Introducing the China Equities model portfolio: capture Greater China’s high growth potential

What is the China Equities model portfolio on Endowus?

Selecting the right investment products to build a diversified portfolio can be time-consuming. That’s why we are excited to introduce the Endowus China Equities model portfolio, to enable you to grow your wealth and reach your goals effortlessly with Best-In-Class strategies at low and fair fees.

The Endowus China Equities model portfolio is established from multiple unit trusts, also known as mutual funds, that are curated by the Endowus Investment Office. An investor can use this pre-populated template as a starting point for their portfolios; they can take this template as it is or make changes to suit their preferences and needs.

It aims to provide investors with holistic exposure to the China equity market, and consists of five Best-In-Class China equity funds, each with its own unique mandate, allowing for balanced allocations to long-term secular growth opportunities within China. To achieve this end, the portfolio will tap into funds with various types of Chinese equities, such as:

• Onshore China equities: Chinese companies listed within mainland China (Shanghai and Shenzhen), also known as China A-Shares or B-shares;
• Offshore China equities: Chinese companies listed on stock exchanges outside of mainland China, such as in Hong Kong (H-Shares), the US (ADRs), or other offshore markets where Chinese companies are listed;
• Greater China equities: Companies from Hong Kong, Taiwan, and Macau listed in their respective stock exchanges; and
• Other equities: Companies from countries with no cultural ties with China, but are listed in stock exchanges within Greater China, or companies that have significant business dependency on China.

Why invest in the China Equities model portfolio

As investors get increasingly optimistic about China after the re-opening, the Endowus China Equities model portfolio may be an attractive investment option for the following reasons:

• Exposure to the entire China equity universe
• Positioned to capture China’s long-term growth potential
• Actively managed by the world’s leading fund managers

All-encompassing exposure to China stocks

Firstly, the portfolio provides investors with an all-encompassing exposure to the entire China equity universe including onshore, offshore, and Greater China markets. 

The onshore market is largely dominated by A-Shares and is typically associated with higher correlation to China’s domestic growth. Its sector breakdown is broad in nature across both old economy and new economy areas, and consists of more small-mid cap companies. The offshore market, on the other hand, is primarily known for its well-known mega cap Internet names with strong international presence.

We believe a blend of onshore and offshore allocations are complementary in nature, creating a diversified exposure for investors to participate in the growth of companies of varying sizes and across sectors, as and when they arise. For example, sectors that are typically deemed as having structural growth are consumer staples, IT, industrials, materials and healthcare — historically, these have been better represented in the China A-Shares market.

Beyond mainland China and Hong Kong, the portfolio has notable exposure to Greater China markets such as Taiwan, and to companies from countries with no cultural ties with China, but are listed in stock exchanges within China and/or have significant business dependency on the region. This is in line with the intention to provide holistic exposure to the vast opportunity set of Chinese equities. 

This approach is a key differentiator of the Endowus China Equities model portfolio versus that of other offerings within the China equity space. As an example, there are ETFs available that invest in single country markets such as China. They may, however, be restricted by sector or country of listing specifications, and thus more limited in its investment universe. This could result in concentration risks, subjecting the ETFs’ performance to dramatic swings as large holdings outperform and underperform.

Capture China’s long-term growth potential

Secondly, the portfolio is well positioned to capture China’s long-term growth potential by investing in companies poised to benefit from secular growth themes. Some of these themes include:

1. Consumption: Rising affluence promotes fast growth in premium consumption across goods and services. This, coupled with China’s ageing demographic and focus on domestic consumption, puts consumer and healthcare companies in a favourable position to benefit from increased spending in the world’s second largest economy.
2. Self sufficiency: China is looking to improve its self-reliance in energy and key technologies. Given the alignment to long-term policy direction, these areas are expected to benefit from greater investment and support. Tailwinds for the energy story also include policy makers’ push towards achieving carbon neutrality by 2050.
3. Manufacturing: “Made in China 2025” – a state-led industrial policy that seeks to achieve global dominance in high-tech manufacturing has seen renewed focus in light of heightened geopolitical tensions. Support for the manufacturing businesses alongside import substitution trends is positive for the long-term growth of the industry. 

Correspondingly, the portfolio is overweight in select consumer names, healthcare, and in the information technology and industrial sectors. 

Active investing and a multi-manager approach

Thirdly, the portfolio is actively managed. While China has grown tremendously in terms of economic prowess and political clout, it is still categorised as an emerging market. China’s onshore equity market is largely retail-driven, with smaller to mid capitalisation names remaining less followed and researched by Wall Street. Market inefficiencies and investors’  behavioural biases may in fact create opportunities for our selected active managers to deliver outperformance versus the benchmark.

Finally, the Endowus China Equities model portfolio adopts a multi-manager approach. There is a vast investment universe for Chinese equities and that comes with complexity in obtaining local, ground-level knowledge crucial to identifying winners within the space. Against this backdrop, we think that investing in this part of the world can be most efficiently done by leveraging the expertise of experienced fund managers to extract alpha and mitigate downside risk through their unique investment approaches. For this reason, Endowus has carefully selected Best-In-Class, active funds managed by leading market specialists from JP Morgan, Schroders, FSSA, Abrdn, Allianz, and T. Rowe Price for the Endowus China Equities model portfolio.

