Mirae Asset began discussions with major distributors in Hong Kong on Friday, Phil Lee, Mirae Asset’s head of Asia-Pacific research and a manager of both funds, told FSA.
“We believe the growth style is the most lucrative in Asian investments, because of Asia’s leading global position in growth industries, such as semiconductors, artificial intelligence, IT hardware, automation and biotech,” he said.
They are the first active funds Mirae has launched in Hong Kong since October 2016, when it gained SFC authorisation for its Asia Great Consumer Equity and its Asia Sector Leader Equity funds, according to the reguator’s website.
Instead, the firm has been more focused in recent years on offering thematic ETFs through Global X, a New York-headquartered ETF provider that Mirae Asset bought in 2018.
However, Mirae now has 10 funds authorised by the SFC, including the latest two products issued under the Mirae Asset Global Discovery Fund Luxembourg Sicav umbrella: its China Growth Equity Fund and Asia Growth Equity Fund.
The guiding investment themes for the $332m China Growth Equity Fund, which is lead managed by Chua Wei Wei, are “e-commerce, the internet, biotech, automation and the cloud,” said Lee, who is also the co-manager of the fund.
The portfolio is constructed with a long term investment horizon of three to five years, with a concentrated allocation of 35-40 stocks.
The investment process comprises three steps, according to Chua.
First, the quant team constructs the investment universe, screening out excessively risky stocks based on liquidity, financial and business risk.
Next, a recommendation list is compiled based on qualitative factors, such as long-term industry demand trends, management quality, analysis of market share, pricing power, production chain ownership/distribution and broader company valuations.
Finally, the portfolio managers make their selections based on the recommendation list, a research model portfolio and their own discretionary analysis.
The fund, which is rated with five stars by Morningstar, has generated a three-year cumulative return of 80.7%, significantly outperforming its benchmark MSCI China All Shares index (29%) and the average return of China products available to Hong Kong retail investors (26.5%), according to FE Fundinfo.
Much of that outperformance has been since 23 March, at the bottom of the China equity market’s Covid-19 prompted downturn this year. It has risen 80.8% since the nadir, compared with 56.1% and 40.4% respectively by its benchmark and peers, FE Fundinfo data shows.
Over three-years, it has an annualised alpha of 9.45, and has a 1.01 information ratio (a measure of risk-adjusted returns), but at the expense of greater volatility (23.9%) than the index (21.8%) and its peers (20.68%), according to the data provider.
Mirae Asset China Growth Equity Fund characteristics:
Source: Fund factsheet, 30 September 2020
Mirae Asset China Growth Equity Fund vs benchmark and sector average
Source: FE Fundinfo. Three-year cumulative returns in US dollars.
The $174m Asia Growth Equity Fund has achieved a 64.3% three-year cumulative return, also doing better by some margin than its benchmark MSCI Asia ex-Japan index (19.6%) and its category mean (12.1%), according to FE Fundinfo. The fund has a five-star rating from Morningstar.
Like the China Growth Fund, its performance has been especially strong since the trough the market fall, climbing 85.$% since 23 March, compared with 57.8% by its benchmark and 56% by its peers.
The managers have earned an annualised alpha of 14.2 over three years, and although volatility of 22% is three to four percentage points more than its benchmark and peers, it has an information ratio of 1.53, according to the dat provider.
“The fund’s exposure is split between Chinese and non-Chinese companies by 60:40, in order to balance the China opportunity and risks,” said Lee, manager of the fund and head of Asia-Pacific research (and also a co-manager of the China Growth fund).
“It has higher exposure to IT sector and renewable energy industries, and lower exposure to the financial sector. It is also tilted towards mid- and large-cap stocks,”
Lee describes that major themes as “semiconductors, solar, wind, electric vehicles, cloud, software, artificial intelligence, automation, biotech and platforms”. Top stock holdings include Alibaba, Tencent, TSMC, Samsung and Longi Green Energy Technology.
The investment process is the same as the stages used for the China growth strategy, but Lee emphasised the firm’s “on-the-ground presence through local networks” in the region to “capture and identify ideas at an early stage,” said Lee.
Mirae Asset Asia Growth Equity characteristics:
Source: Fund factsheet, 31 August 2020
Mirae Asset Asia Growth Equity Fund vs benchmark and sector average