- Greater China funds, MSCI
Quarterly Assessment (2Q16)
Light at the end of the tunnel
MSCI’s decision to delay A-share inclusion into its Emerging Markets indices may have taken the headlines this past quarter, but looking beyond this, there is growing and significant evidence that Greater China funds are no longer a niche play. Even when considering MSCI’s three remaining sticking points, China’s continued reform to inbound access has made physical exposure increasingly attractive for fund construction. So much so that there is a strong and emerging trend of investors in synthetic products moving to physical exposure – something that Chinese managers are benefitting from. This raises the valid question about whether they are being underestimated in the market.
Smart beta is becoming more than just a buzzword and is now making its way into Greater China funds. Z-Ben Advisors has analyzed organic fund flows over the year, finding that there is a strong trend of capital in active funds migrating to passive funds – a trend prominent in global asset management. Likewise, as this trend pushes global growth of smart beta funds ahead, we have analyzed how successful the most common smart beta strategy in the Greater China fund industry is at generating excess returns. With an increasingly competitive market, managers need to have a strong understanding of where investor capital is flowing.
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