China International Fund Management, a joint venture between Shanghai International Trust and JP Morgan Asset Management, has launched its first RQFII mutual fund via its Hong Kong unit, which will also roll out more equity strategies and set up a segregated accounts business.
CIFM Asset Management (Hong Kong) will the use the Rmb800 million ($131.3 million) it received in renminbi qualified foreign institutional investor (RQFII) quota last December for the CIFM (HK) RMB Diversified Income Fund.
The new strategy will invest at least 80% in fixed income and up to 20% in equities. The debt portfolio will mainly allocate to investment-grade bonds, says Mona Chung, chief investment officer of CIFM (HK).
“The yield for onshore bonds is attractive. Government bonds and credit [such as corporate and municipal bonds] can provide yields from 4% to 7%,” she tells AsianInvestor. “It helps us to generate stable returns.”
The equity portion will be actively managed and is likely to invest in a number of sectors, including healthcare, consumer, electronics, sustainable industries and automotive.
Chung says parts of China’s Third Plenary reform, such as the relaxation of the one-child policy – allowing couples to have two children provided one of the parents is an only child – should help boost domestic consumption in a number of industries. Some analysts forecast this will increase consumption by 5% as a result of these new policies.
“This will not only help to drive the sale of infant products – the whole supply chain will benefit,” says Chung. “A family may want to buy a bigger sports utility vehicle [when they have more children] for example.”
However, luxury sectors may suffer as the government is likely to increase consumption tax on these companies, she notes.
CIFM (HK)’s new fund will be distributed in Hong Kong by China Construction Bank (Asia) and Wing Lung Bank, as well as some private banks. It will also be sold in Singapore to professional investors by some of its private bank partners, she adds.
The management fee is 1.25% for retail investors and 0.8% for institutional investors. The total expense ratio will vary depending on the size of the fund.
This marks the first step for CIFM (HK)'s mutual fund business as it seeks to build up active equity management capabilities.
“We will focus on the mutual fund business and hope to build up our brand in Hong Kong,” says Hank Chen, CEO of CIFM (HK), which does not have an advisory business, nor does it plan to in the near future.
However, CIFM (HK) does offer a dim sum bond fund to Greater China institutional investors, which launched in February last year.
CIFM (HK) also aims to develop more funds and start a segregated accounts business.
“We believe in the coming three years, renminbi will still be the hottest asset class,” says Chen. “We plan to roll out two to three more products in the coming three years.”
The firm is also keen to introduce some sector-focused Chinese equity funds, but plans to wait until markets rebound and investor appetite returns.
CIFM manages Rmb85 billion across 27 mutual funds. It established the Hong Kong arm in April 2011.