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UBS registers flagship China fund for sale in Mainland

The product is the first UBS fund approved under the northbound Mutual Recognition of Funds (MRF) scheme.
Red entrance gate opening to the forbidden city in Beijing - China

UBS Asset Management announced that its $14.8bn UBS China Opportunity Equity Fund, was approved by the China Securities Regulatory Commission on 30 April 2021.

The fund will be registered as a Northbound MRF under the Mainland-Hong Kong Mutual Recognition of Funds scheme and is also UBS AM’s first ever approved Mainland-Hong Kong MRF product.

“The [MRF] scheme helps investors explore value in the global market with more diversified options and risks of investment,” said Raymond Yin, head of Asia Pacific at UBS AM, in a statement.

The MRF between mainland China and Hong Kong is a scheme jointly launched by the China Securities Regulatory Commission and Hong Kong Securities and Futures Commission, and was implemented in July 2015.

Under the scheme, eligible Mainland and Hong Kong funds can be distributed in each other’s market through a streamlined vetting process. The CSRC and SFC have set out eligibility requirements, which include that northbound funds must be domiciled in Hong Kong and managed within the territory.

The Hong Kong-domiciled version of the UBS China Opportunity Equity Luxembourg-domiciled Ucits was incepted in 2017.

Last month, UBS AM lost its top position in Broadridge’s China “power rankings” to JP Morgan Asset Management. One reason for the slippage, was UBS AM’s lack of MRF offerings, according to the firm.

However, it noted that UBS AM had applied for approval to sell three of its Hong Kong-domiciled funds in the Mainland through the MRF and “if the firm receives authorisation in the coming months, UBS AM could take back the leading position”.

The other two products are the China High Yield Bond Fund and the Systematic Allocation Portfolio Medium Classic Fund.

Showcase China equity product

The China Opportunity Equity fund represents “the flagship strategy of UBS AM”, according to the firm. It focuses on stocks of overseas-listed Chinese companies, and it has a value focus and bottom-up investment process, and proprietary risk management system.

Tianhong Asset Management is acting as the mainland master agent.

The manager of the fund is Bin Shi, head of China Equities at UBS Asset Management, and he is helped by Denise Cheung.

Morningstar Direct senior analyst, Claire Liang, describes the fund as a “standout proposition for Chinese equity exposure”.

The research firm awards the fund five stars and a silver analyst rating, and Liang believe Shi is “one of the strongest China equity managers, having demonstrated the ability to identify winners in their early stages, although she warns that the management team has experienced “heightened turnover in recent years…[which] needs monitoring”.

The fund has generated a 36.28% three-year cumulative return, outperforming both its MSCI China 10/40 index benchmark (26.57%) and the average achieved by other China equity products available to Hong Kong retail investors (33.20%), according to FE Fundinfo.

It annualised volatility during the same period is 20.79%, less than its benchmark (22.45%) but more than its sector average (20.45%).

Year-to-date, the fund has struggled, posting -2.72%, compared with 0.53% by its benchmark and 3.47% by its peers, FE Fundinfo data shows.

Although its largest sector allocation is to consumer discretionary stocks (23.8%), the fund is underweight compared with its MSCI China 10/40 index, and it is also underweight information technology, industrials and materials, its fact sheet shows. Notable overweight allocations are consumer staples and financials, and it also has significant non-index holdings.

Indeed, the manager has “great flexibility to take focused views on the most attractive stocks and exploit the best opportunities, unconstrained by the reference index” according to it mandate.

Top five individual investments, as of 30 April, include Tencent, Alibaba, Tal Education, Kweichow Moutai, and Netease.

UBS Asset Management has worldwide AUM of $1.1trn, according to the firm.

UBS China Opportunity Equity Fund vs benchmark and sector average

Source: FE Fundinfo. Three-year cumulative retruns in US dollars.

Part of the Mark Allen Group.