Winnersrationale

“The Matthews China Small Companies Fund over all trailing periods has exceeded its benchmark’s return by a significant margin, around 850 bps annualised since inception in 2012. The fund is also ranked as top decile against its Greater China Equity peers on 3-year, 5-year and 10-year returns,” said Twinkle Sparta, associate editor, Asian Private Banker.

“The foundation of the strategy is the team’s long-term optimism for economic growth and development in Asia Pacific countries. It invests in small cap companies in China, which provide opportunities for higher growth at lower valuations because they are less well known.”

“Through rigorous on-the-ground research and due diligence, the actively managed fund is positioned to uncover opportunities among high-quality companies with good corporate governance at attractive valuations.”

Winnersrationale

While 2021 has been mixed for Greater China equities after the 2020 bull run, Matthews Asia’s Greater China equity strategy — the Matthews China Small Companies Fund — was not only able to produce impressive returns amidst market headwinds, but also testified to the value of prudent, bottom-up stock selection that sets itself apart from competitors.

To begin with, the fund is among the few “de facto” small and mid cap strategies in Greater China equity. It defines “small cap” as stocks with a market capitalisation of US$1 billion to US$5 billion and deploys a fundamental, bottom-up investment process. The managers of the fund seek to identify companies with sustainable long-term growth potential, solid business models, quality governance and reasonable valuations — an approach that they believe is especially suited for the small-cap asset class.

The fund identifies its investment universe of more than 100 companies from a vast pool of over 4,500 individual small to medium-cap firms. The screening process is broken down into two steps: first, it evaluates firms based on fundamentals such as return on invested capital, sales growth, gross margins, liquidity and net debt to equity; then it pins down specific sectors set to benefit from China’s industry dynamics and secular growth trend and within them, sub-sectors and particular companies.

This methodical approach to stock selection, coupled with the company’s long history in researching and interacting with Chinese companies, has paid off despite a challenging macro market. For one thing, it managed to avoid those hit hardest by the regulatory clampdown — large-cap technology companies, major real estate developers, after-school tutoring (AST)-related education stocks, and Macau gaming companies. As of the end of August 2021, the USD share class had generated an annualised return of 14.72% since its inception in 2012, beating the benchmark MSCI China Small Cap Index return of 4.6%.

In the past year, some of the most prominent private banks in Asia have picked the Matthews China Small Companies Fund as a recommended fund, and the fund has witnessed continued investor interest, recording a YoY 80% increase in AUM as of the end of August 2021. Matthews Asia offers private banks direct access to its portfolio management team and its chief investment officer, Robert Horrocks, and investment strategist, Andy Rothman, for macroeconomic insights on the region.

Capitalising on its strength of rigorous stock selection, in-depth analysis and knowledge of the China domestic market, Matthews Asia has proven to be a long-standing pioneer among Greater China equity providers. It has therefore been named Asian Private Banker’s Best Fund Provider — Greater China Equity.

Winners rationale

Matthews Asia, a manager synonymous with the ultra-competitive China equity space, offers a genuinely differentiated solutions suite for investors to harness what is arguably the most important story of this generation — and excels at doing so.

The firm’s flagship Matthews China Small Companies Fund, one of three dedicated China strategies, stands out from peers’ offerings on a number of fronts. By virtue of its small-cap focus, the strategy — which provides investors with exposure to the drivers of China’s evolving economy — avoids large-cap household names that underpin rival funds by focusing on companies that epitomise entrepreneurship, innovation, and the drive to promote domestic consumption, and that have the potential and aspiration to become tomorrow’s dominant players in their respective sectors.

The fund is the only small-cap China-focused fund with a five-year track record, crucially delivering consistent outperformance versus peers and benchmark across various time frames, and ranking second out of 99 China equity funds in terms of absolute returns on a year-to-date basis (as of 31 August 2020) as at the time of deliberation and within the Morningstar universe of China equity funds.

Unquestionably, Matthews Asia’s prowess derives from its vast experience in following the Chinese market, having launched its first China strategy in 1998. In 2014, it acquired a QFII licence and quota, and the firm has participated in A-shares via China’s Stock Connect programmes. As at the time of deliberation, Matthews Asia managed over US$8.6 billion in China equities across the firm’s single country and regional equity strategies, of which US$2.3 billion was invested in China A-shares through its QFII and Stock Connect programmes.

