The Pictet total return mandarin fund aims for growth while preserving capital by investing mainly in Chinese companies listed in Hong Kong and mainland China. When selectively investing in Hong Kong, Taiwan or other Asian countries outside the Greater China region, the PIctet team looks for firms deriving at least 30 per cent of their earnings from the Greater China region.
The fund is managed by senior portfolio manager Lan Wang Simond, supported by China equity analyst Gregory Guignard. Wang Simond has over 16 years investment experience of managing assets across the Greater China region using long only, absolute return and long/short strategies. Guignard has four years investment experience, including three years at Pictet.
The investment team will combine top-down and bottom up research. Long positions typically comprise 30 to 60 long-term holdings in companies that are ‘rising stars’, trading at low valuations with better then expected earnings. Short positions are typically short-term holdings in up to 30 ‘fallen angels’ that are overvalued and experiencing a decline in earnings. These positions are taken using derivatives, as Ucits III funds cannot short stocks directly.
Pictet believes the ability to take short positions improves the risk and return profile. While long positions enable the fund to benefit from China’s growth, short positions enable the fund to make money during market falls. The overall strategy aims to reduce correlation to the market, keep risk to a minimum and generate less volatile, positive returns from a region that can be highly volatile.
Stocks will be chosen that tap in to the long-term growth of China and will be held on the basis of buy and do homework rather than buy and hold. This means the team keeps an eye on the companies to ensure the original reason for investing stays valid.
Pictet says the fund is likely to benefit from China’s shift from export-led growth towards domestic consumption, under-researched industries and IT development in areas such as digital technology and social networking.
The fund may appeal to sophisticated investors as a diversifier, but similar funds from Veritas and Insynergy could provide competition.