ORIGINAL ARTICLE
Open-end Mutual Fund Analysis—Take ChinaAMC Large Cap Select
Fund as Example
Xiaochen Yuan*
Audencia Business School, Nantes, France. E-mail: [email protected]
Abstract:ChinaAMC Large Cap Select Fund (fund code 000011) was created in 2004. Due to its good performances, it attracted a lot of investors' attentions. First of all, its fund manager, China Asset Management Co., Ltd, is a prestigious brand as recognized by domestic and global investors. So it obtained a high acceptance from the public. Second, in the past 15 years, the growth rates of Large Cap Select Fund were always higher than SSE Composite Index, and the trend of growth was relative stable. In addition, its annualized returns were often higher than other companies in a similar industry.
Keywords: Open-end Mutual Fund; ChinaAMC Large Cap Select Fund; Accumulative Return Rat; Financial Environment in China
1. Information of open-end mutual fund
1.1 Definition
Open-end fund is a kind of fund operation mode. When a fund sponsor establishes a fund, the fund units or total size of shares are not fixed. The fund sponsor may sell the fund units or shares to the investors at any time, according to the investors' needs, and also redeem them at the investors' requirements, which means that investors can not only buy the fund through the fund sales institutions to increase the fund assets and scale accordingly, but also sell the fund shares they hold and collect cash to reduce the fund assets and scale accordingly.
1.2 Characteristics—compared with closed-end fund
The basic operation modes of fund consist of open-end fund and closed-end fund.
1.2.1 The size and variability of fund
The fund unit issued by open-end fund can be purchased or sold at any time, and both the dimensions and deadlines of the fund are not fixed; while closed-end fund has a definite term (5-15 years), and the size is fixed in general.
price is affected strongly by the market supply and demand relationship. There is often a premium or discount, plus some transaction taxes and fees. That means its cost of trading is higher than that of open-end fund.
1.2.4 Investment strategy
Because of the pressure of redemption which can happen at any time, some capital must retain in the open-end fund, instead of totally investing for long-term; Closed-end fund can not be redeemed, so all of the capital be used for long-term investment without reserve funds.
1.2.5 Market conditions
Open-end funds have greater flexibility and are suitable for financial markets with a higher degree of openness and a larger scale; Closed-end system is suitable for the small-scale financial market, in which the financial system is not perfect.
2. ChinaAMC large cap select fund overview
2.1 Category
ChinaAMC Large Cap Select Fund is a kind of contract open-end fund. Its parties include investors, managers and custodian, and its beneficiary certificates can be issued by signing fund contracts.
Generally speaking, the trading prices of ChinaAMC Large Cap Select Fund are relatively stable because its subscription redemption prices of the open fund are directly linked to the net value of the fund. That means the return of investors is positively correlated with the growth of net fund value, instead of depending on supply and demand.
According to the investment objectives of ChinaAMC Large Cap Select Fund, its product style is Balanced Fund which aims to guarantee the long-term growth of capital security, the distribution of current income, asset and income.
2.2 Company background
China Asset Management Co., Ltd. (China AMC) was founded in 1998 and occupied the top position in Chinese asset management industry. It provides a full range of services to retail and institutional investors home and abroad, covering equity, fixed income, money markets, etc.
In terms of mutual funds, ChinaAMC has developed many products that are able to satisfy various investment appetites. Its 104 mutual funds consist of actively managed funds investing in equities, and money market, and passive investment products including indexed funds, sector ETFs, as well as overseas indexed products.
ChinaAMC initiated the investment philosophy of "Research Creates Value". Based on this philosophy, it utilizes an institutionalized investment process incorporating systematic macro research, securities analysis, as well as rigorous risk management.
Furthermore, nationally, this company was awarded as "Star AMC" fromSecurities Timesfor 5 times. Worldwide, it was granted multiple times as Best China Asset Managers byAsian Investors, Asia Asset ManagementandThe Asset.
2.3 Fund scale
In 2004, ChinaAMC Large Cap Select Fund was publicly raised money from the whole society. The net sales amount was CNY 1,927,966,142.50, with the bank interest generated before the fund verification confirmation date --CNY 521,669.91, and the total number of valid subscribers was 21,340, which was calculated according to --CNY 1.00 per fund share. In total, 1,927,966,142.50 fund shares have been included in the investor fund account and are owned by the investor.
In the past 15 years, ChinaAMC Large Cap Select Fund's net assets changed for many times, which was caused by the differences of external financial environment and fund managers' styles. For example, Yawei Wang, the fund manager of ChinaAMC Large Cap Select Fund, reduced the proportion of its stock investment to lower the risk under the negative influences of financial crisis in the year of 2008. At the end of March 31, 2019, the net asset size of ChinaAMC Large Cap Select Fund reached 4.112 billion yuan, which was 22.85% higher than the previous period (December 31, 2018).
2.4 Investment portfolio
2.4.1 Asset allocation
ChinaAMC Large Cap Select Fund belongs to hybrid open-ended funds, whose characteristic lies in that it can change the proportion of asset allocation more flexibly according to the market situation and realize the investment strategy that can advance, attack and retreat.
The above graph shows the asset allocation in 2018 clearly. At March 31, 2019, ChinaAMC Large Cap Select Fund's share allocation increased to 91.21%, bond's proportion raised to 6.59% and deposit in bank declined to 2.28%.
2.4.2 Industry distribution
defensive ability, which made many fund managers and investors worship and trust him.
