Report Release Date: 18 Jun 2010
Analyst: Oliver Kettlewell
Morningstar Opinion
Short-term underperformance at ING Greater China doesn’t worry us.
This fund’s relative returns were disappointing in the second half of 2009. The portfolio’s largest holding, China Mobile, and a few off-benchmark stocks detracted from performance, which led the fund to underperform relative to the category. We think portfolio manager Michael Chiu has the ability to steer the fund back on track, however. Chiu has 10 years' experience investing in Asia, the last six of which as portfolio manager of ING Greater China where he’s built up a solid long-term record that remains intact despite a short-term blip at the end of last year. The fund's three- and five-year returns are still in the top quartile. Annualised returns during Chiu’s current tenure (July 2004 through May 2010) are 15%. This figure is 2.5% per year higher than the category average, and it’s been achieved with average risk ratings relative to peers.
However, risk in absolute terms remains high for this fund because of its single geographic focus and emerging markets exposure. To illustrate this fact, the fund’s maximum drawdown figure is 51%, which means the fund’s peak-to-trough negative return resulted in the fund losing half its value. While this is 3% better than the category average, it underlines the fund's downside risk: We'd advise investors to limit their exposure to this category.
For those who want dedicated exposure to Greater China equity, the fund remains a favourable option in our eyes because of Chiu's investment process and the support he gains from 35 analysts located in China, Hong Kong, and Taiwan. These analysts cover 250-300 stocks, which Chiu narrows down to a portfolio of 50-70 names. Chiu's investment process targets companies with high profit margins relative to industry peers. Two good examples are Yanzhou Coal Mining Company and Real Gold Mining Limited, two strong performers year to date. Chiu believes these companies outperformed within the commodities sector because the regulatory environment for coal and gold is more favourable than other commodity-driven materials based in China that face higher taxes and more red tape. This is a good illustration of how company and industry analysis are used together for stock selection.
Our main criticism since the last rating is the fund's price: Its TER has moved from below average to average relative to peers. We’re watching this fund's costs closely.
Despite an increase in costs and short-term underperformance, we’re maintaining our Superior rating of ING Greater China because we have confidence in the portfolio manager and his solid investment process.
*The above returns are in Euro terms.
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