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Number Cruncher

Stock screens for investment ideas from professional investors. Exclusive to subscribers of Globe Unlimited.

Chinese national flags fly in front of a newly built residential apartment in Wuhan, Hubei province, July 10, 2012. (DARLEY SHEN/Reuters)
Chinese national flags fly in front of a newly built residential apartment in Wuhan, Hubei province, July 10, 2012. (DARLEY SHEN/Reuters)

Number Cruncher

Chinese equity funds take it on the chin Add to ...

What are we looking for?

How badly Chinese equity funds are bleeding.

There is growing investor concern about China’s slowing economy. Earlier this week, the International Monetary Fund cut its growth forecast for China by 0.2 percentage points to 8 per cent, and suggested a “hard landing” was still possible.

The screen

We examined the one-year returns of greater China equity funds to June 30.

U.S. dollar, segregated and duplicate versions of funds were excluded.

What did we find?

Index fund offerings at the bottom and top of the performance heap.

BMO China Equity Hedged exchange-traded fund, which tracks an index of Chinese companies trading as American depositary receipts in New York, suffered the most with a 28.1-per-cent loss.

Shares of Chinese companies, whether they trade in New York or in Asia, have faced various headwinds. The BNY Mellon China Select ADR Index, which is tracked by the BMO ETF, has its highest weighting in the energy sector (nearly 26 per cent), and includes names like CNOOC and PetroChina.

“Though oil prices have remained high over the course of the last 12 months, they have faced some pressure due to lower global growth expectations,” said Alfred Lee, an investment strategist with BMO ETFs at Bank of Montreal.

Because the Chinese currency exposure is hedged back to Canadian dollars, the ETF was also hurt because the yuan gained 7.4 per cent against the loonie, he added.

The Pro FTSE RAFI Hong Kong China index mutual fund, which does not confine itself to mainland Chinese firms, was the best relative performer with a loss of only 8.6 per cent. This funds tracks an index that weights companies not by market value, but by fundamental factors such as cash flow, dividends, book value and revenue. It has about a 50 per cent weighting in financials and industrials, and includes Hong Kong-listed names like Cathay Pacific Airways.

This mutual fund also posted the best five-year annual return at 0.20 per cent. That number is hardly inspiring, but it was the only fund in positive territory.

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Greater China equity funds in the red over the past year

Fund MER Assets (in $mil.) 1 yr to June 30/12 3 yrs to June 30/12 5 yrs to June 30/12 Calendar yr rtns 2011 2010 2009 2008
BMO China Equity Hedged ETF 0.74 9.8 -28.07% n/a n/a -26.40% n/a n/a n/a
PwrSh Golden Dragon China Cl A 2.02 1.7 -27.42% n/a n/a -26.32% 9.04% n/a n/a
Renaissance China Plus 3.26 91.9 -23.91% -9.04% -2.85% -37.76% 3.41% 71.32% -37.01%
BMO GDN Greater China Cls Ad Srs 2.89 2.5 -20.11% -2.48% n/a -24.60% 5.10% 45.94% n/a
BMO Greater China Class 2.87 73.6 -20.07% -2.46% -6.55% -24.58% 5.12% 45.81% -47.55%
Excel China 3.54 45.1 -20.00% -6.01% -8.80% -23.06% -3.22% 43.37% -45.88%
Investors Greater China A 2.74 111.5 -17.02% -7.18% -6.72% -17.83% -2.01% 23.62% -38.93%
iShares China Index 0.85 20.8 -16.54% n/a n/a -15.86% n/a n/a n/a
Manulife China Class 3.10 44.5 -16.22% -2.00% -4.93% -22.25% 4.51% 32.69% -39.30%
AGF China Focus Class 3.15 157.3 -14.92% -3.95% -5.18% -20.71% 1.27% 27.75% -41.67%

Source: Lipper


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