The investment objective is to provide capital growth by investing in equity and equity-related securities of Chinese companies listed and traded on Chinese stock exchanges such as Shenzhen or Shanghai Stock Exchanges. The performance objective is to outperform the benchmark* by 3-4% (gross) over rolling 3 -5 year periods1.
Schroder China A-Share aims to provide capital growth by investing in equity and equity-related securities of Chinese companies listed and traded on Chinese stock exchanges such as Shenzhen or
Shanghai Stock Exchanges through a long term, research-based, fundamental approach to investment that enables the team to define and identify under-valued, quality stocks, and thus seek to deliver superior performance.
*MSCI China A (NDR) since October 31, 2017, since inception to October 31, 2017 CSI 300 (TR)
1 There can be no guarantee that any investment
objectives or outcomes will be achieved.
We employ an active fundamental approach with a focus on companies that we believe will grow shareholder value in the long term.
We believe that equity markets are not efficient in Asia and that many of the best investment ideas are not well researched.
Thus, to generate alpha over the long term, we believe that the best approach is to focus on bottom-up stock analysis.
Our disciplined and repeatable investment process consists of three main steps illustrated below:
Step 1 – Fundamental Research
There are four components to our fundamental research:
Screening the Stock Universe
The stock selection process begins with the application of quantitative and qualitative screens to the investment universe to filter stocks, enabling the analysts to focus their research on stocks that can underpin portfolio performance in the longer term and offer sufficient liquidity for exploitation of short-term market inefficiencies.
The strategic assessment process involves an in-depth review of the company and the industry dynamics within which a company operates. Analysts conduct fundamental research in their area of sector coverage, which involves competitor analysis, assessment of management quality, financial analysis and determining earnings forecasts
Shareholder Return Classification of Stocks
In conducting the long term assessment of a company and in seeking to define the long term prospects of a company, stocks are classified into one of four categories within our proprietary Shareholder Return Classification framework. By evaluating companies based on these classifications, we encourage a long term and structural perspective.
Valuation and Stock Grading
With the long term direction of a company identified in the Strategic Assessment section of the process, and the assessment of trend of the return on investment determined in the Shareholder Return Classification framework complete, the final stage of our Fundamental Research process undertaken by the research analysts is to calculate the fair value for each stock as illustrated below.
Step 2 – Portfolio Construction
Our China equity fund management team selects the best stock candidates to outperform investment benchmarks, primarily relying on internal research inputs and stock gradings from the analysts.
The analysts and portfolio managers’ work together closely when selecting stocks with the analysts defending the merits of their preferred stocks and suggested active positions, taking into consideration portfolio balance as well as secondary ideas when constructing their portfolio with the majority of positions reflecting the preference of the analysts. Stocks will not be included in the fund unless management has been visited by one of the analysts or the portfolio manager.
Step 3 – Portfolio Implementation
All trades are processed through our pre-trade screening systems before being transferred to our specialist Central Dealing Team in Singapore for implementation. Dealing systems and trading activity are monitored by the Compliance and Risk Department on an on-going basis. The Compliance and Risk Team also monitor client account holdings against their investment restrictions on a monthly basis.
- Experienced investors: Experienced team of fund managers and analysts on the ground in China providing in-depth, proprietary research coverage
- Disciplined investment process: A structured and repeatable investment process which leverages our proprietary research to drive high conviction ideas. Portfolios are unconstrained and reasonably concentrated (40-60 names)
- Quality bias: We focus on companies that we believe will grow shareholder value over time
- Mid cap exposure: Our experience and on the ground research resources on the ground give us the confidence to invest across the market cap spectrum, including mid cap names
- Bias to ‘new economy’: Our focus on structural growth trends results in a bias to ‘new economy’ sectors in China, including consumption, technology and healthcare