Year of the bull: how to buy 2019’s best-performing market

£3.4tn Value of companies in the CSI 300 index

Mainland Chinese stocks have surprised investors with strong returns. Jonathan Jones looks at the best ways to buy them 40 Number of funds that specialise in Chinese stocks 32% Rise in the Chinese stock market in 2019 ‘If you want exposure to the most attractive firms in China, our sense is to go with an active fund’ 2 Shanghai and Shenzhen are the main stock exchanges

China is on course to be the region that makes the biggest returns for investors this year despite its damaging trade war with America, which could end after a deal this week, and the continuing unrest in Hong Kong.

The CSI 300 index, which includes the largest listed companies in mainland China, has risen by 32pc. This is more than double the rise in Britain’s FTSE 100 and has trumped America’s S&P 500 index, which has gained 23pc.

However, Chinese companies are notoriously difficult for British investors to buy. Most funds, passive or active, get exposure to the country by owning “H-shares” – companies listed in Hong Kong.

Mainland China-listed companies are classed as A-shares. This is the type that is included in the CSI index and has performed well in 2019.

H-shares have gained only 15pc so far this year.

Index provider MSCI started to include A-shares in its emerging markets index last year, making them slightly more accessible. The change will be phased in, however. In the meantime, here are three ways to get exposure to 2019’s bestperforming market.

PASSIVE FUNDS

Known as “tracker” funds, passives aim to replicate the performance of an index. The Xtrackers Harvest CSI 300 exchange-traded fund (ETF) aims to mimic the CSI 300 index, which tracks the 300 largest and most easily traded stocks from the Shanghai and Shenzhen stock exchanges.

The ETF costs 0.65pc a year, which is more expensive than some competitors, but has the best score for “tracking error”, which measures how well it matches the index.

ACTIVE FUNDS

Brian Dennehy of Fund Expert, a fund shop, said there was an argument for trusting an active manager in markets such as China. This is because different sectors do well at different times and a fund manager can allocate accordingly.

A Chinese sector with great potential is consumer products, while most investors would want to avoid companies such as stateowned banks.

“If you want exposure to the most attractive growing areas of the Chinese market, our sense is to go with an active fund,” Mr Dennehy said.

There are a number of funds that invest solely in China, although most own stocks from Taiwan and Hong Kong, with some A-shares. Americanlisted companies that are based in China, such as technology giant Alibaba, are also common.

Mr Dennehy recommended the £1.2bn Janus Henderson China Opportunities fund, run by Charlie Awdry. Hong Kong stocks account for two thirds of the portfolio, with 15pc in A-shares. It holds 36 companies and has a high allocation to consumer stocks and a low weighting to banks.

The best performer over the past decade has been the £497m First State Greater China Growth fund, managed by Martin Lau and Helen Chen.

It has returned 232pc over the past 10 years and has around 25pc of its money in Taiwan, with the remainder split across China and Hong Kong.

INVESTMENT TRUSTS

The largest trust is Fidelity China Special Situations, managed by Dale Nicholls, who took it over from Anthony Bolton in 2014.

The £1.3bn portfolio is largely invested in Hong Kong, with 13pc in Chinese A-shares, and costs 0.93pc. Over the past five years it has returned 91pc to investors. Its share price currently values the company at an 8.4pc discount to the underlying portfolio.

The £223m JP Morgan Chinese investment trust has a higher allocation to Chinese A-shares (33pc), with the rest in Hong Kong and America.

Although more expensive, with an annual charge of 1.34pc, it has outperformed the Fidelity trust over the past five years, making investors 97pc. Its shares are also on a bigger discount of 12.4pc.