The fund picks are filtered from “qualitative, forward-looking analysis that aims to identify funds we expect to outperform their peers or the relevant benchmarks over the cycle”, the firm said.
However, most of China’s fund managers have short experience compared to their developed market counterparts, and as a result haven’t yet been tested through multiple market cycles, the firm noted.
For China domestic equity funds, Morningstar recommends:
Industrial Global View Securities Investment Fund
“The demonstrated experience of the fund manager, its stable management, and low performance volatility” are reasons why this fund made the list.
Co-manager Chengfei Dong has managed the fund since 2007, “and this makes him one of the most experienced and longest-tenured mutual fund managers in China”.
The fund is a “relatively defensive choice for equity investors, providing some insulation during market downturns, but it may lag behind peers in a bull market”.
HuaShang Theme Selected Stock Fund
Co-manager Yongqiang Liang “prefers emerging industries or those that are undergoing a transformation by focusing on their current status and growth potential looking out over five to 10 years”. He also tends to hold high-conviction ideas for at least two years, resulting in a relatively low annual turnover.
The firm recommends the fund for investors who prefer growth stocks. “However, its high stock position and portfolio concentration make it vulnerable to short-term fluctuations.”
GF Industry Leading Stock A
Manager Xiaolong Liu looks for stocks that offer the best risk-adjusted return profile. His approach is bottom-up to evaluate fundamentals, focusing on a stock’s growth potential and margin of safety. “Liu tends to be quite flexible in how he positions the portfolio across sectors and individual securities, and we consider his great insight and execution on sector positioning a major positive here.”
The flexible approach also leads to an above-average turnover rate and expense ratio. The fund is suitable for investors with an aggressive risk profile, the research firm said, “but investors should note the potential volatility”.
IGW Core Competence mix
The Invesco Great Wall fund attempts to mitigate volatility by identifying stocks with a high margin of safety, Morningstar said.
Portfolio manager Guang Yu has four years of investment experience, however, he has excelled in managing downside risks. The fund is recommended as a long-term core holding for equity investors.
China Universal Private-owned Enterprises Fund
The fund is a Morningstar favourite due to “a consistently applied growth strategy and in-depth individual stock research”.
That said, portfolio manager Xiaoliang Zhu has only two years of portfolio management experience.
Zhu looks for stocks with promising growth prospects. Risk control comes from the depth and timeliness of the research on individual stocks, as well as capping the weight of illiquid stocks.
The product is recommended for investors looking for high growth, “but the portfolio concentration around high growth stocks may lead to increased volatility and downside risks. The strategy is likely to markedly underperform its peers when markets turn bearish”.
ABC-CA Small and Medium Cap Equity Fund
The lead manager’s “deep investment experience and growth-oriented strategy” are the reasons this product stands out.
Lead manager Juan Fu, a former accountant and researcher, has around three years of experience in portfolio management. She generally takes a bottom-up, growth-oriented approach to portfolio construction.
“While Fu’s accounting background means that she is detailed-oriented, her research experience has led her to focus on industry analysis and depth of research, rather than basing her investment decisions solely on financial statement analysis.”
The fund is “a solid choice for investors who prefer growth stocks, but investors also need to be mindful of its high level of portfolio turnover and peer-relative volatility”.
Source: Morningstar. Return figures are total return since 30 June 2015