Larry Shepherd larry@quantshop.com + 61 4 1115 0210 June 2015 China A Share Funds Performance Study Last 5 years using Style Research’s Portfolio Analyzer Markets Analyzer Larry Shepherd larry@quantshop.com + 61 4 1115 0210 June 2015

Active Portfolio Returns – 5 years Majority add value The median manager of our sample, based on semiannual holdings, outperformed by around 25.5% in CNY terms over last 5 years to end May 2015. overweight growth and underweight value overweight momentum both in ST and MT slightly large cap Benchmark, 190 funds, 5 years to end May 15

Forecast Risk Tracking Error Breakdown Benchmark, 620 funds, as at end Dec 14

Forecast Risk As at June 2014, 244 funds As at December 2014, 620 funds Benchmark, as at

Forecast Risk Decomposition As at June 2014 As at December 2014 Benchmark, as at

Data We collect holdings data of China A Share funds, semiannual based, for end Dec 2014, we have 630 funds’ data; for calculating five years’ return, we select 190 funds which have five years history, over 60% equity and run the analysis Methodology Using Style Research Portfolio Analyzer to examine the sample group: portfolios against Benchmark =CSI 300, currency = CNY Performance analysis: assume buy and hold Using Style Research Markets Analyzer to exam the market: market cap weighted, minimum stock size USD 1,000 million, sector adjusted, 6-month rebalance

Allocation

Stock Selection

Interaction

Sectors We start by breaking down the overall active returns into contributions due to sector exposures and stock selection activities within these grouping.

Return Contributions - Sector Benchmark, 190 funds, 5 years to end May 15

Return Contributions - Sector To August 2014, 244 funds To May 2015, 190 funds Benchmark, 5 years to end

Sector Returns Benchmark, 5 years to end May 15

Manager Active Returns - Sector Benchmark, 190 funds, 5 years to end May 15

Active Manager Returns Benchmark Returns Active Manager Returns Benchmark, 5 years to end May 2015

Manager Active Returns - Sector To August 14 To May 15 Benchmark, 5 year returns

Sector Distribution - Dec 2014 Benchmark, 620 funds, 5% outliers

Sector Distribution Jun 14, 244 funds (Market) Dec 14, 620 funds (Benchmark)

Return Contributions – Sector Benchmark, 190 funds, 5 years to end May 15

ALLOCATION Returns - Sector Benchmark, 190 funds, 5 years to end May 15

ALLOCATION Returns - Sector To August 2014 To May 2015 Benchmark, 5 years to

Return Contributions – Sector Benchmark, 190 funds, end May 15

STOCK Selection Returns - Sector Benchmark, 190 funds, 5 years to end May 15

STOCK Selection Returns - Sector To August 2014 To May 2015 Benchmark, 5 years to

Manager Sector Characteristics – ¾ Negative/bad/smaller Position: Finance Risk: na Return Total: Return Allocation: Finance and Telcos Return Stock: na Positive/good/bigger IT Risk: Stock bets Energy, Utilities, IT, Healthcare and Materials Returns Allocation: Energy IT, Healthcare and Material Benchmark

Styles Next, we examine the return of our sample universe broken into contributions due to Style exposure. Large Value= Market Cap top 80%, Book to Price top 50% Large Growth= Market Cap top 80%, Book to Price bottom 50% Small Value= Market Cap bottom 20%, Book to Price top 50% Small Growth= Market Cap bottom 20%, Book to Price bottom 50%

Return Contributions – Style Benchmark, 190 funds, 5 year to end May 15

Return Contributions - Style To August 2014 To May 2015 Benchmark, 5 years to end

Style Returns Benchmark, 5 years to May 2015

Manager Active Returns - Style Benchmark, 190 funds, 5 years to end May 15

Active Manager Returns Benchmark Returns Active Manager Returns Benchmark, 5 years to end May 2015

Manager Active Returns - Style To August 2014 To May 2015 Benchmark, 5 years to end

Style Distribution Dec 2014 Benchmark

Style Distribution June 2014 December 2014

Return Contributions – Style Benchmark, 190 funds, 5 years to end May 15

ALLOCATION Returns - Style Benchmark, 190 funds, 5 years to end May 15

ALLOCATION Returns - Style To August 2014 To May 2015 Benchmark, 190 funds, 5 years to end May 15

