DFMs choose their own adventure on Chinese equities

With the status of China's economic recovery in jeopardy and investors wary around governance issues, we thought we would have a look at the level of exposure the most widely-owned Asia Pacific ex Japan funds have to that country. 

Data from our own database indicates that one fund is comfortably the most popular in this sector among the allocators we cover, Schroder Asian Income, which appears in 11 of the portfolios we cover and so is also among the most widely owned funds in any category among the DFMs we cover. 

In terms of its China exposure, that's currently 16.7 per cent.

This is underweight the MSCI Asia Pacific ex Japan index which has a 27.6 per cent exposure to China. 

That figure should also be seen in the context of the smallest China exposure among all of the funds in the sector being 0.48 per cent held by Schroder Institutional Pacific while the largest weighting to Chinese equities being 46.7 per cent, which is held by the Goldman Sachs Asia Equity Portfolio. 

The Fidelity Asian Pacific Opportunities fund appears in five of the portfolios we monitor, and has 27.4 per cent of its exposure in China.

The other fund to appear in five of the portfolios we cover, and so be the joint second-most popular is Federated Hermes Asia ex Japan, which has a 36 per cent allocation to China.

It is one of only two of the most popular Apac funds among DFMs which has an overweight China exposure.

The other one is Veritas Asian which is held by four DFMs and which has a stonking China exposure of 37.7 per cent.

The Veritas fund is one of six Apac funds owned by four of the allocators we cover.

Stewart Investors Asia Pacific Leaders Sustainability is the most recent to reach that total, only has an 8.2 per cent exposure to Chinese equities.

Another of the most widely owned funds in this region is Schroder Asian Alpha Plus, which has 17 per cent in Chinese equities. 

This band of six also includes a tracker: Fidelity Index Pacific ex-Japan which has no exposure to China and instead has a 64 per cent exposure to Australia.

Such a wide spread of exposure to China suggests DFMs are each making somewhat different individual calls on the country's economy.

In terms of whether China exposure has helped or hindered performance, the Goldman Sachs fund mentioned above, which is only just over £100mn in size, has underperformed so far this year as well as in 2022 and in 2021 - though in the 2020 and 2019 it was top quartile, making it firmly a high beta play on growth equities.

This seems appropriate for a fund so heavily invested in China, an economy which has been the cradle of global growth, but also the quintessential long duration asset class over the past decade.

That performance is almost the mirror opposite of the Schroder Asia Income fund, the most popular among the DFMs we cover, which has outperformed so far this year.