Allianz China A-Shares

As the name suggests, Allianz China A-Shares only invests in Chinese A-shares. The target is to return 3-5% per annum over the index, over a market cycle and gross of fees.

The managers do not rely on simplistic investment screens despite the very large nature of the A-share market. However, they do exclude stocks below $1bn market cap to remove the smallest companies with low liquidity.

Allianz China A-Shares benefits from having a well-resourced team. Each analyst covers 30-50 stocks in depth with a lighter monitoring of around another 100 names. The approach is to be ‘narrow and deep’ with research focused on parts of the market which are ignored by others. Typically, it takes about two to three months to initiate a new position. The fund has a much longer investment time horizon than the average market participant and turnover is around 40%, implying an average holding period of between two and three years.

Allianz China A-Shares has a ‘growth at a reasonable price’ (GARP) philosophy. The managers have three main considerations when contemplating an investment. Firstly, is the company growing faster than the market and is the growth sustainable? They look to avoid firms that are exposed to potential future technological or regulatory threats.

Secondly, does the company have a strong balance sheet and is it well capitalised? The managers look to see if its cash flow has a favourable outlook and if the accounts are transparent, as well as assessing the culture of the company and management.

Finally, they will look at valuation using a variety of different metrics depending on the industry.

The team also benefits from the ‘Grassroots’ research division of Allianz Global Investors. Grassroots research is a separate entity that conducts investigative research at a local level. This allows the team to get information faster and more accurately than the market. The team typically commissions 45 Grassroots research reports a year.

Stock ideas are discussed and reviewed in a weekly meeting. Stocks are sold when the team’s price target is met or there is a change of circumstances which alters the investment case.

The Chinese A-Share market can be very volatile. To help manage risk, sector positioning can only be a maximum of +/-5% from the benchmark and the maximum active weight in one stock is 5%. There will also be currency risk.

ESG - Limited  

While this fund has no inherent ESG focus, Allianz Global Investors has a policy of putting ESG at the core of investment thinking. It treats ESG issues as a source of potential risk, and therefore focuses on identifying them through a variety of sources to assess whether that risk could impact the investment case. This work is conducted through a proprietary ESG Risk Signal system. It uses third-party data initially, before being built on internally to identify potential concerns. These concerns are given to managers and analysts who then review and discuss potential risks. They also use the size of the firm to crowdsource thoughts from elsewhere in the business, using an internal communication platform to share ideas and thoughts. This means stocks are not simply given a generic score, but their ESG risks exposures are considered in the round. If ESG risks are identified, the firm will try to engage with a company to make improvements, but will not restrict managers establishing a holding.