Morningstar picks China southbound MRF funds

Added 8th April 2016

The research firm has recommended 22 onshore China funds that are MRF-approved or waiting approval for sale in Hong Kong.

Morningstar picks China southbound MRF funds

Following its first "China Best Ideas" report published half a year ago, this time Morningstar focuses on funds that have either been approved for sale under the Mutual Recognition of Funds scheme or are under the application process.

The report takes a forward looking approach, in contrast to its backward-looking rating system, to identify funds that are expected to outperform over a full investment cycle. 

Among the 22 funds, 12 are aimed at investors who want an aggressive allocation to China. Others include four moderate allocation funds, two aggressive bond funds, and four moderate bond funds.

Rachel Wang, director of manager research for China, said the China research team haven’t covered all approved southbound funds under the MRF scheme at the moment, and will gradually extend the coverage.

She also added that the net expense ratio of China onshore funds is higher than the global average because the calculations are based on a domestic method, which includes clearing costs and interest on borrowing.

So far, 25 mainland funds were approved by the Securities and Futures Commission to sell in Hong Kong.

The seven new funds on the list that have been approved for sale in Hong Kong through the MRF initiative:

  3yr star rating 3yr annualised return (%) Net expense ratio (%) Net asset (RMB million)

China Universal Pri-owned Enterp. Mix A (470009)

 5  33.92  2.54  7,993

GF Industry Leaders Mixed Assets Fund A (270025)

 4  23.97  2.88  5,991

Invesco Great Wall Core Competence Mix A (260116)

 3  13.19  2.22  3,358

ChinaAMC Xinghua Mixed A (519908)

 /  /  2.37   1,496 

CIFM China Sector Rotation Fund Class A (377530)

 3   17.68   3.30   2,565 

Da Cheng Domestic Demand Growth Mixed A (090015) 

 4   24.55   3.89   654 

CIFM China Multi-Assets Fund Class A (373010)

 3   15.77   3.13   2,923

Source: Morningstar


The following are the four new funds for sale through the MRF that were not reviewed in the firm's previous China "best ideas" report:

ChinaAMC Xinghua Mixed Securities Investment Fund A

This fund had been a closed-end fund since 2007 and turned into an open-end product starting April 2013, the report noted.

“An experienced, long-tenured portfolio manager and a stable long-term track record” make the fund stand out from the others, the analysts said.

The fund has maintained a high equity exposure of more than 80%, using a bottom-up approach, combined with primarily high liquid bank bonds.

CIFM China Sector Rotation Fund Class A / CIFM China Multi-Assets Fund Class A

Both funds are managed by Fang Sun, who is "a reasonably experienced investor" with about four years of portfolio management experience.

The sector rotation product adopts a “core and satellite approach”, using growth stocks as core holdings and having satellite allocations in cyclical and thematic names. Equity makes up more than 85% of the portfolio, while the turnover rate and expense ratio are above the aggressive allocation category average.

The multi-asset  product, a moderate allocation fund, typically holds around 70% assets in equity. “The rest of the fund is invested in a diversified portfolio of income-producing, high-quality credit securities, which helps to balance the overall risk profile of the portfolio.”

Da Cheng Domestic Demand Growth Mixed Fund A

Lead manager Bengang Li and the assistant portfolio manager Bo Li have worked together for a long time and “share the same investment philosophy,” the report noted.

Morningstar cited the lead manager’s "in-depth sector research experience and his ability to identify early beneficiaries from emerging sectors”.

The fund seeks to invest in quality growth companies that are in their infancy, that benefit from industry growth trends and that have management teams with strong execution capabilities. It typically has 85% equity exposure.


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