Neptune China fund manager tops up financials
Manager adds to sector but remains underweight overall.
Neptune’s £75.9m China fund manager Doug Turnbull has unwound his “massive underweight” in financials, saying banks are lending more in light of monetary policy initiatives.
The fund’s weighting is now only slightly underweight the level on its benchmark index, with the manager targeting real estate and banking stocks.
“The government is becoming much more accommodative in terms of monetary policy though and a key part of that is getting the banks to lend more,” he said.
“If you need banks to lend more you don’t want them having non-performing loans and the government can mitigate bad-performing loans, which means this issue is not an imminent problem.”
China cut its benchmark interest rate in July for the second time in a matter of weeks, with the one-year lending rate falling by 0.31 percentage points to 6 per cent and deposit rates declining by 0.25 percentage points to 3 per cent.
The cut came amid data showing a weakening manufacturing sector, with the official purchasing managers’ index for manufacturing falling to 50.4 in May – its lowest in five months – from 53.3 in April. A level above 50 signals an expansion in activity.
Elsewhere, the manager also increased his weighting construction stocks at the start of the year, in a bid to increase the market sensitivity, or cyclicality, of the portfolio.
“We didn’t add the construction positions at a brilliant time but I am still comfortable with the companies in the fund,” he added.
The fund has delivered a bottom-quartile 18 per cent return in the five years to August 7 compared with the IMA China/Greater China sector average of 21.8 per cent, according to FE Analytics. The benchmark MSCI China index has delivered 27.2 per cent over the same period.
Over three years the fund is top quartile and over one it is bottom quartile.