Equity Funds in China A Share Market using Style Research’s Portfolio Analyzer Markets Analyzer CJ Zou Nov 2012

Data and Approach  Data -393 China A shares equity funds (equity stocks>70%) end Jun Performance Attribution is semiannual holdings data from June 2005 to Jun  Approach -Using Style Research Portfolio Analyzer: portfolios against Benchmark =CSI 300 -Using Style Research Markets Analyzer: market cap weighted, minimum stock size USD 100 million, sector adjusted, 6-month rebalance -Add cash in Chinese RMB if the portfolio does not sum to 100%. -Return: 12 months and 2 years excess return

5% of outliers excluded 95th Percentile 50th Percentile (Median) 25th Percentile 5th Percentile 75th Percentile

What are we going to cover? Where is the money? What are the risks? Where are risks from? What are the returns? Where are the returns from? What do the factor and Sector returns look like? Case study

Where is the money?

Where is the money? Style Skyline

Where is the money? Sector Adjusted (SA)

Where is the money? Style Skyline: Sector Adjusted

Where is the money? Sector Skyline

Where is the money? Sector Skyline Detail

Where is the money? Style Distribution

Where is the money? Style Distribution: SA

Where is the money? Size Distribution

Where is the money? Size Distribution: SA

What are the risks? Where are risks from?

Where are the risks? 50th Percentile (Median)

Where are risks from? Decomposition of Risks

What are the returns? Where are the returns from? What do the factor and sector returns look like?

What are the returns? Distribution of Excess Returns last 12 months 50th Percentile (Median)

Decomposition of the sources of return by Style Research HIERARCHICAL METHODOLOGY decomposes returns into – Currency Component – Market Component – Sector Component – Style Component – Stock Component

Excess Returns Decomposition Last 12 months

Risks vs. Returns : Last 1 year Last 12 months RisksLast 12 months Returns

Excess Returns Decomposition Last 2 years

Excess Returns Decomposition Last 1 year vs. Last 2 years return Last 1 year ReturnLast 2 years Return

Factor Returns – some do well

Positions did not match returns where the money is

Sector Returns – some do well

Positions did not match returns where the money is

Looking at things differently- information Ratio?

Looking at things differently Information ratio

Looking at things differently Information ratio top quartile(75% - 100%)

Looking at things differently Information ratio bottom quartile(0% - 25%)

Conclusion  Where is the money  Style: Overweight growth and underweight value; Overweight momentum both in ST and MT, slightly large cap  Sector: Overweight Health care, Cons Staples, Cons Disc; underweight Energy and Telecom  Risks: Stock risk> Sector risk> style Risk  Returns  outperformed CSI 300  managers made money from stock selection  Lost money from Sector – underweighted Telco, Finance, overweight Cons Disc  Lost money from Style – underweighted Value, overweight momentum  Info ratios: Stock > Sector and Style

Case Study the fund has highest info ratio

ABC fund – the Style Skyline High Beta high momentum

ABC fund– Style Distribution Invest in value and small growth stocks

ABC fund – Market Cap Invest in Small cap

ABC fund – Sector underweight financials, overweight industrials, active shares in financials

ABC fund – Risk Risk Attribution Equity risk!

ABC fund – Risk Contribution to Tracking Variance by Style

ABC fund – Risk Contribution to Tracking Variance by Sector

ABC fund – Return

Contributions by Sector last 12 months - Biggest contributor to last 12 M returns is Industrials

ABC fund – Return Contributions by Style last 12 months - Biggest contributor to last 12 m return is Large value

Ranking

Top 10&Bottom 10 Tracking Errors Funds NameTE% 1 E Fund Health Care China Universal Health Care Changxin Domestic Demand Growth Tianhong Select Changxin Shuangli Greatwall Value Added Consumer Everbright Mid Small Cap Manulife Teda Growth Lord Abbett Mid Small Cap Huashang Dynamic17.4 Funds NameTE% 1 Everbright Pramerica Quantization3.9 2 Bosera Franchise Value4.1 3 Changsheng Quantitative Dividend Strategy4.5 4 Huaxia Blue-chip Core4.6 5 Southern Strategy Equity4.9 6 CCB Principal Dual Benefit Strategy5.1 7 Orient Strategic Growth5.1 8 Huatai PineBridge Quantitative First5.3 9 Harfor Trending Growth Huaxia Prosperity5.7 Top 10Bottom 10Average 9.98

