Review: Public China Select & CIMB-Principal Greater China Equity Funds

Both the funds under review use the MSCI Golden Dragon Index as a benchmark which the funds compare their performance against. The MSCI Golden Dragon Index tracks Chinese companies that non-Chinese citizens can buy into which are listed in exchanges in HK/China as well as in other parts of the world eg Taiwan, Singapore, US.

Both the funds also have 10-year track records which is a good long-term timeframe to look at.

The following are the respective fund returns sourced from Morningstar and MSCI.

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GCEF did better overall than PCSF

For both the funds, 3 & 5 year returns outperformed the benchmark while 1-year underperformed. PCSF underperformed for 10-years while GCEF just managed to perform in line. GCEF provided overall better returns than PCSF except for 1-year which IMO is too short a timeframe for objective assessment.

PCSF severely underperformed in the 10Y timeframe

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10Y: PCSF delivered only 3.6% p.a. over the last 10 years compared to the benchmark which produced 6.8% p.a. This is a severe and unacceptable underperformance.  GCEF did much better than PCSF but even then just managed to eke out benchmark returns in the 10-year category.

5Y: PCSF managed to outperform but just barely at 0.2% points above benchmark. GCEF gave a comfortable outperformance.

3Y: Both funds outperformed decently with GCEF giving more than 3% points over benchmark.

I’m not as comfortable following the 3 to 5-year timeframes as it suggests a requirement for trading which raises costs and calls for an element of luck.

Adjusting for sales fees worsens returns

You can’t get into these funds for free. You need to pay an agent or an advisor to buy into any funds. The going rack rate for these funds according to Morningstar is 5.5% for both funds paid only once at the point of purchase.

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Adjusting for one-off sales fees gives massive leaks to returns.

10Y: Both funds underperform with PCSF’s becoming even more pronounced. GCEF went from an in-line before sales fees to a slight underperformance.

5Y: PCSF underperforms. GCEF loses outperforming edge.

3Y: GCEF still very decent. PCSF gravitates closer to benchmark returns.

1Y: While I’ve mentioned that 1 year isn’t an objective assessment period, this shows the ludicrousness of holding your fund for just a year or under due to expensive sales fees.

Are there alternatives?

The following table provides a variety of viable ETF alternatives you can look at should you wish to get exposure to China.

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Most of these ETFs are based on the MSCI China Index (which excludes Taiwan listings) rather than the Golden Dragon but return differences seem to be slight except for 10 years.

Most of the ETFs also don’t have a 10-year track record but returns hug the benchmark within 1% point thereabouts.

These passive ETFs also give the active, professionally-staffed PCSF and GCEF a good run for their money primarily due to their negligible entry costs and absence of sales fees.

I’m not saying this is exhaustive research, I’m just giving examples of how active funds can often find it hard to beat either relevant indices or index-based funds.

Note: The PGJ is an outlier as it invests only in Chinese stocks listed in the US which means it is predominantly a Chinese tech play, hence the wild outperformance. As with all investments, do seek advice before investing.

PCSF and GCEF seem to have superior risk-adjusted returns

Maximising returns and minimising risks is the holy grail of investing. I view this as the degree of “stress” you have to go through, keeping you awake at night, in order to chase your desired returns.

It does appear that the actively managed PCSF and GCEF do seem to provide superior risk-adjusted returns i.e. higher returns at lower risk for the 3-year period as measured by the Sharpe ratio.

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However, I don’t at this point know how to fully read into this data which are provided by Morningstar. The stats for the Malaysian funds only cover the 3-year period which is for both PCSF and GCEF their best timeframe and as the refrain in finance goes, past performance may not indicate future performance. I’m also not sure what the “risk-free rate” being used is, plus the returns are probably not adjusted for sales charges. Anyhow, they seem pretty good.

Transparency matters

Here are the rest of the specs for the funds under review.

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FeesScreen Shot 2017-09-27 at 6.42.56 PMSales fees: Rack rates for PCSF and GCEF are equally expensive.
Management expense ratios: This includes the cut going to the fund manager for managing your fund. PCSF at 1.6% isn’t cheap but GCEF is pricier – 2% or more a year is no joke and can take a toll on returns over the long term.

