Why Trump is the best thing for China
Almost 5 years ago, Prescient started a China Balanced Fund looking to deliver long term real returns and the company says since the launch, the fund has beaten every single asset class in South Africa.
Fri, 10 Nov 2017 12:33:57 GMT
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AI Generated Summary
- Prescient China Balanced Fund has outperformed every asset class in South Africa by over 5% annually, attributing their success to a unique investment philosophy focused on exploiting the mistakes made by Chinese retail investors.
- The fund's quantitative process capitalizes on behavioral biases such as loss aversion exhibited by Chinese investors, enabling them to consistently beat the index and deliver healthy alpha.
- Du highlights the fund's diversification strategy across 150 to 190 different stocks and sectors, focusing on aggregating retail investor mistakes to reduce risk and achieve superior returns.
The Prescient China Balanced Fund has achieved remarkable success over the past five years, outperforming every single asset class in South Africa. Portfolio Manager for the Prescient China Balance Fund, Liang Du, attributes their success to the unique investment philosophy and approach they have taken towards investing in China. When the fund was launched, it was seen as a once in a lifetime opportunity due to the negative sentiment surrounding China at the time. Despite the widespread negativity and myths surrounding the Chinese market, Du saw it as a land of great potential with a massive pool of retail investors who tend to make inefficient investment decisions. The fund's quantitative process is well-suited to exploit the mistakes made by these retail investors, enabling them to generate healthy alpha and consistently beat the index by over 5% per annum. Du explains that Chinese investors often exhibit loss aversion behavior, holding onto losing positions while quickly selling winning stocks. By contrarian investing and taking advantage of these behavioral biases, the fund has been able to capitalize on these mistakes and deliver superior returns. The fund is well diversified, holding between 150 to 190 different stocks across a variety of sectors. Rather than chasing after the next big thing, the fund focuses on identifying and aggregating the mistakes made by retail investors to reduce risk and beat the index. The fund's strategy has proven successful and accessible to South African investors through a feeder fund in South Africa or direct offshore investments. Despite the challenges posed by the changing political landscape in China and the US, Du sees Donald Trump as possibly the best thing that has happened to China. Trump's protectionist policies have created a void in global leadership, allowing China to step in and promote globalization and free trade. With China strengthening its relationships with Europe and Southeast Asia, the country is capitalizing on the opportunities presented by the US's inward-looking approach. Du also addresses the tensions with North Korea, emphasizing the importance of diplomatic solutions to avoid potential market disruptions. Looking ahead, Du remains cautiously optimistic about the fund's outlook, acknowledging the global growth and monetary policies that could impact investment returns. While the fund has delivered exceptional performance in the past, Du expects more normalized returns going forward with a focus on delivering high real returns and acting as a diversifier in investment portfolios. Research and innovation remain key drivers of the fund's success, with a commitment to staying ahead of the curve and embracing new technologies in the ever-evolving investment landscape.
