| Fund Company | Excel Funds Management Inc. |
| Fund Type | Greater China Equity |
| Rating | D |
| Style | Growth |
| Risk Level | High |
| Load Status | Optional |
| RRSP/RRIF Suitability | Poor |
| TFSA Suitability | Poor |
| Manager | Agnes Deng since September 2009 |
| MER | 3.78% |
| Code | EXL 103 – Front End Units EXL 203 – DSC Units |
| Minimum Investment | $250 |
Analysis: There is little doubt that the growth story out of China has been quite impressive for the past several years. It has largely been responsible for the boom in demand for commodities that has buoyed many developed markets, including Canada. While many are calling for this remarkable growth story to continue, it is not without its risks.
This fund looks to capitalize on that impressive growth story by investing in companies that are located in China, Hong Kong and Taiwan. It is managed by Barings International Investment Limited, which was one of the first companies to invest in Chinese equities. Today, they are one of the largest teams investing in China and Hong Kong equities.
In managing the fund, they use a very active management style. For the past five years, portfolio turnover has averaged more than 100%. The portfolio is fairly concentrated, with 45 holdings. The top ten make up 44% of the fund. Financial services make up 30% of the fund, followed by industrials at 13%, technology at 12% and energy at 11%.
In a recent commentary, the managers said that they believe that the market has been overly pessimistic on the economic growth in the region. This is why stocks are trading below their historical range. They are using this weakness as an opportunity to improve the quality of the portfolio. Specifically, they are finding attractive options in Chinese property stocks, cement companies and select retail brands.
Not surprisingly, performance of this fund has been extremely volatile. The monthly volatility has been higher than its peer group and significantly higher than the broader market. Despite the big growth story in China, performance has been largely disappointing. For the five years ending May 31, it lost an average of 5.4% per year, while the MSCI China Index lost 1.6% during the same period.
Another issue with this fund is its cost. It has an MER of 3.54%, which is the highest in the category by a significant margin. This high level of fees will continue to drag performance of the fund.
While we acknowledge that there are opportunities investing in China, we don’t think that this is the fund to do that. We believe that there are other, less aggressive, and less costly funds that would do the job better. There is significant risk in the region and only those with a very high tolerance for risk should consider investing.