Guinness Global Investors has launched the Guinness China A Share Fund, managed by Sharukh Malik and Edmund Harriss. It is designed to provide investors with long-term capital appreciation by investing in quality, profitable companies exposed to the structural growth themes Guinness has identified in the China A share market.
The identified themes are built upon changes seen in incomes, demographics, production advances and the application of technology in consumer, industrial and infrastructure settings.
“As China has moved on from Covid, now is an excellent time to be launching a dedicated China A share strategy,” said Malik. “We aim to take advantage of China’s plan to become a higher income country, giving the fund exposure to themes such as the rise of the middle class, manufacturing upgrades and the shift towards cleaner energy. The model fund’s holdings have historically grown earnings at a premium to the broader market, and we expect this to continue given our disciplined approach to investing in China.”
The fund managers argue that A shares are underrepresented in global equity and expect this gap to close over time, driven by their rising inclusion in benchmarks. They believe the A share market offers wider choices with more focused and liquid exposure to China’s structural growth themes, than can be found through stocks listed in Hong Kong and overseas.
China A shares additionally offer investors the benefits of diversification given their low correlation to developed markets. The fund managers also believe an active approach, incorporating systematic analysis of risk and relevant ESG roles as well as return, is more likely to lead to better investment outcomes than the adoption of a passive strategy.
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Concentrated portfolio of Chinese companies
The Guinness China A Share Fund will consist of a concentrated portfolio of 30 companies that are well governed, financially sound and operationally efficient to enable them to translate a leading market position into profits and crucially, cash. Companies must fit into the Guinness structural thematic framework to enter the investable universe. They must also generate a return on capital above the cost of capital, have debt of no more than 150% of the value of their equity, and be of a minimum $500m market capitalisation.
Guinness Global Investors will now be running two quality growth China-focused funds: the Guinness Greater China Fund and the new Guinness China A Share Fund.
In January, the Guinness Best of China Fund was renamed the Guinness Greater China Fund to better reflect its focus on stocks across China, Hong Kong and Taiwan.
“Our management team’s active approach and structural framework with its appreciation of both the risks and the rewards on offer, based on the three decades of experience of investing in China, should deliver capital appreciation to investors over time,” Malik observed.