After years of working in the industry, Wang deeply realized the importance of independent thinking. "We have to calm down. In an age of information overload, we must get the point by our keen insight and filter ability, or we will lost bearings.” said Wang, "As a fund manager, investors give me money to think for them. If I just trend blindly and lack the spirit of independent thinking, I will fail to do my due diligence."
2.6 Transactions
Both statuses of ChinaAMC Large Cap Select Fund's subscription and redemption are open, so investors can buy and sell it in fund management companies or other sales institutions.
Transaction confirmation date of purchasing and selling is T+1. Purchase rates:
At 2019/04/30, the purchasing price of ChinaAMC Large Cap Select Fund is ￥14.0290, which is evaluated to increase 1.22% in the next day. In addition, before 2019/6/30, all investors can purchase ChinaAMC Large Cap Select Fund with 90% discount of service charges (0.15% now).
2.7 Investment strategy
ChinaAMC Large Cap Select Fund pursues long-term appreciation of fund assets. Thus it mainly adopts the strategy of "bottom-up" stock selection, that is, selecting stocks which has good prospects and is relatively underestimated by the market according to detailed financial analysis and in-depth research of listed companies, and then intensively investing in them. Under the relatively concentrated investment strategy, the number of shares held in the fund's stock portfolio is generally not more than 50 (ipo subscription is not included).
2.8 Risk management
As a kind of mixed open-end fund, ChinaAMC Large Cap Select Fund's risk is higher than bond funds and hybrid funds, and lower than growth equity funds.
Considering the volatility of the stock market in China, this fund will use risk management strategy in asset allocation, which means that monitors the allocation of fund assets to stocks, bonds and cash, based on the comprehensive analysis of macro economic situation, policy and securities market, in order to avoid market systemic risk, and guarantee the risk level of fund is reasonable.
3. Global financial crisis and ChinaAMC large cap select fund
Benchmark: FTSE China A 200 Index * 80% + FTSE China Treasury Bond Index * 20%3.1 Pre-crisis period
After the adjustment of dramatic fluctuations in the second quarter, and driven by the better-than-expected interim results of listed companies and the continuous capital inflow, the stock market experienced a rising of price, that was almost unilateral in the third quarter. However, while the index growing steadily, the trading volume decreased. What's more serious, despite the Central Bank's increasing efforts to tighten liquidity, it is difficult to reverse the rise in asset prices against the backdrop of rising CPI, negative real interest rates and continued appreciation of the RMB.
At this time, the individual stocks with the asset injection became the hot spot which the fund pursues, and cyclical industries such as coal, steel, non-ferrous metals, aviation and shipping were performing well. As the index rises, market risk also are accumulating. After deducting the investment income, the listed companies' performance growth is not enough to support the high valuation level of the whole market. Moreover, the outbreak of the American subprime mortgage crisis increased the uncertainty of the economic growth in the future world, and also provided a warning for the financial system to prevent tremendous risks in advance.
ChinaAMC Large Cap Select Fund reduced the stock proportion in the third quarter, in order to control systemic risk.
3.2 In-crisis period
In 2008, the Chinese stock market showed a sustained and sharp decline. At the beginning of the year, the huge amount of refinancing plan launched by blue-chip listed companies shook the foundation of the fragile high valuation. In order to curb inflation, China implemented the tight monetary policy for the first time in a decade. With the policy effected, asset bubbles created by excess liquidity in 2007 burst.
Even worse, the global financial crisis was triggered by American subprime mortgage crisis, then it spread out of the financial markets into the real economy. Influenced by it. China's sustained rapid economic growth was curbed, and the economic growth rate even dropped sharply in the fourth quarter of 2008. A large number of enterprises were forced to confront unprecedented difficulties such as disappearing orders, capital chain breaking, and sharp impairment of high-priced inventory. About stock market, the combined effect of falling valuations and lowering performance expectations lead to new low continually.
In the graph of Accumulative Return Rate, we can find easily that compared with the average of peers (684.90%) and CSI 300 (384.08%), ChinaAMC Large Cap Select Fund achieved a totally high return rate at 2422.20%, after the financial crisis in 2008. and in the next several years, this fund also kept its strong performance at growing sustainable and stable.
In 2015, the overall level of domestic macro economy remained weak, economic growth continued to slow down, and commodity prices gradually went down. However, there are some changes in some respects at the end of the year. The sales of commercial houses and cars are positive, especially the sales area of commercial houses which is close to the record highs at the end of 2014 in a single month. It shows that the downward interest rate and loose liquidity is helping the real estate industry to destock. A-share market has experienced A year of tremendous changes. From January to May, driven by monetary easing, capital plus leverage and wealth effect, the stock market rose rapidly unilaterally, especially emerging growth stocks and concept stocks, which rose sharply and pushed the stock valuation beyond the reasonable range.
4. Conclusion
About investment opportunities, fund managers of ChinaAMC Large Cap Select Fund are cautiously optimistic. About industry, ChinaAMC Large Cap Select Fund will continue to favor traditional consumer enterprises that benefit from consumption upgrading and have a solid competitive position in the industry, excellent manufacturing enterprises that actively expand, and high-quality companies in other industries. In terms of investment strategy, the fund will still adhere to the established investment strategy, focus on investing in quality large-cap stocks, and actively look for high-quality companies with long-term identified growth potential and underestimation. With the treasure of every investment and trust of investors, the fund will continue to pursue the management philosophy of huaxia fund management co., ltd. of "dedication to trust returns", standardize the operation, prudent investment, diligently and conscientiously seek long-term and stable returns for fund share holders.
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