TCWAX: 2015’s Worst Performer, but Lowest YTD Negative Return

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The Templeton China World Fund

The Templeton China World Fund – Class A (TCWAX) is the third-largest fund under this review, with an asset size of $297.2 million as of January 2016. The fund was launched in September 1993. The fund has a net expense ratio of 1.81%.

The fund aims to invest 80% of its assets in securities of companies that are organized under the laws of, or with a principal office in, the People’s Republic of China (China), Hong Kong, or Taiwan; companies whose principal trading market is in China, Hong Kong, or Taiwan; companies that derive at least 50% of their revenues from goods or services sold or produced in China; or companies that have at least 50% of their assets in China.

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Performance evaluation

The Templeton China World Fund – Class A (TCWAX) fell by 1.0% in December 2015 from a month prior. In the fourth quarter ended December 31, the fund was up by 5.8%.

In the one-year period, it was down by 11.2% and thus turned out to be the worst performer in 2015 among the eight mutual funds under this review. Year-to-date (from the end of December 2015 to February 26), the fund was down by 7.9%, the lowest among all the funds under this review.

Portfolio composition

Information technology sector dominated the portfolio with 20.8% weight as of December 2015, which is the latest available data. Consumer discretionary, consumer staples, and financials accounted for 16.7%, 14.5%, and 13.4%, respectively, weight of the portfolio assets.

As of December 2015, the fund was invested in 53 holdings. The top ten position accounted for 53.8% of the total portfolio assets. Its top ten positions include Taiwan Semiconductor Manufacturing Company (TSM), China Petroleum and Chemical Corporation (SNP), Tencent Holdings (TECHY), China Mobile (CHL), and Baidu (BIDU).

Reason for poor performance

In 2015, the energy and materials sector was the biggest detractors due to plunging oil and commodity prices. The industrials sector has been hampered by overcapacity and weak demand. However, financials contributed positively to the fund, but this contribution was offset by poor performance in the industrial and energy sectors.

Despite poor performance in 2015, Mark Mobius, the emerging markets fund manager at Franklin Templeton Investments, strongly believes in Chinese fundamentals.

According to Mobius, “Chinese consumer demand is growing, and trade is flourishing in Hong Kong. We will continue applying our bottom-up, long-term, value-oriented strategy to find bargain companies in this dynamic region.”

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