The Asian equities team at First State favour well-managed companies with sound balance sheets, barriers to entry from competition, and a record of generating sustainable returns throughout a variety of market conditions.
China's stock market is dominated by state-owned enterprises. These companies are often heavily influenced by China's government and frequently perceived not to be run in the interest of shareholders. Many are considered unsuitable for investment by the team at First State; however, they are mindful state-owned enterprises play an important role in China's economy and should not be ruled out completely. Therefore the team focus on those that meet their strict quality criteria and where they feel government intervention will not inhibit the company's ability to deliver sustainable long-term returns. One such company is China Merchants Bank, which is majority owned by China Merchants Group, a state-owned company. In the team's view the business is run by a management team with a good reputation, focused on driving returns and concerned with shareholder interests.
The conservative nature of the team's investment approach means the fund has traditionally offered some shelter in large market corrections, while capturing the majority of the growth of rising markets. Last year, for example, the fund held up well during a more difficult year for the broader Chinese stock market. The fund has also made a positive return so far this year, although it has seen mixed results from some of its investments. Please remember emerging markets are higher risk and past performance is not a guide to future returns.
A number of consumer staples companies, to which the fund is biased, have struggled this year. For example, China Mengniu, a dairy product company, experienced weaker demand and greater competition from foreign brands. The team at First State have maintained their investment as they are encouraged the business is repositioning itself as a healthier product provider with a new range of yoghurts, beverages and other non-dairy health options.
On the other hand, Fuyao Glass performed well. The company is currently the most profitable auto glass maker in the world and the biggest in China with 73% market share. It has production capabilities in the US and Russia, which means it can deliver products more quickly to overseas customers. The team believe the company's shares continue to offer good value and maintain their investment.
The fund currently operates a concentrated portfolio which enables each holding to make a significant impact on returns although this is a higher-risk approach.
Our view on this fund
The team at First State have delivered exceptional results over the long term. Since launch in December 2003 the fund has grown 575.5%* compared with 297.8% for the average fund in the sector, although this does not serve as a guide to how the fund will perform in future. We favour the team's conservative approach to investing in what can be a volatile market and would expect them to deliver good returns for investors with a long investment horizon.
|Annual percentage growth|
| Sept 11 -
| Sept 12 -
| Sept 13 -
| Sept 14 -
| Sept 15 -
|First State Greater China Growth||1.8%||20.0%||11.9%||-9.0%||35.2%|
|IA China/Greater China||-10.2%||23.0%||8.0%||-4.8%||32.9%|
Past performance is not a guide to future returns.
Source: *Lipper IM to 01/09/2016
The fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors. However, the Wealth 150 features a number of other funds offering broader exposure to Asian and emerging markets, including Chinese companies.
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