FSSA Greater China Growth B GBP Acc
Why is this fund on our radar?
As one of the world’s largest economies, China is home to many high-quality, industry leading firms that have generated excellent shareholder returns over a number of years. Due to the sheer scale of the country’s stock markets though, to identify the best of these opportunities, and just as importantly, to avoid those that may be challenged, using an actively managed fund may be the best solution.
FSSA Greater China Growth is a strong contender for the role. The fund scores highly on a number of metrics against the peer group, not least of all for its consistency and track record of the managers, Martin Lau and Helen Chen, in generally selecting companies that have outperformed the wider stock market, and avoiding those that have struggled. This approach is supported by an highly flexible process, allowing the managers to pick the best opportunities in mainland China, Hong Kong and Taiwan, making a broader investable universe than many peers, with a concentrated portfolio, of c. 50 stocks, allowing these picks to thrive.
Skip to Our VerdictPerformance
The managers have an absolute return mindset when investing, rather than considering their selections as something relative to a benchmark or peer group. As such, the portfolio is likely to look, and therefore perform, very differently to comparable funds. The ability to invest in the Greater China region, including a sizeable allocation of c. 25% to Taiwan, means the outlook for China will not have such a direct impact of the performance of the fund (although it should be noted that the trust’s formal benchmark includes Taiwan) meaning the fund is less likely to be affected by China’s prospects, whether for better or for worse.
The absolute return mindset means the fund should perform best in falling markets, as we have shown in the chart below. This shows the fund outperforming the peer group in the three challenging years for the country between 2021 and 2023, all of which saw negative average returns for the peer group. In one of these, 2021, FSSA Greater China Growth even generated a positive return.
Calendar year performance
Past performance is not a reliable indicator of future results
We believe this defensive characteristic is particularly sought after in China’s often volatile market, and is further enhanced by the bias towards sectors with more resilient revenue streams, such as consumer staples and healthcare. However, the concentrated portfolio and high conviction positions means that stock selection is likely to have the largest impact on fund performance, although Martin has decades of experience investing in the region, with on-the-ground knowledge to help support his stock selection process.
The flipside of this is that the trust can lag more aggressively positioned peers in sharply rising markets, or if the market is being driven by momentum, often amongst a narrow band of popular stocks. This environment is not uncommon in China, especially the domestic market which has high retail investor participation. Despite this, the absolute return approach has historically delivered outperformance of the market throughout the course of a market cycle.
Portfolio
Lead manager Martin Lau, supported by co-manager Helen Chen, both have considerable flexibility in where they can invest, with their greater China universe including the mainland, Hong Kong and Taiwanese companies, offering a considerably greater range than a direct China investment. Stocks are selected using an absolute return mindset, with the managers focused on the risk of losing investor capital, rather than the performance relative to comparators, meaning the portfolio may look very different to other China-focused vehicles.
market ALLOCATion
Source: First Sentier Investors
The managers are highly disciplined in looking for what they believe are the right companies, targeting the highest quality firms, defined as those with defendable market leading positions, and therefore less susceptible to competing firms, sustainable business models and management teams that respect the rights of all shareholders. Furthermore, they are also strict about the price they pay for a stock. With such a focused approach, the portfolio is likely to be highly concentrated at around 40 to 50 stocks, with sizeable allocations to their top holdings.
The managers centre the portfolio around a few key areas; dominant consumer companies, high quality financials and healthcare, all of which are set to benefit from the growing wealth and associated spending of the region’s populous. Another area is technology, in which China and surrounding economies have many industry leaders, benefitting from the growth of our increasingly interconnected and automated world.
Our Verdict
Whilst many commentators remain understandably sceptical over the prospects of China, given geopolitical tensions and its different governmental practices compared to the West, the fact remains that there are many high-quality, industry leading companies that can generate exceptional returns. The ongoing development of technology and growth means these companies continue to increase in prominence and are now challenging global leaders for market dominance.
We believe FSSA Greater China Growth is an excellent vehicle for investors to capture these opportunities. Given Martin and Helen’s extensive experience and on-the-ground knowledge, they are able to identify companies that are able to capture the growth of the country, whilst also avoiding those that have impacted the country’s international standing. This gives the fund a significant advantage over a passive investment, in our view.
Further adding to this is the wider investable universe including Taiwan. This should enable the managers to mitigate the portfolio’s country-specific risk, by investing outside the main China market, as well as allowing them to invest in companies that peers may be unable to, such as the dominant Taiwanese semi-conductor foundries, further supporting the potential to deliver returns above the market.
Key Risks
- Concentrated, high conviction portfolio could lead to periods of poor performance should stock selection be unfavourable
- Chinese market can be volatile and exposed to geopolitical factors
- Charges are towards the higher end of the peer group
