HEAD-TO-HEAD: Principal vs Schroder

Added 23rd October 2015

As China's transition from an export-led economy to one based on consumption and services shows concrete progress, FSA compares two Hong Kong equity funds.

HEAD-TO-HEAD: Principal vs Schroder

China's Q3 GDP figure (6.9%) upstaged a far more important datapoint. Services and consumption accounted for more than half of China’s GDP (51.4%) for the first time ever, according to Andy Rothman, investment strategist at Matthews Asia.

The figure is up from 41.4% a decade ago, he added.

Supporting the data is a report from Credit Suisse, which said the Chinese middle class has overtaken the US to become the world's largest. The middle class drives a significant part of demand for a wide range of consumer goods and financial services.

Likely beneficiaries of the economic shift away from manufacturing and construction are sectors such as financial services, real estate, e-commerce and tourism. 

Hong Kong equities are expected to benefit from China's transition. Listed companies in the SAR, particularly services, typically have a major portion of their business in China.

Against this backdrop, Fund Selector Asia compares the Principal LSF Hong Kong Equity Fund against the Schroder International Selection Fund Hong Kong Equity.

Germaine Share, research analyst at Morningstar, has provided a comparative analysis.

Investment strategy review

The investment strategies of both funds are completely different. Each fund is a representation of the portfolio manager’s investment philosophy.

The Principal fund, led by Alan Wang, adopts a custom benchmark of 92% S&P Hong Kong-Listed China BMI index and 8% HSBC FTSE 100 Index. By contrast, the Schroders fund, led by Tony Hudson, refers to it own tailored benchmark of 90% FTSE AW HK and 10% HSBC FTSE 100 Index.

The Principal fund adopts a unique quantitative screening model with a qualitative overlay. Wang selects stocks based on three attributes: a potential long-term increase in shareholder value, rising investor expectations, and attractive relative valuations. 

Wang typically holds around 91 stocks that cover a wide market-cap range that reflects the fund’s quantitative screening method, which the firm calls the "global research platform".

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