Top 10 & Bottom TEs from sector Top 10 Funds Name% of TE 1 China Universal Health Care79% 2 Huaan Tactical Select78% 3 Harvest Alpha77% 4 E Fund Health Care77% 5 Greatwall Jiu FU Core Growth77% 6 Greatwall Value Added Consumer76% 7 Invesco GW Domestic Demand Growth II72% 8 Invesco GW Domestic Demand Growth72% 9 First-Trust Xianxing71% 10 Harvest Quality Enterprises70% Funds Name% of TE 1 First State Cinda Industry2.5% 2 China Post Core Selected2.9% 3 Golden Eagle Strategic Allocation3.9% 4 KBC-Goldstate Core Power Stock4.2% 5 SYWG BNP Paribas Advantage4.6% 6 Dacheng Jinghong4.9% 7 E Fund Ke Xiang5.2% 8 E Fund Value Select5.5% 9 Guangfa Domestic Demand6.1% 10 Guotai Value Classic Equity6.1% Bottom 10Average 35.5%

Top 10 & Bottom TEs from style Top 10 Funds Name% of TE 1 Guotai Jinlong Sector-Select Equities53% 2 Lord Abbett Selected 3043% 3 Morgan Stanley Huaxin Multi-factor Selection Strategy 32% 4 Soochow Sector Rotation31% 5 Zhonghai Environmental Protection and New Energy Theme 31% 6 China Post Core Selected30% 7 Huaxia Dividend29% 8 SYWG BNP Paribas Quantitative29% 9 Penghua Value Advantage29% 10 First State Cinda Industry29% Funds Name% of TE 1 KBC-Goldstate Core Power Stock1.7% 2 Huatai Pinebridge Value Growth2.5% 3 China Universal Health Care2.6% 4 Bosera Sector Rotation2.6% 5 Harvest Growth2.8% 6 E Fund Health Care2.8% 7 Dacheng Aggressive Growth2.9% 8 Fortis Haitong Equity2.9% 9 Fortis Haitong Style Rotation2.9% 10 HSBC Jintrust Longteng2.9% Bottom 10Average 10.7%

Top 10 & Bottom TEs from stock Top 10 Funds Name% of TE 1 KBC-Goldstate Core Power Stock94% 2 Bank of Communications Schroder Pioneer89% 3 Franklin Mid Small Cap88% 4 Changsheng Quantitative Dividend Strategy88% 5 Bosera Franchise Value86% 6 Gold Eagle Stable Growth86% 7 Bank of Communications Schroder Growth83% 8 Dacheng Sector Rotation81% 9 Soochow New Economy81% 10 Bank of Communications Schroder Blue Chip81% Funds Name% of TE 1 Morgan Stanley Huaxin Multi-factor Selection Strategy 5.4% 2 China Universal Health Care6.4% 3 E Fund Health Care6.8% 4 Changxin Quantitative Pioneer8.5% 5 ABC-CA Strategy Selected Stock8.6% 6 SYWG BNP Paribas Quantitative10.9% 7 Harfor Quantum vitality11.7% 8 Huaxia Sector Select13.5% 9 Greatwall Jiu FU Core Growth13.6% 10 Greatwall Value Added Consumer14.9% Bottom 10Average 45%

Top 10 & Bottom 10 Returns Top 10Bottom 10 Funds NameReturn 1 Guangfa Ju Rui11.8% 2 Fortune SGAM Dividend Growth11.6% 3 Changxin Shuangli11.2% 4 China Universal Health Care11.1% 5 Guangfa Core Selected11.0% 6 UBS SDIC Innovation Power10.2% 7 Zhonghai Environmental Protection and New Energy Theme 9.9% 8 Xinhua Flexible Theme9.7% 9 Fortune SGAM Selected Sectors9.7% 10 Manulife Teda Growth9.6% Funds NameReturn 1 Dacheng Jinghong-4.0% 2 Baoying Hongyang-3.8% 3 ICBCCS Mid Small Cap-3.6% 4 Invesco GW Emerging Growth-3.5% 5 Changxin Quantitative Pioneer-3.3% 6 Gold Eagle Stable Growth-3.2% 7 Yimin Innovation Advantage-3.1% 8 China Merchants Antai Eqiuty-2.6% 9 China Merchants Blue Chip Equity-2.3% 10 China Post Core Growth-2.2% xs return last 12 months Average 3.15%