Return Contributions - Style Benchmark, 190 funds, 5 years to end May 15

STOCK Selection Returns - Style Benchmark, 190 funds, 5 years to end May 15

STOCK Selection Returns - Style To August 2014 To May 2015 Benchmark, 5 years to end

Manager Style Characteristics – ¾ Negative/bad/smaller Position: Large (Value and Growth) Risk: na Return Total: Large Value Return Allocation: Large Cap Return Stock: na Positive/good/bigger Small Growth Risk: Style & Stock bets Small Cap (Value and Growth) Returns Allocation: Small Cap Large Growth Benchmark

Style – what else

Size Distribution – 40/40/20 Benchmark, 620 funds, as at end Dec 14

Active Style Tilts Benchmark, 620 funds, as at end Dec 14

Active Style Tilts Benchmark, 620 funds, as at end Dec 14

Style Summary – Managers Underweight Value Momentum Debt/Equity Quality Macro Overweight Growth Forecast Small cap Low Beta Foreign Sales Benchmark, 620 funds, as at end Dec 14

ALLOCATION Returns - Style Benchmark, 190 funds, 5 years to end May 15

ALLOCATION Returns - Style Benchmark, 190 funds, 5 years to end May 15

Style Returns Summary – Managers Negative – 3/4 Value Growth Other Quality Macro ESG Positive 3/4 Benchmark, 190 funds, 5 years to end May 15

Some interesting numbers

Who get the highest return? Last 5 years Cumulative Active Return (Base Currency) Funds Return 1 Baoying Strategic Growth 330% 2 Galaxy Sector 268% 3 Huashang Dynamic 262% 4 Baoying Resources Selected 203% 5 Guotai Jinniu Innovation Growth 192% 6 LC Value 185% 7 Fortune SGAM Dividend Growth 178% 8 AXA-SPDB Value Growth 166% 9 Huashang Sector Leading 153% 10 Fullgoal Tianhe 145%

Best Sector Performer? Last 5 years Return from Sector Funds Returns Cons Disc Huashang Dynamic 110.1% Cons Staples Baoying Strategic Growth 46.8% Energy Baoying Dividend 27.2% Financials Huashang Sector Leading 28.8% Health Care Galaxy Sector 87.1% Industrials Invesco GW Resources and Monopoly 77.4% Info Tech 195.0% Materials Baoying Resources Selected 100.7% Telecoms Huaxia Strategy Select 9.9% Utilities Bosera Sector Focus 21.4%

Best Style Performer? Last 5 years Return form Style Funds Returns Large Value Penghua Value Advantage 32.4% Large Growth Baoying Strategic Growth 243.9% Small Value Galaxy Sector 59.2% Small Growth Baoying Resources Selected 116.1%

Baoying strategic growth Case Study 1 Baoying strategic growth

Big Style and Sector bets IBES Sales LT

IBES Sales – 24% on 1 stock

Big Sector bets

Adjusting for Sectors - similar

And typical of portfolio

Small Growth and Stock Risk

Currently high stock risk

Most of the performance is recent

Returns from Stock Selection

Most of return from Stock

But some Styles matter ROE

What drove the ROE returns

Case Study 2 Galaxy sector

Small Cap Growth, Big Sector Bets IBES Sales LTG

37.45 is large relative to benchmark

Adjusting for Sectors

Similar to past

Small Growth, Large Sector and Stock Risk

Currently LOW Sector Risk

Good Recent Performance

Returns from Stock & Style

Returns from Stock & Style

Style ALLOCATION returns IBES Sales LTG

Why did long term Forecast Sales Growth fail?

Case Study 3 Haushang dynamic

Small Cap Growth, Big Sector bets momentum

Did Momentum make money?

Small Growth, Large Sector and Stock Risk

Adjusting for Sectors - Similar

Almost Value!

Currently low Stock Risk

Consistent Outperformance

Stock, but Style>Sectors!

Stock, but Style>Sectors!

GDP Shock

What drove GDP Shock

Conclusion Many managers outperform Stock Selection is dominant driver of returns Risk is driven by Stock and Sector bets Returns (-ve) from Style factors can be substantial

Thank You Q&A