There’s an added transparency issue for GCEF as it is a “feeder fund” i.e. its sole investment is into the Schroder International Selection Fund – Greater China (itself a pricey fund) which seems to have provided decent enough returns except that investors have to do some extra digging and add the costs of the target fund into GCEF’s to get the total costs. The guys at CIMB have been really helpful in kindly guiding me in this respect and also pointing out that SC prohibits the charging of management fee twice. So what is happening here is that the target fund rebates the overlapping management fee to GCEF but takes a cut for management fee. One easy way to look at this is to use the formula Gross Mgt Fee + Other Expenses + Cut to Target Fund, which will come up to 2-2.3%.

Screen Shot 2017-09-27 at 6.44.13 PMAll the funds under review provide a snapshot of what they invest in except for PCSF which is concerning.  I don’t want to say PCSF (and the rest of Public Mutual funds) may have violated SC unit trust guidelines by omitting such info but I think this is a point to clarify further.

GCEF holds two-thirds fewer stocks than the ETFs which is normal for an active fund which bets on beating the benchmark. But this may create a kind of “my life is in your hands” situation if the fund manager makes big, emotional bets in certain stocks which GCEF’s target fund doesn’t appear to be doing. With PCSF, we have no clue.

The active funds also hold a lot more cash than the ETFs. At such low levels, these are more for smoothening purposes (creating and redeeming units) rather than market directional bets. Regardless, I can’t help but think that cash held for smoothening is akin to old unit trust holders funding newer ones and I don’t like that because here are precious funds lost to limited returns. For GCEF’s target fund, the latest cash number is 1%.

Trading CostsScreen Shot 2017-09-27 at 6.46.22 PM.png
Portfolio turnover:  PCSF at 23% isn’t high but still a lot higher than almost zero for the ETFs. GCEF’s 42% are all attributed to unitholder activity rather than the fund manager’s restless trading fingers since GCEF puts all money into the target fund. However, I can’t seem to get hold of the PTO number for the target fund.

Fund value traded/implied brokerage fee: This is interesting because the implied RM325m in value traded by PCSF is huge for any bunch of brokers. But PCSF withholds breakdown of its broker list which is another possible violation of SC guidelines and scores lousily in the transparency department. Did PCSF conflictingly favour any broker at the expense of unitholders? We don’t know.

PCSF’s implied estimated brokerage rate of 0.36% is quite high. You’d think that with that kind of clout, a rate of 0.1-0.2% or below can be squeezed out of brokers, I mean, even personal online trading accounts can offer rates of 0.1-0.2% at higher volumes, what more with a gigantic fund house like Public Mutual. The brokerage savings can add back say 0.15% to annual returns… goes a long way in offsetting sales fees.

These metrics are irrelevant for GCEF which invest all money into the target fund.

PCSF: A pricey fund which grossly underperformed over the long-term. Many issues exist in the transparency department which can potentially foster higher expenses.

GCEF: Also quite pricey but managed to produce by the skin of its teeth benchmark returns in the long-term. But there’s the comfort of British gwailo or mat salleh transparency in the target fund. However, it’s still an irritation, like an itch you can’t quite scratch, having to monitor two funds.

Both funds managed to secure higher returns with lower risks in the 3-year period but info for the longer term is unavailable.

Similar ETFs also seem to provide comparable returns cheaply and reliably.

More importantly, you have to ask yourself whether a China fund is suitable for you. China only contributes 15% to the world economy and while still growing strongly, is an economy in transition. MSCI’s ACWI index which tracks developed and emerging markets only gives China a 3.4% weighting.

Are you eating too much Dim Sum in your world of a balanced diet?



9 thoughts on “Review: Public China Select & CIMB-Principal Greater China Equity Funds”

  1. @Sim, of course there are a select few of investment managers that outperform the market. But these funds are not open to us mere mortals, nor even the top 1%. These are funds like Renaissance Technologies that have long returned money to their investors, refuse to accept outside money, and only manage the money of the fund employees and fund owners. The rest are just average, and will underperform the market in the long run. Even so called great fund managers among Nobel Prize in Economics winners could also fail against the market. Ever heard of the tale of Long Term Capital Management?

    @verylongrun, keep up the writing on exposing how the Malaysian asset management industry severely underperforms its peers. It is a downright embarrassment when comparing to what you get in the US asset management industry. I for one will never pay a 2%+ management fee unless the fund was Renaissance Technologies, and a 5-6%+ sales fee is just highway robbery.


  2. Wow. Is a really good read

    You provided the readers with very clear and bold info. Without those conservative subjective writings like some other blogs where the readers will have no idea nor direction at the end of the read.

    I learnt a lot from just one of your post. So much more than most other financial consultant that I’ve talked to thus far.

    Thank you Julian.

