Global asset management group Comgest is marking the 20th anniversary of the Comgest Growth China fund, one of the oldest European-registered China funds and an early investor in China A-shares.
Launched in April 2001, the fund has provided an annualised net return of 11.7 per cent over its 20-year track record, outperforming the MSCI China Index by 4.6 per cent pa. The fund has also protected investors against the high volatility of the Chinese equity market with the disciplined application of Comgest’s quality growth investment style. For example, during the last 12 months the fund’s volatility was 20 per cent below that of the MSCI China Index. Comgest Growth China also has one of the longest track records for investing in A-shares, which started in December 2013. The fund currently holds 28 per cent of net assets in A-shares.
The Comgest Growth China fund is a concentrated portfolio of 30-35 stocks which Comgest believes to be long-term quality growth companies integrating ESG. The portfolio is built following a pure bottom-up investment process. The high growth portfolio companies are forecast to generate more than 17 per cent p.a. profit growth for the upcoming five years. One of its top 10 holdings is Ping An, China’s largest life and health insurance company. Ping An invests 10 per cent of net profit in R&D every year and as a result it has innovated a number of successful technology companies such as Lufax, Ping An Health, and OneConnect. Autohome is China’s leading online marketplace for new and used cars. Other portfolio holdings include Anta Sports, a challenger of Adidas and Nike in the fast-growing Chinese sportswear market, and Netease, the leading online game developer and distributor in China.
The high share of state-owned enterprises translates into the comparatively poor ESG credentials of the Chinese equity market. However, Comgest’s engagement with Inner Mongolia Yili, which led to improved environmental practices and overall ESG awareness of China’s biggest dairy company, underlines the importance of ESG analysis and engagement activities for the success of Comgest’s long-term stock picking approach.
Comgest’s heritage in China dates back to 1993 and across all strategies, investments total GBP5 billion in the region. Comgest Growth China thus has a highly experienced investment team. David Raper joined Comgest in 2002 and has been managing the fund since 2011. Baijing Yu and Jasmine Kang joined the portfolio management team in 2014 and 2015 respectively, while Jimmy Chen was appointed as joint fund manager in 2019. Three analysts including ESG specialists Eric Voravong and Xing Xu round off the China equity team.
David Raper, portfolio manager of the Comgest Growth China fund, says: “Over the past twenty years our long-term quality growth investment discipline has been the key to success in a market which is driven by retail investor sentiment and very strong momentum swings. The market anomaly in the years 2014 and 2015 was particularly challenging. Thanks to our investment discipline we outperformed the market in both years by 11 per cent. Since inception 20 years ago we have outperformed by 4.6 per cent pa with below average risk.
“Our early move into the China A-shares market has paid off thanks to our thorough research and rigorous screening process. The opening of the Chinese onshore equity market is only at its beginning as China attempts to develop a dynamic and effective capital market. This will drive a bigger role of its dynamically growing economy in global equity markets. The scope and opportunities for stock pickers like us will rise in this evolving and dynamic market.
“ESG analysis, integration and engagement is a critical success factor in our long-term, risk averse investment approach across all Comgest products. It is particularly important in a dynamically growing Chinese equity market with a long tradition of state-owned enterprises and highly entrepreneurial private companies, where governance must be scrutinised for long-term success on an ongoing basis.”
