Fidelity International’s China Fund has received an ‘A’ rating from van Eyk as part of its first specialised review of the Chinese equity market, which also highlighted risk concerns.
“Fidelity was identified as the ‘A’ rated manager in this review based on its identifiable competitive strengths relative to its peers,” senior investment analyst Briana Lam stated in the sector report.
“The (investment) strategy offered investors access to an experienced portfolio manager of Chinese equities with solid support from analysts dedicated to the region. The process was found to be thorough and disciplined, with regular company contact a positive differentiating feature relative to [its] peers.”
He added that Fidelity demonstrated a sound awareness of potential risks that needed to be considered both at the individual company level and with regards to portfolio construction.
The next top rated fund was Value Partners’ Premium China Fund, which was given a BB rating. The fund was recognised for having the largest investment team and being competitive relative to its peers in the depth of its research, Lam stated. However, the researcher questioned its high management and performance fees.
“The base fee of 2 per cent a year is the highest among peers in the review group, while a performance fee of 15 per cent is also applied to any outperformance over the MSCI China Free Index. Van Eyk would prefer that a hurdle rate be in place and that the performance fee not be applied to negative fund performance,” he said.
The report gave the China equities market a risk rating of ‘high-medium’.
“Compared with developed equities markets, the Chinese equities market tends to exhibit higher volatility and its performance is driven more by short-term sentiment,” said Lam. “As such, the market’s performance is much harder to forecast based on fundamental analysis.
“In addition, transparency of corporate management in China is much lower than in the developed world. Indeed, it is a Chinese equities fund manager’s major concern.”