Top 10 & Bottom Returns from sector Top 10 Funds NameReturn 1 China Universal Health Care3.0% 2 Fullgoal Tianrui2.0% 3 E Fund Health Care2.0% 4 Greatwall Jiu FU Core Growth1.5% 5 Penghua Dynamic Growth1.2% 6 Minsheng Royal Blue Chip0.9% 7 ICBCCS High Yield Equity0.9% 8 Xinhua Enterprise0.9% 9 Bosera Equity Select0.8% 10 UBS SDIC Stable0.8% Funds NameReturn 1 Huashang Dynamic-5.7% 2 Tianhong Yongding Cycle Strategies-5.6% 3 Fortune SGAM Emerging Industries-5.3% 4 E Fund Mid Small Cap-5.2% 5 Baoying Pan-Coastal Regional Growth-5.1% 6 Guotai Growth Equity-5.1% 7 HSBC Jintrust Technology Pioneer-5.1% 8 Chinanature Innovation Pioneer-5.0% 9 LC New Power-5.0% 10 China Post Core Growth-5.0% Bottom 10 xs return last 12 months Average -2.32%

Top 10 & Bottom Returns from style Top 10 Funds NameReturn 1 Zhonghai Quantization0.7% 2 Southern Kaiyuan0.6% 3 Bank of Communications Schroder Theme Selected 0.5% 4 Golden Engle Dividend0.5% 5 Guangfa Ju Feng0.4% 6 Southern Long Yuan Industry0.3% 7 Changxin Dynamic Strategy0.3% 8 BOCIM Dynamic Strategy0.2% 9 Changxin Yinli0.2% 10 Galaxy Blue-chip Selection0.1% Funds NameReturn 1 Penghua Growth-4.3% 2 Xinhua Flexible Theme-4.2% 3 Penghua Putian Income-3.9% 4 Industrial Co-Run Classification-3.7% 5 Golden Engle Advantage-3.5% 6 AXA-SPDB Life-3.3% 7 Harfor Value-3.3% 8 Bosera Emerging Growth-3.2% 9 Huashang Strategic Selection-3.2% 10 Harvest Taihe-3.1% Bottom 10 xs return last 12 months Average -1.50%

Top 10 & Bottom Returns from stock Top 10 Funds NameReturn 1 Guangfa Ju Rui18% 2 Xinhua Flexible Theme17% 3 Fortune SGAM Emerging Industries15% 4 Fortune SGAM Dividend Growth15% 5 Guangfa Core Selected14% 6 Huashang Dynamic14% 7 Shangtou JPM Emerging Power13% 8 Manulife Teda Growth13% 9 LC New Power13% 10 Fortune SGAM Selected Sectors13% Funds NameReturn 1 Dacheng Jinghong-0.1% 2 Invesco GW Emerging Growth0.9% 3 Greatwall Mid Small Cap Growth1.7% 4 Yimin Innovation Advantage1.7% 5 Invesco GW Corporate Governance1.9% 6 SYWG BNP Paribas Consumer1.9% 7 Galaxy Yinfeng2.0% 8 Gold Eagle Stable Growth2.2% 9 ICBCCS Mid Small Cap2.3% 10 Yinhua Leading Strategy Equity2.5% Bottom 10 xs return last 12 months Average 6.97%

Summary  Chinese A funds analysis -Most of China A funds over performed CSI 300 from July 2011 to June Overweight growth and underweight value; Overweight momentum both in ST and MT, slightly large cap; Overweight Health care, Cons Staples, Cons Disc; underweight Energy and Telecom -Style Risk < Sector and Stock risk -Return from Stock> Return from Sector and Style  Case Study -80% returns are from Large Growth and 55% from Industrial ; 89% of risk from Large Growth and 33% from industrial. -Buy growth and high momentum stocks  Run detailed analysis of one of your funds - Contact us if you are interested in a sample analysis of your own fund

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