The two onshore funds, which are managed by Principal’s mainland asset management partnership with CCB, are the CCB Principal Dual Income Bond Fund and the CCB Principal Selected Growth Mixed Asset Fund.
The bond fund is among the 22 mainland funds that Morningstar recommended last month.
Fund manager Zhong Jingdi has run the portfolio since its inception in December 2011. It has RMB 6.23bn ($952m) of assets under management.
Principal head of North Asia Thomas Cheong said it intended to differentiate its products from other funds that are already available in the market, such as those under RMB Qualified Foreign Institutional Investor (RQFII) scheme, by its longer track record and stable management team.
The firm hopes to promote the bond fund as a “money parking fund”, which has lower volatility than equity or balanced funds, Cheong said in a briefing last week.
“The Chinese stock market will continue to be volatile for a number of years, simply because it’s a developing market, regulations are still being accommodated and it’s very much a retail- driven market.”
Principal’s fund is also hoping to attract investors with RMB deposits in Hong Kong, he added.
So far, four MRF bond funds were approved by the local regulator, but none are selling yet. The other three funds are Bosera Credit Market Bond Fund, UBS SDIC Stable Income Bond Securities Investment Fund and China Merchants Antai Series Open-end Securities Investment Fund.
MRF fund difference
Both of the firm’s southbound funds have been given a five-star Morningstar rating for their three-year performance.
Cheong noted that because MRF funds have a very different investment style than those commonly available in Hong Kong, one has to impress Hong Kong distributors upon stability, consistency of the track record, and recognition by rating agencies like Morningstar.
“We acknowledge we are not a big fund management company like Fidelity or JP Morgan. But we have been gradually developing our fund management distribution in the past 12-16 months”, mostly with the tier-2 banks in Hong Kong, he noted.
He observed that some mainland fund houses are trying to tap the Hong Kong market “in breadth, but not depth”. But it is important to go for depth in the SAR, given the limited number of bank branches and distribution channels as compared to the mainland.
Principal will focus on the MRF platform and is considering bringing its China strategies to its Dublin platform, Cheong said.
The firm’s partner, China Construction Bank, is the mainland’s second largest bank by assets. He said it is not necessary to build a Hong Kong subsidiary of its onshore joint-venture with CCB, a strategy followed by some other mainland fund houses.
By selling through the MRF, the firm hopes to bring product visibility to overseas institutional clients, who at some point will likely show stronger interest in China’s bond market, he said.
