The mainland market is becoming known for volatility, something evident when the market started to correct in mid-June following massive gains in late 2014.
As retail investors hurried to unwind leveraged positions and the Shanghai composite index plunged, China moved to stabilise the market. Measures such as an IPO freeze and a ban on major shareholders selling stocks for six months have raised investor concerns and could even impact on the decision to include A-shares in MSCI’s global indices.
Amid these lively developments, Fund Selector Asia looks at the performance of two funds that invest in China’s onshore market.
Both the Luxembourg-domiciled Allianz China A-Shares Fund and the Hong Kong-based JP Morgan China Pioneer A Fund use their qualified foreign institutional investor quota to invest in the onshore market.
Both funds are focused on large- and mid-cap companies, but there is a huge difference in size. The Allianz fund is 25x smaller than the JP Morgan fund in terms of AUM.
Investment strategies also differ, and Luke Ng, senior vice president at FE Advisory Asia, has provided a comparative analysis.
Investment strategy review
The Allianz fund benchmarks its performance against the CSI 300 Index while the JP Morgan vehicle uses the MSCI China A Index.
Both indices have a focus on mid-to-large cap companies in the A-share market, but the MSCI China A has a broader coverage of 577 stocks, nearly double that of the CSI 300 index, said Ng.
Anthony Wong, the portfolio manager of the Allianz fund, tends to hold a concentrated portfolio of 30-50 stocks and follows a growth-at- reasonable-price strategy.
“Wong intends to hold stocks with good quality, structural growth potential and good valuations.”
He will hold high conviction stocks until a valuation or price target is met, said Ng.
The manager could change portfolio allocation if there are changes in company management or deterioration in the business model, or if there are better risk-return opportunities elsewhere.
Currently, Wong has a stronger focus on industrials, consumer discretionary and information technology sectors while he is underweight healthcare, materials and energy, utilities and consumer staple companies.
By comparison, the JP Morgan team adopts a combination of top-down and bottom-up approach.
“Both approaches are considered important as the Chinese market is policy-driven and there are numerous stocks out there that require specific company research in order to pick winners over the long-term,” said Ng.
The JP Morgan team favours consumer discretionary, healthcare and technology companies.
The fund also benefits from the research of its onshore joint venture partner, China Investment Fund Management (CIFM), which manages a list of 200 recommended A-shares, said Ng.
“The CIFM team maintains a regular dialogue with Lilian Leung [the JP Morgan fund manager] to share information and ideas.”
The JP Morgan fund also typically holds 30-60 stocks in its portfolio.
Snapshot of portfolio allocation: