Made In China
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Becoming a successful entrepreneur or a seasoned investor involves learning about risk. For fans of mutual funds that invest in China and surrounding regions, understanding risk is paramount.
China region funds haven't been around for long. Only two have a five-year performance track record. They also didn't fare well last year. Between December 31, 1996, and December 31, 1997, the average China region fund was down more than 23 percent, according to Lipper Analytical Services Inc.
In fact, for the past few years, the performance of this category of funds has been nothing to crow about. But even with a string of lousy performance years, a banking crisis and economic turmoil, to bottom fishers, speculators and those who believe this market runs in three-to-five-year cycles, all this bad news could spell o-p-p-o-r-t-u-n-i-t-y.
Investing in China has paid off well before. With the country's large educated work force, good saving habits and strong economic growth, the notion of making money in this market isn't far-fetched.
The Guinness Flight China and Hong Kong Fund was the best performer in its category last year. Although it was down 20.3 percent in 1997, the two previous years saw impressive gains: At the end of 1995, the fund was up more than 20 percent and, in 1996, up 34 percent.
Richard Farrell is one of the Guinness Flight fund's two portfolio managers. He's been managing money in Asia for 25 years and the fund's assets since its inception in 1994. Although he's optimistic about the markets in China and Hong Kong, Farrell knows that investing there has its risks.
"The Hong Kong market has always been volatile. There's no getting away from that," says Farrell. "But I believe Hong Kong is an ongoing growth story."
Among the 55 stocks Farrell keeps in the Guinness Flight fund's portfolio, you'll find representation from all sectors of the Hang Seng Index. At press time, one area of emphasis in the fund was utilities.
"We're particularly overweighted in Hong Kong and China Gas," says Farrell. "It's in a position to be a direct beneficiary of a trend [toward] building more residential accommodations in Hong Kong."
In 1997, the fund was overweighted in banking and financial stocks. But as the banking crisis developed in Asia, the portfolio managers cut back significantly, selling off shares of smaller banks while holding on to larger bank stocks. Currently, HSBC Holdings Ltd., the new name for the Hong Kong and Shanghai Bank, is the fund's largest holding. As the largest component of the Hang Seng Index, experts predict any upswing will be led by HSBC.
Investing in China region funds isn't for everyone. Even if you can tolerate the risk, most experts agree you should only allocate a small percentage--maybe 5 percent of your portfolio--to China region funds. If you want to get your feet wet without committing a lot of money at once, it might be best to make monthly contributions and dollar-cost-average your way into this market.
At A Glance
Fund name: Guinness Flight China and Hong Kong Fund
Managed by: Guinness Flight Investment Management Ltd.
Total assets: $245 million*
Average annual return: 5.07% (from inception on July 1, 1994 through December 31, 1997)
Management fee: 1%
Minimum initial investment: $2,500 (or monthly investments of $100)
Phone: (800) 915-6565
*Figure is as of February 14, 1998.
Dian Vujovich is a nationally syndicated mutual fund columnist and author of Straight Talk About Mutual Funds (McGraw- Hill), Straight Talk About Investing for Your Retirement (McGraw-Hill), and 10-Minute Guide to Stocks (Macmillan).