Mutual funds investing in Chinese stocks were among the top performers in the first quarter of 2015, and this trend has potential to continue in the foreseeable future.
Recent enthusiasm for Chinese stocks stems from a shift to an easy money policy by the People’s Bank of China (PBOC) in an effort to keep lending rates low and economic growth strong. The PBOC appears ready for further easing, if necessary, to keep China’s economy humming.
On Tuesday, the Shanghai Composite Index jumped 2.5% in early trading to reach a seven-year high. While investor caution on China is warranted here, the money tap is open and investors are speculating that prices for Chinese stocks have room to run.
A good way to gain broad exposure to the China region, which includes Taiwan and Hong Kong, is through one of the best mutual funds that invest in them. Here are 3 of the top funds that will benefit from continued growth in China.
Best Funds for Investing in Chinese Stocks: Fidelity China Region (FHKCX)
For a solid low-cost mutual fund investing in Chinese stocks, you’re not likely to find better than the Fidelity China Region Fund (MUTF:FHKCX).
Top sectors in FHKCX include financial stocks and technology, both of which stand to benefit from continued easy money policies from the PBOC. Lower rates helps the biggest banks, such as the Industrial And Commercial Bank of China and tech exporters like Taiwan Semiconductor Co Ltd.
Lead manager of Fidelity China Region, Bobby Bao, has been at the helm of the fund for 3.5 years and has earned an impressive 16.1% 3-year annualized return, which ranks ahead of 97% of funds investing in the China region.
The expense ratio of 1.01% is low for a China Region fund, and the $2,500 minimum initial investment makes it accessible for the everyday investor.
Best Funds for Investing in Chinese Stocks: Matthews China Dividend Investor (MCDFX)
If you are looking for a China stock mutual fund with a sensible long-term approach, Matthews China Dividend Investor (MUTF:MCDFX) may be the fund for you.
Leaning more toward a value style, MCDFX won’t often be found in the top of performers among Chinese mutual funds. However the fundamental management approach provides for solid returns that prevents the Matthews China Dividend fund from getting burned by big declines associated with the more aggressive Chinese mutual funds.
The issuing fund family, Matthews Asia Funds, has been investing since 1991 and their concentrated efforts and experience in the region have proven valuable in the past 20-plus years.
The Matthews China fund has been around since 2009, and the 5-year returns are in the top 1% of performers among China region funds.
The expense ratio is below average for the category at 1.24%, and the minimum initial investment is reasonable at $2,500.
Best Funds for Investing in Chinese Stocks: RS China A (RSCHX)
Aggressive investors looking to tap into growth in Chinese stocks will want to consider RS China Fund Class A (MUTF:RSCHX).
RSCHX is a front-loaded fund with an above-average expense ratio, but performance since the fund’s inception in 2011 may justify the expense. The price gain in 2014 beat 96% of China Region funds and Q1 2015 performance put RSCHX ahead of 86% of category peers.
RS China is well-equipped to benefit from the PBOC’s easy money policy with an outsized 40% allocation to financial stocks, most of which are large-caps, compared to the average of 30% for China Region funds.
The front load for RSCHX is 4.75% and the expense ratio is above average at 1.75%. Some investors may qualify for load-waived shares.
The minimum initial investment is $2,500.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.
