New work from the International Board for Fund Selection confirms significant outperformance by active managers in China.
Following news last Summer that 90% of active fund managers operating in the China A shares market tend to outperform their chosen index (link here), the International Advisory Board for Fund Selection (IAB), has undertaken further study which broadly confirms their original work.
The IAB’s initial ‘scoping’ work concluded that the opportunities for active managers to invest in China, through the ‘A shares’ regime, were significant with a ‘hit rate’ for generating alpha being “exceptionally high at 90% over the past five years - significantly higher than fund managers investing in other parts of the world.” This work confirmed the findings of a report from Oxford Metrica which also concluded that there were “significant opportunities for active managers to do well in China.”
Following the original announcement, the IAB decided to undertake a further study – to look more closely at the data and the issue of outperformance as well as a second issue - whether local Chinese fund managers did better than their international counterparts.
This week, having completed more detailed work, the IAB revised last year’s downward figure while maintaining a similar conclusion – that active managers in the Chinese market tend to outperform. Over the longer ten-year period, the IAB’s new research showed that 70% of managers in China outperformed, while over three to five years the figure was closer to 60%. This finding, says the IAB, is consistent with Chinese markets being relatively inefficient over the long term, but steadily improving.
The IAB also looked at local Chinese managers and their track record in managing Chinese equities compared with international managers who invest in the region. Its finding suggests that local Chinese managers have done better than their international counterparts with six out of ten of the top performers being Chinese firms – a figure which drops to eight out of 20 firms in the top 20 (or 9 out of 21 when Hong Kong firms are included).
The chair of the IAB and managing director of asset management at Inversis Gestion, Guendalina Bolis said - “It is increasingly clear that the greatest opportunities to get enhanced returns from active, rather than passive investment management, appears to lie in China as the outperformance in Chinese equities is so much greater than in other parts of the world. Furthermore, it’s clear that local Chinese managers are exploiting their local knowledge for they are the dominant players in managing their own equities.”
Notes to Editors:
The International Advisory Board for Fund Selection has the following Members:
• Per Lindgren Head of Manager Selection, Skandia
• Dr. Dirk Rathjen, Managing Partner, Institut für Vermögensaufbau
• Ramon Eyck, Head of Emerging Markets Equities at a Gulf Sovereign Wealth Fund
• Guendalina Bolis, Managing Director and Head of fund selection, Inversis Gestion
• Anthony Gillham, multi-asset portfolio manager & board member
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