Most active managers outperform with China A-shares, suggests International Advisory Board for Fund Selection

Up to 90 per cent of active fund managers investing in China ‘A-shares’ may be outperforming their chosen index, according to members of the Inversis-sponsored International Advisory Board for Fund Selection (IAB).

Speaking at its recent and remotely held IAB meeting, members heard 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”. It was said that initial analysis suggested the outperformance by active managers investing in China, indicated that the outperformance could be as high as 90 per cent over the past five years - significantly higher than fund managers investing in other parts of the world.

The comments were made during a review by the IAB of the recent major investment report “Investing in China: Riding the Dragon,” from Hong Kong based fund manager Value Partners and British consultancy Oxford Metrica. 

The board stated: “The Value Partners paper suggests that there are significant opportunities for active managers to do well in China. This view is very much is aligned to initial research from our Members which suggests that up to 90 per cent of China ‘A-Share’ managers outperformed their index - so the hit rate for generating alpha is exceptionally high. If you look at the US - in a good year, it is 30 to 40 per cent - where as in China it is the exception for active managers not to outperform.

"If you look at the top quartile of managers, they have outperformed upwards of 10 per cent in some years. So, following the indices and investing passively could well prove to be a poor strategy given the better returns that have been achieved in the past by active managers in China.”

The International Advisory Board for Fund Selection has the following members:

  • Per Lindgren head of Manager Selection, Skandia
  • Dr Dirk Rathjen, Institut für Vermögensaufbau
  • Adam Smears, head of Fixed Income Research, Russell Investments
  • Ramon Eyck, head of Emerging Markets Equities at a Gulf Sovereign Wealth Fund
  • Dr Andrew Clare, Professor of Asset Management, Cass Business School
  • Guendalina Bolis, managing director and Head of fund selection, Inversis Gestion
  • Anthony Gillham, multi-asset portfolio manager