Four of the top 10 best performing mutual funds in China during the second quarter were managed by Bank of Communications Schroders, according to a survey by Shanghai-based consultancy Z-Ben Advisers.

Thanks to strong performance in China's equity markets in the spring, the second quarter of 2009 saw mutual fund industry assets under management rise by nearly 15%. This is the first double-digit growth for the industry since the heady days of summer 2007.

The combination of relatively cheap valuations and a government stimulus package (which saw plenty of bank loans end up as stock-market punts) drove industry AUM to around Rmb2.3 trillion by the end of June.

That was despite the fact that most equity funds' performance trailed that of the benchmark CSI 300 index.

Fund houses that aggressively tilted towards equities were rewarded with top performance during the quarter. Of the 10 best, four were managed by BoComm Schroders, including the two best performers (a stable allocation fund, which on the surface doesn't sound like it lives up to its name if it's tilting hard into equities, and an enhanced equity fund). On a year-to-date basis, the best performing equity fund belongs to China Post & Capital.

Even if the majority of fund houses did not beat the index, the industry as a whole has benefited from investor demand for equity exposure, and portfolio managers have tilted heavily towards stocks -- which now account for 86% of industry AUM, an all-time high. Fixed-income funds, on the other hand, experienced net outflows in the second quarter; Harvest Fund Management is among those caught out.

Z-Ben predicts industry AUM could total Rmb2.5-2.6 trillion by the end of the third quarter. Equity inflows will continue, but at a slower pace; most investors have already made their asset-allocation shift, the markets now look frothy, and other investors can be expected to redeem equity funds that have climbed out of negative territory.

BoComm-Schroders has been rewarded for its timely move towards equities by a gain in market share of 27 basis points from April through June, according to Z-Ben's rankings.