How has the China Equities model portfolio performed?

The Endowus China Equities model portfolio has meaningfully outperformed its benchmark since its inception and has done so without taking on additional volatility and downside risk, delivering superior risk-adjusted returns. The portfolio’s outperformance on a trailing 1-, 3-, 5- and since common inception periods was largely driven by positive stock selection from the underlying funds and we expect security selection to contribute meaningfully to performance on a forward-looking basis, over the long term.

The portfolio may also experience tailwinds or headwinds from differences in its sector allocations versus the benchmark.

How we built the China Equities model portfolio

The Endowus Investment Office is a team of investment experts with more than 150 years of experience combined, across public and private market investing, family offices, and wealth management. The team screens the universe of unit trusts, also known as mutual funds, and curates a final list by implementing a strict, institutional-grade screening process that is rigorous, thorough, and continuous. 

The process, known as SMART+, vets funds across categories to bring you only those that are Best-In-Class, and the team monitors the funds regularly in terms of performance.

By seeking to provide holistic exposure to China equities, the Endowus Investment Office constructed the China Equities model portfolio with the following considerations in mind:

1. Balanced exposure across markets: The portfolio was created with an intention to best reflect the onshore and offshore allocations of the MSCI China All Shares Index, an index that was created on the concept of an integrated MSCI China equity universe. Allocations to Greater China and other related equities are then modestly added into the mix to allow for broadening of the opportunity set to include companies that have high revenue linkages, or that are strongly influenced by the Chinese market.
2. Sector diversification with targeted overweights to high-conviction opportunities: The portfolio is designed to provide exposures across all sectors, with targeted overweights in sectors that are best positioned to benefit from secular growth themes in China. 
3. Stock-level diversification: The portfolio seeks to minimise single stock concentration risk by investing in a broad basket of over 200 companies within the universe of China equities. This protects against the downside by limiting the impact that adverse single stock movements could have on the portfolio.

How to create your own China Equities model portfolio on Endowus

Here are a few simple steps to create the Endowus China Equities model portfolio via Fund Smart.

Step 1: Login to your Endowus account. In the My Goals section on the sidebar, click on “+” to add a goal.

Select your investment horizon and objective for this goal, and click on “Browse funds''. Don’t have an account with Endowus Hong Kong? Get started here.

Step 2: Select a model portfolio you’re interested in, by clicking “Preview”.

You will see a list of model portfolios that are recommended for you, depending on your investment horizon, investment objective, and risk profile. (This means you might not see all of the available model portfolios if your risk profile is lower.)

Step 3: Check through the portfolio details. Click on “Continue with portfolio” if you wish to proceed.

Here, you will see details of the model portfolio such as the description, risk analysis, fees, performance, and allocations of its underlying funds. After you click on “Continue with portfolio”, you can still add funds, remove funds, and modify allocations if you want to.

Step 4: Allocate your funds in this portfolio, and review an analysis of it. Click on “Continue” to proceed.

You can either invest in the model portfolio as it is, or modify the allocations, add funds, and remove funds to suit your preferences and needs. 

Step 5: Set up your investment. Input the sum you want to invest, and decide whether this will be a one-time and/or recurring monthly investment. Click on either “Continue to review” or “Save goal and invest later” to proceed. 

On this page, you will see the projected outcomes, historical performance, selection criteria, underlying holdings, and warning statements. Make sure to review the warning statements carefully. You can still modify or stop any recurring monthly investments later. 

Remember that return is proportionate to risk. You should consider your risk tolerance — for example, how much money can you tolerate losing in a certain time period, in a worst-case scenario? The portfolio should then suit your risk appetite, as well as your investment timeline and financial goals.

Should you invest in the Endowus China Equities model portfolio or in single funds?

The Endowus Investment Office has designed the asset allocation, selected the funds, and optimised the fund allocation for the Endowus China Equities model portfolio. The portfolio is diversified and optimised for each level of risk.

Investors can also buy single funds on the Fund Smart platform as a way to complement your existing core investments. If you want to get additional exposure to certain asset classes, geographies, sectors, themes or factors, you can select the additional funds via Fund Smart.

At Endowus, wealth management for everyone

The China Equities model portfolio offers investors a convenient and effective way to build a diversified portfolio that can help to minimise risk and potentially increase returns.

With digital wealth platform Endowus, investing is now made low-cost and accessible for every season in life, investing goal, and risk appetite. Make time your biggest asset and begin your investing journey with Endowus today. Start investing towards your goals from just HK$10,000.

At a low, fair, and transparent fee, both retail and professional investors can access Best-In-Class Funds and stand on the shoulders of financial giants. And with our industry-first 100% Cashback on trailer fees, save up to 50% or more on your investment fees.

Get more details about the China Equities model portfolio here. Read about the other Endowus model portfolios in this article.

For an overview of all the funds available on the Endowus Fund Smart platform, refer to our investment funds list. Follow this link to get started with Endowus HK.

Read more:

• Introducing the Endowus HK team
• Why invest through Endowus
• What is Fund Smart?
• An overview of the Endowus model portfolios

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‍Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance or returns. Projected performance or returns is not guaranteed to materialise. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.

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