The team behind Matthews Asia’s stable of China strategies employ a strict fundamental, bottom-up selection process with an emphasis on companies with long-term growth prospects, quality managements and reasonable valuations — attributes critical in the small-cap segment. The rigour of the firm’s approach is all the more important since the majority of the universe Matthews Asia tracks is not covered by sell-side analysts, thereby raising the bar for competitors and ensuring that portfolio construction is high-conviction and reasonably concentrated. Indeed, Matthews Asia specialises in looking beyond indices and headlines to focus on what it believes are the attributes that make today’s small-caps tomorrow’s stars.

This approach is made possible by the firm’s deep roots and experience in China. Over half of Matthews Asia’s investment professionals have lived or worked in China and speak at least one Chinese dialect.

The effectiveness of Matthews Asia’s approach and philosophy was well-evidenced in 2020 — a year dominated by the spread of and disruption caused by the COVID-19 pandemic and ongoing US-China tensions. Its flagship Matthews China Small Companies Fund benefited from structural exposure to healthcare and pharmaceutical, and software services companies, as well as its thematic focus on China’s self-sufficiency.

2020 was a year in which fund houses had to offer their private banking partners a close and intensive service. Accordingly, Matthews Asia’s team of three sales individuals dedicated to Asia’s private banking community excelled as points of access and facilitators for connectivity between clients and the firm’s portfolio management team and investment strategists. The firm prioritised regular and incisive commentaries and portfolio updates beyond the ordinary, as epitomised by its Sinology Series publication that covers China from a macro and geopolitical perspective.

Its commitment to the China markets vindicated once again by strong net inflows via an ever-expanding register of private banking partners in Asia, Matthews Asia is Asian Private Banker’s Best Fund Provider Greater China Equity for 2021.

Winners rationale

An easing trade environment and a supportive central bank and government in China kept pushing China stocks to new highs in 2019, with the MSCI China Index generating an impressive 21% in a year’s time, outperforming its Asian counterparts. On the back of a dedicated team with a robust investment process, BNP Paribas Asset Management stood out amongst its peers in managing Greater China equities in 2019.

Led by Caroline Yu Maurer, head of Greater China equities and lead portfolio manager of the firm’s Greater China strategies, BNP Paribas Asset Management’s Greater China stock solutions have delivered excellent results for clients over the past years, both on an absolute basis and relative to the benchmark.

For instance, since the manager took over, its flagship fund — BNP Paribas China Equity — has enjoyed consistent outperformance over time, generating a strong cumulative excess return of 26.24% (in USD, gross of fees, as of 31 December 2019), with the outperformance mainly driven by stock selection effects.

The team follows a “growth at a reasonable price” style in their investment approach, biased towards the highest quality growth companies backed by positive industry and company specific dynamics. Focusing on a prudent portfolio risk management, the team incorporates environmental, social and governance factors into its portfolio construction, the process of which significantly helps the team in terms of mitigating risk and generating sustainable returns.

As a result, the fund is inherently less volatile than its benchmark. Over the 36 months up to 31 December 2019, the portfolio’s volatility was 18.09% versus 18.48% for the reference benchmark (MSCI China 10/40, net total return).

Inspired by the increasing convergence of the needs of traditional institutional clients with those of private banking clients, the firm decided to carve out the coverage of global and regional private banks in Asia and the Middle East as a standalone client segment in the beginning of 2019, in a bid to serve this client base in a more customised manner.

The investment and distribution team’s superior achievement in Greater China equities is well recognised by the region’s private banking industry. BNP Paribas Asset Management is Asian Private Banker’s choice for Best Fund Provider – Greater China Equity.

Winners rationale

Having invested in China for more than two decades, UBS Asset Management has once again proven its ability to stay the course in a year marked by market volatility and geopolitical uncertainty over US-China trade relations.

UBS Asset Management’s China equity strategies are underpinned by an investment philosophy founded on three core tenets — the disciplined application of proprietary fundamental research, high conviction portfolio construction unconstrained by benchmarks, and high active share with low turnover.

Within UBS Asset Management’s Chinese equity strategy family, an All China Equity strategy was launched in mid-2018 that combines A-shares and H-shares in a focused portfolio, illustrating the asset manager’s agility and flexibility in providing innovative products for distributors to strengthen their product pipelines to anticipate and address evolving investor needs.

With its comprehensive range of China equity strategies built to meet clients’ equity investment needs, UBS Asset Management has been named Asian Private Banker’s 2019 Best Fund Provider – Greater China Equity.