allocation to China’s A-shares typically generates a good level of alpha. The managers usually have a longer tenure managing the fund as well, despite the short history of the mutual fund industry in China.”
Wang noted that there are two distinct characteristics of funds expected to outperform peers in the onshore investment market.
“We believe that the portfolios that are more balanced and diversified are likely to outperform in the rather volatile A-shares market,” she said.
“Moreover, as the participation of foreign institutional investors is expected to expand after the MSCI inclusion of A-shares, the stock market will tend to be more fundamental-driven. The fund managers who chase behind themes and trends may deliver a lower return,” she continued.
There are around 4500 mutual fund products managed on the mainland with a total AUM of $1.71trn, the Morningstar report noted.
Pulled off the list
The research firm removed three funds from the previous best China ideas list over concerns about the management. They are Bosera Selection Stock, Fullgoal Tiancheng Dividend Dynamic and CCB Principal Dual Income Bond.
The manager of the Bosera fund Li Quangsheng has taken up additional responsibility on the team which may leave him less time dedicated to portfolio management, according to Morningstar.
The removal of the Fullgoal and the CCB Principal fund was due to the departure of portfolio managers while the newly-appointed managers have yet to prove themselves, according to Wang.
The research firm did not add funds onto the list in the latest review.
“We focus on long-term analysis of manager and investment process. If tenure of a fund manager is merely two-to-three years, it would be considered as too short based on offshore investor standards and the product will not be included in the list.”
She stressed that it is also important for the best ideas to deliver a stable return over different cycles with a consistent investment strategy.
