JPMorgan Chinese Investment Trust (JMC) is changing its investment policy to reflect increasing access to and opportunities among mainland Chinese companies. The trust will now be able to invest up to 50 per cent of its portfolio in China mainland listed A shares or China A share American Depositary Receipts (ADRs), up from a previous cap of 20 per cent.
"A shares are more volatile but give a purer exposure to China equity," says James Saunders-Watson, client director at JPMorgan Asset Management. "There are a number of companies that provide exposure to the new growth opportunities in China, but these tend not to be listed in Taiwan or Hong Kong."
The trust can invest up to 30 per cent of its assets in Hong Kong and Taiwan shares not included in MSCI China, down from 25 per cent in each of these countries. It is keeping the option of allocating to these areas because their markets are less volatile than mainland China and the trust's investment team wants to be able to invest in countries where corporate governance is better.
The trust has changed its benchmark from MSCI Golden Dragon to MSCI China. Its board says that at launch in 1993 MSCI Golden Dragon Index offered the best comparator, but as the investment opportunities in mainland China have increased in recent years MSCI China Index is a better reflection of the trust's investment opportunity. MSCI Golden Dragon doesn't include A shares, but MSCI China includes A share ADRs.
JPMorgan Chinese currently has 8 per cent of its assets in A shares.
Other changes include the ability to gear (take on debt) up to 20 per cent, an increase on the previous 15 per cent limit. "We want to ensure that the trust's manager has the ability to make good use of the investment trust structure and put blue water between us and exchange-traded funds (ETFs)," explains Mr Saunders-Watson.
The trust currently has gearing of 11 per cent.
Its managers will look to hold between 45 and 65 investments - down from between 40 and 90 - so they can express conviction in holdings.
JPMorgan Chinese beats MSCI Golden Dragon and MSCI China over three, five and 10 years in terms of its net asset value (NAV) returns, but its share price has not done anything like as well so it trades at a discount to NAV of around 18 per cent.
It is behind sector peer Fidelity China Special Situations (FCSS), an IC Top 100 Fund, over one, three and five years both in terms of NAV and share price returns.
Mr Saunders-Watson says the changes are not being made with the aim of trying to outperform Fidelity China Special Situations as the two trusts still follow quite different investment strategies - Fidelity is more focused on mid and small-caps, for example.
| 1-year share price return (%) | 3-year cumulative share price return (%) | 5-year cumulative share price return (%) | 10-year cumulative share price return (%) | 1-year NAV return (%) | 3-year cumulative NAV return (%) | 5-year cumulative NAV return (%) | 10-year cumulative NAV return (%) | |
|---|---|---|---|---|---|---|---|---|
| JPMorgan Chinese Ord | -23.4 | -8.7 | -6.7 | 82.8 | -16.3 | 5.1 | 7.5 | 130.9 |
| Fidelity China Special Ord | -13.2 | 26.3 | 9.2 | NA | -5.1 | 51.0 | 37.8 | NA |
| MSCI Golden Dragon GR GBP | -15.8 | 2.5 | 5.8 | 101.5 | -15.8 | 2.5 | 5.8 | 101.5 |
| MSCI China GR LCL | -23.4 | -12.8 | -10.2 | 99.1 | -23.4 | -12.8 | -10.2 | 99.1 |
Source: Morningstar, as at 8 February 2016
