What are we looking for?
Let’s see how investors have fared playing China’s growth story.
The roaring tiger, known for double-digit growth, seems to be losing some of its vocal chords. Data released last Thursday indicate the Chinese economy expanded 7.4 per cent in the third quarter compared with a year earlier – the slowest pace since early 2009.
To get more of a full-cycle look at returns, we looked at greater China equity funds for the five years ended Sept. 30. U.S. dollar and duplicate versions of the funds were excluded.
What did we find?
If investors took a took a buy-and-hold approach with China funds, they didn’t make any money. But companies sponsoring them did. Several charge annual fees of more than 3 per cent, which has eaten away at any gains. Excel China, which has the heftiest fee at nearly 3.7 per cent, was the biggest loser at an annualized 11.4 per cent.
Pro FTSE RAFI Hong Kong China Index Fund was the best relative performer over five years with an annualized 0.4 per cent loss. Over three years, it is the leader with an annual 3.9-per-cent return, and this year with a 14.6-per-cent gain. While its lower 2-per-cent fee has helped performance, the fund differs from its five-year rivals.
Greater China equity funds must be 90 per cent invested in companies domiciled in China, Hong Kong or Taiwan. The Pro FTSE RAFI fund tracks an index of only Hong Kong stocks using metrics like dividends and cash flow.
“With [the Chinese stock market] having the worst performance over the past few years, funds with a heavier China exposure have fared worse than those with less exposure,” says Dan Hallett, a fund analyst with HighView Financial Group.
The poorest performers have a weighting north of 80 per cent in China-based companies, he said. The Hong Kong-focused Pro FTSE RAFI fund is more than half invested in financials, including real estate firms. Big names include Hutchison Whampoa, Sun Hung Kai Properties and Cheung Kong Holdings. Investors expecting names in this fund like China Mobile, China Reconstruction Bank or PetroChina need to look elsewhere. They are in the Pro FTSE RAFI Emerging Markets Index Fund.
How Chinese equity funds have fared for the five years ended Sept. 30
|Fund||MER %||Assets (in $mil.)||5 years to Sept. 30/12|
|Pro FTSE RAFI Hong Kong China Idx-A||2.03||4.9||-0.42%|
|Fidelity China B||2.42||39.8||-6.01%|
|Renaissance China Plus||3.26||87.3||-7.17%|
|Manulife China Class||3.1||42.8||-7.88%|
|BMO Greater China Class||2.87||72.2||-9.43%|
|AGF China Focus Class||3.15||153.4||-9.94%|
|HSBC Chinese Equity-I||2.69||191.6||-10.50%|
|Investors Greater China A||2.74||106.1||-10.75%|
|BMO Gdn. Greater China Cl Adviser Ser.||2.89||2.4||n/a|
|Fund||MER %||Assets (in $mil.)||5 years to Sept. 30/12||3 years to Sept. 30/12||YTD to Sept. 30/12||Calendar yr. rtns. 2011||2010||2009|
|Pro FTSE RAFI Hong Kong China Idx-A||2.03||4.9||-0.42%||3.94%||14.55%||-19.17%||19.11%||31.91%|
|Fidelity China B||2.42||39.8||-6.01%||-3.62%||1.55%||-19.27%||0.93%||44.70%|
|Renaissance China Plus||3.26||87.3||-7.17%||-8.33%||7.25%||-37.76%||3.41%||71.32%|
|Manulife China Class||3.1||42.8||-7.88%||-3.11%||5.45%||-22.25%||4.51%||32.69%|
|BMO Greater China Class||2.87||72.2||-9.43%||-3.07%||5.29%||-24.58%||5.12%||45.81%|
|AGF China Focus Class||3.15||153.4||-9.94%||-3.08%||6.88%||-20.71%||1.27%||27.75%|
|HSBC Chinese Equity-I||2.69||191.6||-10.50%||-5.35%||3.72%||-19.35%||-6.19%||36.86%|
|Investors Greater China A||2.74||106.1||-10.75%||-7.00%||-2.98%||-17.83%||-2.01%||23.62%|
|BMO Gdn. Greater China Cl Adviser Ser.||2.89||2.4||n/a||-3.09%||5.26%||-24.60%||5.10%||45.94%|
|iShares China All-Cap Index Common||0.71||7.8||n/a||n/a||5.79%||-19.15%||n/a||n/a|
|BMO China Equity Index ETF||0.74||9.3||n/a||n/a||0.91%||-26.40%||n/a||n/a|
|PwrSh Golden Dragon China Cl A||2.02||1.6||n/a||n/a||-3.18%||-26.32%||9.04%||n/a|
|iShares China Index||0.86||20.7||n/a||n/a||-3.51%||-15.86%||n/a||n/a|
|Hang Seng Total Return Index||-5.30%||-3.05%||9.43%||-17.92%||-0.43%||29.04%|