The top four funds and trusts investing in China

Ahead of Chinese New Year, our funds analysts pick their favourite ways of gaining exposure to this exciting market.

This Saturday (25 January) marks the Chinese New Year. 2020 is the year of the rat - an animal that symbolises wealth and thriftiness in Chinese culture, although whether that proves to be a positive omen for investors in the region remains to be seen.

The signing of the US-China phase one trade agreement marks a de-escalation of tensions, which have dogged the market for almost two years and goes some way in stemming the contagion effect on global markets.

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To mark Chinese New Year, interactive investor, the UK’s second largest direct to consumer investment platform, lists its favoured picks of investment trusts and funds investing in China.

• Investing in China in 2020

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Fidelity China Special Situations

Dzmitry Lipski, Head of Fund Research, interactive investor, says: “Fidelity China Special Situations (LSE:FCSS) is just one of two investment trusts that focus purely on China. The trust had a volatile start but has picked up considerably under the stewardship of Dale Nicholls, who has delivered sparkling returns since taking over in 2014 – to date at least. 

“This is partly due to an improvement in investor sentiment towards China and partly Nicholls’ focus on ‘new’ China – investing in areas of the market related to China’s modernisation. He likes small and medium-sized companies, where he believes lower levels of research leads to more mis-pricing opportunities, and investors will probably recognise at least a couple of the top holdings, which include Tencent (SEHK:700) and Alibaba (NYSE:BABA) which are the first and second largest holdings respectively.

“Since 2016, Nicholls has been able to invest up to 10% in unlisted companies amid a trend for Chinese companies to list on a public stock exchange after their development has progressed. This exposure, combined with gearing of up to 25% (it is currently around 20%), amps up the risk profile but for patient, long term investors it could enhance performance on the upside.”

JPMorgan Emerging Markets Investment Trust

Teodor Dilov, Fund Analyst, interactive investor says: “JPMorgan Emerging Markets Investment Trust is one of the largest global emerging market trusts and has a good track record over the medium and longer term. A third of the portfolio is invested in Chinese stocks, four of which are among the portfolio’s top 10 holdings including internet group Tencent (SEHK:700) and its tech peer Alibaba (NYSE:BABA).

“Austin Forey, who has run the trust for over 20 years, aims to scour emerging market countries for businesses with attractive earnings, strong balance sheets, excess returns on capital, sustainable competitive advantages, an ability to grow market share and potential to generate significant shareholder value. Forey tends to have a bias towards domestic consumption growth and the portfolio tends to be dominated by financials and consumer staples.”

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Guinness Asian Equity Income

Teodor Dilov: “For those seeking an income element as well as growth from their investments, we like the Guinness Asian Equity Income. The fund has a 28% weighting to Chinese stocks – three of which are among the portfolio’s top 10 holdings.

“With assets of £231 million, the fund is relatively small but is attracting a growing following. Edmund Harriss and Mark Hammonds, who manage the fund, run a high conviction portfolio with no benchmark constraints and look for three things when selecting stocks: quality, value and dividends. The stocks are equally weighted and managed on a disciplined one in, one out basis.

“The managers point to the Asian region being a mix of advanced, high income economies and newly industrialised countries. High growth and rapid development are often accompanied by volatility and risk, but they say that strong generation of cash and its distribution as dividends provide a degree of downside protection.”

Fidelity Asia

Dzmitry Lipski, says: “Though broadly diversified at country and sector level, the manager tends to favour companies operating in emerging Asian economies, such as China – which makes up 34% of the portfolio with Alibaba, life insurance group AIA Group (SEHK:1299), Tencent and Industrial And Commercial Bank Of China (SEHK:1398) accounting for four of the portfolio’s top 10 holdings. This comes at the expense of the more mature markets, including South Korea, Taiwan, Hong Kong and Singapore.

“Teera Chanpongsang, who manages the portfolio, seeks companies trading below their intrinsic value that he believes have improving fundamentals the market has not yet recognised in the underlying share price. He has no stated style bias, although typically leans towards ‘growth at a reasonable price’. A company’s management is a primary focus for Chanpongsang, particularly, regards to the treatment of minority shareholders. 

“Interestingly, prior to joining Fidelity, he worked as an accountant in his native Thailand and he is especially wary of companies that display earnings growth without corresponding cashflow growth.”