    Liked by 2 people

  3. Julian,

    1. I am wearing the hat of an investor until you started talking about social costs. Again, that is not part of the passive vs. active debate. As for consumer-investors, you need to ask yourself-is pure passive investing the answer? Would you like to see global pension funds and large insurance companies adopt a pure passive investing strategy? Or do you think it’s ideal that the passive investment strategy stays small for the consumer-investor only? That would have a bigger impact on the consumer-investor you are talking about.

    I am not talking about being diverse in markets for diversity’s sake. It’s just the how financial markets are. Or else, who’s going to buy when you are selling and vice versa? Of course there are market manipulators (more so in fairly illiquid markets like Msia), but don’t you see the potential danger of something similar created by ETF market makers?

    How would the reward system I talked about be disastrous? Other than diversity, markets has also been such a great generator of wealth because of competition. Even large so called blue chip investors are stuffed with raw deals from time to time. But they recover because they manage their risks adequately.

    As for the principal agent problem, I get where you are going about the abuses and mismanagement of the fund management industry ;which is true. The industry needs to be reformed to protect consumer-investors better. Upfront fees needs to be lowered and outperformance rewarded better in my view. There needs to be a better realignment of risks and reward. The concern about social costs is a different topic of discussion altogether. That’s why we have ESG investing (which sounds like a marketing ploy to the more cynical) but regulators could use it to society’s advantage.

    2. If the talk of value creation in finance is mere marketing talk, so is ETF investing I.e. Low cost, effortless investing. To me, if finance is not creating value; then it should not exist. Personal Financial consulting is also about creating value. I think the industry will be in a better place if Financial consultants and Fund Managers have more conviction in why they are doing what they are doing.

    For those who can’t afford to spare extra money for “investments” (not gambling), I think that’s where regulators need to step in to avoid mis-selling and mismatch in risk profile. Equities investment is a risky asset class by itself. But the fact that their insurance and pension savings are inherently tied up with asset managers, it doesn’t absolve them totally from these risks. Refer to the last few lines of point no.1 in the first paragraph for my concern of how ETF investing could undermine consumer-investors.

    3. Statistically so far, yes. The average Fund Manager hasn’t outperformed but that is only what we know thus far in very Developed Markets. But go through our very own Lipper Table (I don’t have a copy right now) and tell me there are no FMs who have outperformed the index? ETF strategy only works to a certain extent.


    1. i hope you don’t find me facetious leaving short comments or respond in the form of questions to you as i believe i have covered your questions before in my writing or i will cover others in due course. your raising of points is, of course, welcome and would spur me to write more for the betterment of all consumer-investors.

      i think we are coming close to hitting the point of our clear divergence and i can conscionably say that i don’t want to go your direction as a consumer-investor/financial advisor or that if i were a regulator, take your dangerous policy stances.

      1. market diversity/homogeneity and other systemic problems caused by passive investing: should investors having poured trillions into ETFs/index funds now give up good-enough, inflation-beating, market returns for the sake of lofty market ideals? as for policy, how should the perceived scourge of ETFs be regulated?

      2. experimentation search costs: should the relatively dire consumer-investor or their advisor reps spend high fees and likely opportunity losses looking for star fund managers when the reliable and acceptable returns of asset classes are right in front of their eyes?

      3. profit-sharing reward system: how should fund managers compensate for derailed financial goals from large-scale underperformance due to active trading?

      4. Lipper tables and awards: have these proven to outperform over the long term? (Quick clue: look at the 4-5 star Morningstar funds reviewed in this post) For that matter, should all money be defaulted to well-known financial gurus like WB et al?

      5. Developed vs emerging markets efficiency: Are you sure average underperformance exists only in developed markets? research does exist the on widespread (emerging) Asian fund management underperformance and the impotence of winning funds to stay on top: and also stay tuned for my own humble crude research on the Malaysian fund management industry.


  4. Thanks Julian for this post. Here are some of my thoughts on the passive vs. active debate:
    1. Diversity amongst investors. I think advocates of passive investing (i.e. benchmark hugging via ETFs) need to be wary of killing the breadth and depth of the market. In the S&P 500, >20% of vols are traded by ETFs.And if this grow to a much larger proportion (which seems to be the trend), can you imagine how homogenous the market can become (worse still in the Malaysian market context)?

