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Allianz China A-Shares
This fund invests purely in the Chinese A share market and
The Chinese A share market is priced in the Chinese currency and was originally only for Chinese investors, so has a large retail investor base. The market is also very large and very inefficient, providing great opportunities for active funds like this one. The fund targets sustainable growth businesses at reasonable valuations and has 50 to 70 holdings, predominantly in larger companies.
Our opinion
Allianz China A Shares fund is run by a very experienced and well-resourced team, which has been operating in the Chinese A share market far longer than most of its competitors. We like the ‘Grassroots’ research which gives the team an extra edge in the region. This is demonstrated by the exceptional outperformance of the fund over its benchmark. We think it can continue to do well in the future.
Company description
Allianz Global Investors (AllianzGI) is an investment division of Allianz Asset Management AG, a wholly owned subsidiary of Allianz SE, one of the world’s largest financial services providers.
AllianzGI employs over 700 investment professionals in 23 offices worldwide and manages GBP 556 billion in assets for a mixture of both retail and institutional clients, across equities, fixed income, multi-asset and alternative investments. Fixed income is the largest portion, accounting for about £180bn of assets under management. AllianzGI was awarded the Elite Provider rating for Strategic Bonds in 2020 and China/Greater China Equities in 2021.
Fund manager
The fund is co-managed by Anthony Wong and Kevin You. Anthony joined Allianz in 2012. Prior to this he worked at Julius Baer, where he was responsible for the Julius Baer China fund. Anthony has also worked for Yinhua Fund Management and began his career in the fund management industry in 2002. Anthony is a CFA charterholder and holds a Master of Science in Finance from the London Business School, a Master of Business Administration from Hong Kong University of Science and Technology, and a Bachelor of Business Administration from the Chinese University of Hong Kong.
Kevin You joined Allianz in 2015 as a research analyst specialising in industrials. In 2021 Kevin became co-lead manager of this fund. He has 14 years industry experience. Prior to joining Allianz he worked at Credit Suisse, Samsung Securities and CIMB securities, focusing on China equity research. Kevin holds a Master’s degree in Risk Management Science from the Chinese University of Hong Kong and a Bachelor’s degree in Business Economics from the University of Durham.
Investment process
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 grassroot 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.
ESG
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.
Risk
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.
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