Faculty & Research

Chen Zhuo: Chinese Fund Management Companies Can Beat the General Market over the Long Term and Bring Relatively Stable and Excess Returns to Investors

Time: 2019-10-28 17:50 Print


At the 2019 Global Wealth Management Forum held on October 27 under the theme of “New Wealth Management Opportunities Amid Global Challenges”, Chen Zhuo, Deputy Director of Minsheng Wealth Management Research Center of National Institute of Financial Research, Tsinghua University expressed that “Chinese equity-based publicly-offered funds and private securities investment funds can beat the general market over the long term, and bring relatively stable and excess returns to investors. Such returns largely depend on the stock selection capability of some fund managers, but there are very few of them who have the ability to time their investments.”

According to Chen, the two fund research reports issued this time - the Report of Mutual Funds in China 2019 and the Report of Hedge Funds in China 2019, completed by the Minsheng Wealth Management Research Center of National Institute of Financial Research, Tsinghua University, aim to provide some references to investors, fund managers and regulatory institutions through quantitative methods. In face of such an evolving and increasingly specialized market, what else should we do? We would like to see if publicly-offered funds and private securities investment funds can bring excess return to investors at all through quantitative methods. Do the managers of these funds have the ability to select stocks? As well as the investment timing? And are their capabilities sustainable?

Chen Zhuo indicated that, in terms of AUM, the size of AUM by money market funds has grown continuously since 2013, accounting for two thirds of the AUM by publicly-offered funds. This is probably closely linked to the development of China’s internet technology companies.

As regards the ability of publicly-offered funds to select stocks and the investment timing, Chen’s team, through quantitative analysis, found that, of the selected 400-plus equity-based publicly-offered funds with a NAV history of more than 5 years, a little more than 30% have the stock selection capability, but only 7% have the ability to select the investment timing.

As for private securities investment funds, Chen’s team found through their research that although there are many private funds in China, those that can live long and fare well are actually very rare. Currently, more than 75% of private funds in China adopt purely bullish stock-oriented strategies, which means these funds barely employ any financial instruments for hedging. This is related to the current development phase of China’s fund management industry, as well as the regulatory restrictions on stock index futures in the country. Moreover, the team also found that, similar to publicly-offered funds, most private funds do not have the stock selection capability either, let alone to say those with the ability to select the investment timing, which account for an even smaller share.

Chen Zhuo finally concluded, for the fund management industry, when choosing fund products, investors shall pay attention to their long-term performance, especially their risk control capacity. As for fund performance, outstanding fund managers can attain the target of demonstrating their stock selection ability; but it is relatively difficult for them to show the ability to select the timing.