With equity products proving a tough sell in China following the mainland stock market rout, Fullgoal Fund Management is working with banks to develop hybrid structured funds that invest largely in mainland bonds but include other assets to provide a return kicker.
The strategies will make bets on interest rate levels, corporate bond arbitrage and initial public offerings, said Huang Cheng, assistant general manager and managing director of strategy and product development.
Shanghai-based Fullgoal has already seen success in equity structured funds; last year it became the biggest Chinese provider of index classification funds by AUM. These products are usually divided into two share classes: one offers a fixed return, the other employs leverage. For example, the A class might provide investors with 5% regardless of the fund's return in a year, while if the fund rises, say, 10%, the B-class investors might receive 15%.
Fullgoal had Rmb80 billion ($12.2 billion) and a 17.5% market share in passive products as of end-2015, up from Rmb32 billion and 6.49% a year earlier, according to Galaxy Securities. Classification funds account for a very large part of the firm's passive products.
While equity funds have fallen out of favour since the stock crash started on June 8 (with the CSI 300 index losing 46% between then and yesterday's close), Huang said Fullgoal was seeing huge demand for absolute-return and principal-protected products.
But it will continue to launch new equity products this year, most likely focused on consumption and healthcare, as it believes these sectors will benefit from government support.
It is perhaps not surprising that the firm is keeping faith with equity products. Unlike most of its mainland peers in 2015, Fullgoal – the fifth fastest-growing fund house by assets sourced from Asia Pacific in the year to end-September* – saw its AUM expansion driven largely by equity product inflows.
The firm’s AUM grew 107% to $42 billion from $20.3 billion, with equity strategies rising 143% to Rmb153.7 billion, whereas the likes of Fortune SG, ChinaAMC and E Fund saw their assets grow mostly on fixed-income product flows.
Fullgoal also saw its MMF assets surge, by 180%, to Rmb13.4 billion, and its bond fund AUM grow by 20% to Rmb67.6 billion.
In the year to September, Fullgoal launched 20 new funds, of which nine were equity funds (including seven index funds), 10 hybrid funds with a higher concentration of equities and one a bond fund.
Though stock market sentiment is not favourable at the moment, said Huang, it is a good time to launch funds given current low valuations.
Fullgoal is also awaiting regulatory approval for a range of Luxembourg funds, as reported, and has had several rounds of “good discussions” with the Luxembourg authorities.
*By AsianInvestor's AI100 data. The list will appear in full in the upcoming March issue of the magazine, and extracts from it have appeared in recent weeks on AsianInvestor.net. Examples include details of the 10 fastest-growing and the 10 fastest-shrinking fund houses by assets sourced from Asia Pacific.