Individual fund performance is shown in Table 1, which lists the top 20 performers over the past five years. Other sectors have certainly proved to be more fruitful over this period, but five-year results have been strong on the whole.
The average fund has mustered nearly 15 per cent growth per annum, with top performer Fidelity China Special Situations averaging more than 26 per cent each year.
The Fidelity offering also ranks as the greatest success over three years, level with Neuberger Berman China Equity, in what was a particularly fertile period for Chinese stocks. As index performance would suggest, the majority of this growth has been since 2015.
The Neuberger fund increased by 27.1 per cent and 36.4 per cent in 2015-16 and 2016-17, respectively. It should be noted that the average portfolio gained nearly 30 per cent in 2015-16, with three managers topping 40 per cent.
Giant holdings
Deeper analysis of the two leaders uncovers some familiar holdings. Two of China’s technology heavyweights – Tencent and Alibaba – have a combined allocation of 20 to 25 per cent in both these funds.
However, the Fidelity and Neuberger managers are still underweight the stocks relative to the relevant benchmarks, with the former also listing these two holdings as among its top underweight positions. Both managers have instead opted for a number of less obvious holdings. In fact, several of their top-10 holdings have a benchmark weighting of zero.
But given how rampantly technology stocks have performed of late, and their prominence among China’s major names, it is unsurprising that IT is the most favoured sector.
Investment growth had been harder to come by in the period between the financial crisis and 2015. The 12 months to 1 November 2015 is a case in point: the average fund rose by 2.3 per cent in that period.
Across 10 years, annual returns are comparable with those seen in far less risky markets. The average fund turned a £1,000 lump sum into £1,825 over the past decade – equating to 6.2 per cent per annum.
As always, there are some notable successes. First State’s Greater China Growth fund has flourished over the longer period, increasing by an average of 11.2 per cent over ten years. Despite its size and growing economic stature, China remains an emerging market, and therefore volatility will continue to feature for some time.
Recent performance has rewarded those that have persisted with the country after previous years of meek market growth, particularly in the early part of this decade.
Although investors appear to be dipping their toes back into Chinese stocks, it seems many are all too aware of the potential risks.
