Trustnet Magazine 55 October 2019 | Page 32

In focus [ PENSION ] 32 / 33 FE Alpha Manager Martin Lau attempts to keep downside risk to a minimum when investing in the volatile Chinese market FE TRUSTNET companies we own have preserved capital better during previous downturns. Declining markets are often seen as a negative, but we view such periods as opportunities to buy high-quality companies at cheaper valuations – which helps to compound returns in the long run.” FACT BOX MANAGERS: Martin Lau & Helen Chen / LAUNCHED: 1/12/2003 / FUND SIZE: £492.8m / OCF: 1.05% FE CROWN RATING PERFORMANCE OF FUND VS SECTOR AND INDEX OVER 10YRS First State Greater China MSCI Golden Dragon IA China/Greater Growth (222.36%) (134.88%) China (117.05%) 250% 200% 150% 100% 50% 0% 11 -50% companies (defined as those led by strong management teams, with dominant franchises and a long-term track record of sustainable earnings growth) at attractive valuations. Like all First State funds, environmental, social and governance (ESG) criteria are an important consideration and Lau will refuse to invest in China’s largest companies if he has concerns over their governance. This approach appears to be working. The fund has made 222.36 per cent over the past 10 years compared with 117.05 per cent from its sector average and 134.88 per cent from its MSCI Golden Dragon benchmark. Of course, the trade war with the US is an additional challenge for investors in China at the moment. However, in a recent update Lau said that while this has dented market sentiment, the uncertainty is creating opportunities for quality investors. L ike all emerging markets, investing in China comes with a wide range of risks but there are funds focused on the world’s second largest economy that aim to offer as much downside protection as possible. First State Greater China Growth, run by Helen Chen and FE Alpha Manager Martin Lau, is one example. It has the IA China/Greater China sector’s second lowest scores for volatility, maximum drawdown and downside risk over the last decade, as well as its best Sharpe ratio. Lau has more than 20 years’ experience of investing in China and has worked on the £492.8m fund since its inception in December 2003. He has developed a low-turnover process over this time, ingrained with an absolute-return focus and benchmark-agnostic stance. The fund has a bottom-up, all- cap approach that looks for quality “Having invested in China A-shares since 2009, over numerous cycles and market scares, we believe our bottom- up stock selection and focus on quality should continue to deliver positive returns,” he explained. “While our portfolios have not been immune to market volatility, the First State Greater China Growth Source: FE Analytics trustnet.com