A dramatic drop in net asset value of all four qualified
domestic institutional investor (QDII) funds from local financial
institutions has caused a dilemma for mainland investors who want
to broaden their portfolios.
Mutual fund research firm Morningstar notes in its latest report
that there were two main factors in the underperformance of QDII
funds.
Significant is the correction trend that began at the beginning
of November in major stock markets impacted by the subprime credit
crisis, which directly accounted for the drop in value of QDII
funds.
As well, the funds have been focused on investing in Hong
Kong-listed stocks. After the Chinese government suspended a
program for Chinese residents to directly invest in Hong Kong
stocks, investor enthusiasm was dampened.
"Also when many QDII funds entered the Hong Kong market, the
prices of many stocks in the market were already very high, and
that also affected QDII performance," Morningstar says.
"QDII funds are still in a process of building their portfolios.
The net asset value may be influenced by many factors such as
trading fees," says Xie Liwen, research director of Yinhua Fund
Management Co Ltd, who is also the key person responsible for the
company's QDII program.
"So it is too early to judge a fund house and its asset
manager's performance in such a short time."
Xie says that QDII funds are still a good choice as they allow
domestic investors to share in global investment opportunities and
diversify risks in a wider portfolio.
"As Chinese investors are more experienced in investing in Hong
Kong compared to other markets, a large portion of their portfolio
has been invested in Hong Kong. But QDII funds in the long run
should not be limited to this market," he says.
Training local fund managers to have abundant global investment
experience is a priority to many asset managers.
According to Xie, part of Yinhua's QDII investment team are
local employees and some are hired from overseas for their
investment talent.
Investment professionals from overseas provide consultancy to
local teams at many stages during the launch of QDII funds,
including sales, investments, trade and transactions.
Some fund managers see the QDII scheme as not merely a product,
but an experiment for local fund houses to develop international
business.
"QDII opened a door for Chinese asset managers. We should take
this opportunity to go outside and improve our capabilities," Xie
says.
(China Daily December 3, 2007)
