Investor Insight: Baring China Growth fund

Name: William Fong
 Job title: Senior investment manager, Asian equities
Company: Baring Asset Management.

Q. When did the fund launch?
A. The fund was launched in May 2008. 

Q. Can you break down the current structure of your fund?
A. The portfolio structure mainly invests in companies that benefit from the growth of China’s economy.  90 per cent of the portfolio is invested in listed companies on the Hong Kong exchanges.  If you are looking at the details, 50 per cent is invested in Chinese shares. You find that 20 per cent are also Chinese companies but private enterprise. The benchmark for this fund is MSCI China, but this fund has quite some flexibility because of the fund size.

Q. Would you say the fund’s portfolio favoured any particular sector or size of company?
The fund is a little bit biased towards small and mid cap companies, particularly those companies below (US)$2 billion.  It all depends in the stock opportunities.

Q. What is the current level of assets under management?
The size of the China Growth fund is $31 million, but before the launch of the fund, we had an offshore version which launched a month earlier.  If you combine the two it is a total of $130.

Q. Where has the fund performed well?
Outperformance has come from being overweight in sectors like property, financials and materials. In the first half of 2009, the economy had been affected by the credit crunch.  We believed a lot of stocks were at a distressed level.  We monitored policies by the Chinese government, like auto sales, for example.  Sooner or later, these policies will drive inflation.  We are willing to be more aggressive than our peers although the economy has been recovering faster than expected.

Q. How would you describe how you have positioned the portfolio this year, compared to last?

 

Our portfolio is still for growth.  The major difference of this year, versus last year is the threat of inflation.  We have been monitoring the change in the policy, which may have some impact on volatility. Having said that, we have been studying a lot of the historical data at the beginning of this inflationary environment – there are a lot of companies that will benefit from this in the short term.

Interest rates may not have such an impact at the beginning.  In the early stage of an inflationary cycle, some companies can enjoy the rise of product price and expansion of profit margin.  Some of them are still enjoying material costs.  Some of the industrial stocks can also raise their prices so the profit margin can also increase.

Q. Are you able to suggest some companies that you are currently holding?
Not specifically, but we like the consumer discretionary and material sectors at the moment. In Taiwan, we are still quite positive on the technology sector.  Some of our performance from last year has come from the technology stocks.  We think that the PC replacement cycle will kick in and we are expecting some new products to be announced later this year.