Up to 16.41% year-to-date: China equity funds beat the market in Hong Kong’s record run

On 31 January, the Hang Seng Index swung through a range of almost 600 points, closing at 32,966 — down 187 points (0.56 per cent), below the 33,000 mark. But in the year-to-date rally, the standout performers were not US equity funds — they were China equity funds, up as much as 16.41 per cent since New Year, beating the broader market and outpacing even the North America equity funds whose indices were hitting record highs almost daily.

The numbers: which funds beat the market (as of 24 Jan, ET Net data)

Japan equity and global equity funds also outperformed the North America funds — even though US indices were setting records almost every day, MPF funds invested in North American equities lagged.

The day’s five strongest sectors (31 Jan)

According to the “MT Sectors” watchlist in Investment Weekly, the five best-performing sectors of the day were:

Chinese financial stocks led early before fading, but mainland-linked stocks as a whole stayed in the spotlight — keeping China equity funds in the lead.

The secret of the top performer: all H-shares in its top ten

Take the chart-topper, the BEA (MPF) China Tracker Fund: its ten largest holdings are all H-shares, the vast majority mainland financial stocks.

Worth noting: China equity funds are not primarily A-share plays. Under MPF rules, A-shares are still not on the approved list, and no more than 10 per cent of a fund may sit in non-approved assets. In other words, any A-share exposure in an MPF is capped at that level; today’s China equity funds are overwhelmingly H-share portfolios.

Another telling detail: the ten best year-to-date China equity funds rank relatively poorly on one- and three-year performance — a sign their recent holdings are mostly “catch-up” plays.

Greater China vs Hong Kong equity funds: what’s the difference

• Greater China funds: cover mainland, Hong Kong, Macau and Taiwan companies listed in Hong Kong or Taiwan — and can allocate to A-shares.
• Hong Kong equity funds: as the name says, Hong Kong-listed stocks only.

Myth-busting: a record index does not mean your fund follows

US indices hit records almost daily, yet North America equity funds managed only 5.82%–7.31% year-to-date — trailing Hang Seng-linked funds. A record index does not mean every fund tied to that market rises in step: portfolio composition, currency and fees all create gaps. Judge a fund by the fund itself, not by the index.

What workers can do

1. Use the Employee Choice Arrangement: since 1 November 2012, employees may transfer the accrued benefits of the employee portion (contributions plus returns) to a trustee and scheme of their choice, once a year. If you expect the bull run to continue, consider shifting contributions into aggressive equity funds — particularly China, Greater China and Hong Kong equity funds.
2. Don’t rush to lock in profits at the top: the MPF is a long-term investment; record highs are no reason to hurry into conservative funds.
3. Look at yourself before switching: base the call on your retirement horizon and risk tolerance, not on market mood.