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3 top-rated exposures to leading Chinese stocks

Glenn Freeman  |  21 May 2018Text size  Decrease  Increase  |  
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Each of these Australian international equities funds have substantial holdings in at least one of the well-known Chinese companies Tencent, Baidu and Alibaba.

The trio are spearheading what Morningstar describes as China's "audacious vision for AI dominance…backed by massive infrastructure spending, including building a US$5-billion AI fund and a US$2.1 billion technology park".

"Factors like large amounts of raw data – used to train AI systems – lax regulation, favourable government policies and a population eager to adopt new technologies coalesce to make China a serious contender for the top spot," Morningstar contributor Vikram Barhat wrote in a recent column.

While the US remains the leader within AI research and development, these companies are certainly part of China's challenge for dominance in this area.

For Australian retail investors, getting access to these companies via direct means can be difficult, with high international trading costs and the uncertainty that comes with buying a foreign companies combining as a disincentive. However, the following managed funds each rank at least one of the three within their top 10 holdings.

Alibaba

The growth-oriented strategy of the Pan-Tribal Global Equity fund (40679) holds a more than one-third weighting to emerging markets, mostly in China, with a 6 per cent weighting to Alibaba - the world's largest online and mobile commerce company.

Overseen by US-based Davis Advisors, it "applies an eclectic and aggressive investment process to choosing global companies," says Morningstar manager research analyst, Tim Wong.

He notes the fund holds an "aggressive portfolio…[with] chunky exposure to emerging markets leaving it best placed as a supporting player" within retail portfolios.

Tencent

While celebrated global equity manager Kerr Neilson, of Platinum, regularly references Tencent, the bronze-medal T. Rowe Price Asia ex-Japan fund (17615) has a higher exposure to the company, at 6.2 per cent.

Respected portfolio manager, Anh Lu, has more than 20 years' experience, and has a well-known preference for industry-leading companies with strong earnings prospects. The final portfolio comprises between 80 and 120 companies, with no sector or country limits. Samsung Electronics, Taiwan Semiconductor, Alibaba and AIA Group also count among its top-five holdings, with Tencent in second place.

Baidu

Another Morningstar bronze medallist, Antipodes Global Fund (5667), holds a more than 3.5 per cent weighting towards Baidu – the world's largest internet search engine.
"The investment process is comprehensive, repeatable, and rigorously applied," says Morningstar manager research analyst, Ross MacMillan.

The strategy’s concentrated long-short portfolio holds between 30 and 60 long positions, and is permitted a net equity exposure of between 50 per cent and 100 per cent, and gross equity exposure of up to 150 per cent.

Its portfolio is benchmark-unaware, using short positions sparingly on local stocks, global companies and index ETFs in various classes - all reasons MacMillan cites in arguing the fund is best used as a supporting player.

"Antipodes constructs the portfolio based on three major objectives – capital preservation, inclusion of attractively priced businesses, and investment resilience.

"Investors should be aware that the portfolio’s concentrated nature, shorting, and currency positions may result in heightened stock-, sector-, and geography-specific risks and volatility. Thus, we’d suggest limiting an allocation to one third of an overall global equities exposure," says MacMillan.

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Glenn Freeman is senior editor, Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is senior editor for Morningstar Australia

© 2019 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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