    Markets will then be subject to the vagaries of index providers e.g.. FTSE,MSCI and S&P. We surely can’t be buying a stock just because it’s a large market cap. Now, I know that it’s naive to think that markets will ever be perfectly homogenous hence; isn’t that notion itself a paradox to passive investing? The whole basis of passive investing is that markets are efficient. But if markets are always a tug of war between diverse groups of actors/investors with different risk appetites,mandates and biases; how can it ever be efficient? So the question here is – is passive investing really the best way forward for investors?My own thoughts on this is – not on a standalone basis. ETFs has its advantages of low cost but it should only be used as a tool to hedge, not to be followed wholeheartedly. For it to be effective, it still requires diversity in the market.

    2. The downside. If a passive fund loses 10% of investor’s money in a year is that ok because its benchmark is also down 10% in that year? This is where I think active Fund Managers have an important role to play. If they are not adding value by implementing proper risk management tools and rules, then they should have no business in managing money. That’s why we have “smart beta”.

    3. The outliers. I think the story of Warren Buffet’s illustration of investors from a particular village consistently outperforming is a well told story (refer to the foreword of Benjamin Graham’s Intelligent Investor). The fact that these fund managers exist shows that the efficient market hypothesis cannot be true. For mere mortals like us, I think a combination of active risk management + ETF investing = smart beta works. I.e. ETFs will be a useful asset class to hedge and trade, not to buy and hold forever.


    1. 1. i am cognizant of ETFs potential problems, even agree to such potential. firstly, it’s not happening yet. secondly, market diversity is only one, arguably relatively smaller, aspect of the diversity problem. there are worse robbers of economic diversity: income inequality, tax shelters, corruption and monopolistic practices etc. correcting these things may add so much more to the diversity you speak of and the wellbeing of the people if such well-being is indeed what’s desired.

      it’s a question of policy vs pragmatism: who bears the cost of environmental problems, the rich or the poor? who bears the cost of corruption, the corrupt or the victims? who bears the cost of market access and performance, rich financial marketeers or poor investors with retirement crises? who bears the cost of market homogeneity, if it ever comes to that?

      2. Disagree. You’re overlooking the asset allocation process which allows investors to determine how big of a storm they want different asset classes to be in the portfolio teacup. A big risk taker would welcome a 10% market fall in the hope of higher returns in the long term. A smaller risk taker is also ok with sharp market falls because they have allocated bigger sums to safer assets to cushion such falls and make their risk-taking efficient.

      3. Here’s an update of WB’s views on passive investing 🙂


      1. 1. Noted and agree on your point on the bigger picture – social cost(s). But that is not something that ETF investing alone can solve. That involves a whole plethora of social and political issues. You are promoting ETFs as an equalizer for the man on the street vs. commission and fee earning marketeers and FMs who almost always under perform (there are also those who almost always outperform),which has its merits.

        The fee and reward structure of Investment Funds have to change. e.g. Reward is only given when value is created,otherwise market forces will put these money managers out of business. A profit sharing ratio with very minimal upfront fee is a start. A purist view of just passive investing is not a long term solution to equalize the economic diversity you mentioned. Mainly because the market can never be perfectly efficient.

        2. Why allow yourself to partake in the downside of markets while you can have active management on the downside and passive management (and more) on the upside? Investment and finance should be about creating value, not blindly following where the cycle takes you.

        3. Read about that. But he (WB) and many other FMs today are a living testament that it is possible to outperform the market in the longer term.

        All said, I will have to commend your ongoing effort in highlighting the inequalities and abuse in the industry. It has to change, but again; not by pure passive investing.


      2. sim.

        1. you have to decide what hat you’re wearing. if you’re on policy, you have to weigh ETF perceived dangers with other real dangers on a scale. if you’re a consumer-investor, you have to decide whether you go with what’s good for your financial wellbeing or with taking one for market diversity. maybe you’re a better person than me but i think most people will take the selfish route. as a policy, your reward system will be disastrous because market performance is a zero-sum game and you’ll have to think of how to deal with people who were stuffed with the raw deal.

        2. Value isn’t necessarily created by outperformance. that’s marketing talk. The average fund manager statistically doesn’t outperform. Value can be about matching financial assets risk and returns to financial goals without an iota of outperformance. I think you’re a very rich investor or at least think that all investors are rich. I would encourage you to put yourself in the shoes of people who can’t spare the gambling money to experiment on searching for star fund managers.

        3. Can you name them, other than the one who has renounced activeness? 🙂 Also, one other interesting point: people keep using WB as a paragon of model investing without putting Berkshire’s asset size in context with the money managed by the mutual fund industry. We have to frame the performance conversation with statistical reality.


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