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The new fund is being marketed to international institutional investors looking for access to the China market. FortisÆs Shanghai joint venture with Haitong Securities, Fortis Haitong Investment Management, is advising the investment. Its marketing effort will be mainly handled from the Fortis sales team in Luxembourg.
Unlike the two previous launches, an A-share equity fund and a small-cap fund, the new strategy aims to provide absolute returns, and will include derivative instruments such as Hong Kong futures, index futures and options, says Jonathan Xie, head of investor advisors at Fortis Haitong Investment Management, FortisÆs joint venture in Shanghai.
Jerry Guo, portfolio manager of the new fund, believes now is a good time to exploit the discount window in Hong Kong-listed equities. He reckons A/H premium in Chinese stocks has reached to as high as 80-90% for these companies and he plans to allocate about 50% of the portfolio to exploit the discount window provided by Hong Kong stocks and red chips. This is a similar situation with P-shares, which can be roughly defined as Chinese equities listed outside of mainland and Hong Kong, most notably in Singapore Stock Exchange and in America.
The mainland story will be different, he says. No upper limit will be set for allocation on Chinese A shares and B shares. Guo says investments in the mainland market will be mainly driven by domestic demand and the high economic growth in the country. Unlike most mainland funds, the new product will use a number of derivatives, including Hong Kong futures and shorts, in order to achieve an absolute return and provide hedging. However, there will be no leverage involving long or call options.
Simon Godfrey, senior product specialist for Pan Asian Equities at Fortis Investments, says the fund will help international institutional investors to fine-tune exposure to Chinese equities.
A roadshow for the new fund kicked off last week, and is still underway. Guo is optimistic growth will remain robust in the QFII over the long term but response to the fund is expected to be milder than Fortis HaitongÆs earlier launches as QFII punters have recently started taking profit in the market.
Fortis launched its first QFII fund, Flexifund China A-shares, in 2004. To date, it has attracted $1.5 billion of assets under management. And FortisÆs second QFII fund, the Flexifund China Small-Cap Fund has $1.8 billion its portfolio. Excluding the new fund, the total amount invested in the QFII fund market is currently $5.37 billion.
Fortis Haitong is currently 49% owned by Fortis Investments, while Haitong Securities owns a majority share of 51%. The companyÆs investment process is independent from FortisÆs global platform, although the mainland joint venture shares research and risk management platform with the international group. It is the 10th largest Sino-foreign fund manager according to Z-Ben Advisors, the Shanghai-based research group.
In July, Fitch has recognized the company with a M2 rating û the second best recognition out of a band of M1-5, judging performance, risk management, investment team, and technology platform that Fitch provides for institutional investors. Fortis Haitong remains to be the only fund house in China to have received such a rating at present.
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