Columbia Greater China Fund
The Columbia Greater China Fund – Class A (NGCAX) is the fourth-largest fund among the nine mutual funds under this review, with net assets of $126.4 million as of January 2016. The fund was incepted in May 1997. The fund has a net expense ratio of 1.56%. The fund benchmarks its performance to the MSCI China Index Net.
The fund invests primarily in stocks of companies located in, or which derive a substantial portion of their revenue from, the Greater China Region, including Hong Kong, the People’s Republic of China, and Taiwan.
The Columbia Greater China Fund – Class A (NGCAX) fell by 0.5% in December 2015 from a month prior. In the fourth quarter ended December 31, the fund was up by 10.0%. The MSCI China Index Net returned 4.3% in 4Q15.
In the one-year period, NGCAX was down by 0.6%, the least among all the funds and outperforming the benchmark, which was down by 13.6%. Year-to-date (from the end of December 2015 to February 26), the fund fell 13.4%.
According to the NGCAX’s investment commentary, “The fund’s relative performance was helped about equally by security selection and sector allocation. Security selection was particularly strong in the information technology and consumer discretionary sectors, and sector allocation was helped by an overweight to information technology and health care and an underweight to industrials. These positives were offset slightly by security selection in industrials and an underweight to financials.”
As of December 2015, the information technology sector dominated the portfolio with a 29.9% weight. It is followed by financials with a 24.5% weight. Consumer discretionary, healthcare, and telecommunication services account for 14.1%, 12.9%, and 8.5%, respectively, of the portfolio weight. The fund has less than 5% weight to the industrial sector and less than 2% weight to the energy sector.
Significant overweight to information technology and healthcare sectors relative to benchmark accounted for approximately half of the fund’s outperformance in the period. Stock selection within these two sectors also contributed significantly to outperformance.
Information technology firms such as Alibaba Group Holding (BABA), Baidu (BIDU), 58.com (WUBA), and Ctrip.com International (CTRP) were key drivers of outperformance. These stocks, along with other Internet-based companies, are part of what is termed the “new economy,” representing service-oriented sectors.
Healthcare firm China Biologic Products (CBPO), a blood plasma–based pharmaceutical company, has benefited from being in a high barrier-to-entry niche within the expanding Chinese healthcare market. China Medical System Holdings and CSPC Pharmaceutical Group also posted strong returns in 2015. Even with the macro economy slowing down, the aging population and people consuming more healthcare products and services resulted in outperformance of all healthcare industries.
The fund is invested in 43 equity securities as of December 2015, while the top ten holdings account for 52.1% of the portfolio assets.
Positioning and outlook
In 2016, China could continue to weaken and there would be no immediate rebound. However, China could continue to transit from the old economy toward a consumer- and service-oriented new economy, with industries such as entertainment, travel, and mobile technology. The Chinese government appears committed to continuing its accommodative monetary and fiscal policies to cushion the economic slowdown.
The reforms introduced by Chinese authorities aim to accelerate economic growth by freeing up productivity and by raising competitiveness. However, these are long-term initiatives that could come with some short-term pain.
Investors who believe in Chinese fundamentals and believe that China would come out of this thicket may choose to invest in this fund.