China Flexible Equity Fund

Transcription

1 FOR PROFESSIONAL CLIENTS/ QUALIFIED INVESTORS ONLY MARCH 2018 China Flexible Equity Fund A sub-fund of BlackRock Global Funds (BGF) Please note that the Fund typically has a risk of high volatility. A dynamic fund selecting focused ideas from China s broad equity markets The BGF China Flexible Equity Fund at a glance: A go-anywhere Fund allocating across all onshore and offshore Chinese equity markets A concentrated portfolio constructed with the highest conviction investment ideas, allowing for more active sector and stock positions vs. a benchmark-aware long-only equity fund RISK: Investment risk is concentrated in specific sectors, countries, currencies or companies. This means the Fund is more sensitive to any localised economic, market, political or regulatory events. A flexible approach and process aims to generate maximum alpha throughout the cycle CAPITAL AT RISK. The value of investments and the income from them can fall as well as rise and are not guaranteed. You may not get back the amount originally invested. Why consider investing in Chinese equity markets China A-shares represent the second-largest equity market in the world 1. While too big to ignore, their potential is largely untapped, due to historic restrictions on foreign investment. China A-shares remain widely under-owned by global investors 2 as a result. Most funds currently investing in China still tend to focus solely on offshore equities. But, with Chinese onshore markets opening up, we now see a chance to find opportunities in both the onshore and offshore equity markets. In the BGF China Flexible Equity Fund, we seek the best investment opportunities in both markets at any given time. RISK: Investments in China are subject to certain additional risks, particularly regarding the ability to deal in equity securities in China due to issues relating to liquidity and the repatriation of capital. As a result, the Fund may choose to gain exposure to Chinese equities indirectly and may be unable to gain full exposure to Chinese equity markets. What are onshore and offshore Chinese equities? Onshore Chinese equities are those listed in mainland China namely A-shares and B-shares. With more than 3,000 A-shares listed, this is the category with the highest liquidity. Historically, A-shares were the preserve of domestic investors only but the market has gradually opened up to international investors in recent years through various quotas and schemes such as QFII, RQFII and Stock Connect. B-shares are a much smaller universe of 100, mostly illiquid, shares. Offshore Chinese equities are Chinese stocks listed outside China and, as such, are freely tradable by international investors. The Hong-Kong listed H-shares, issued by companies incorporated in mainland China, are the most well-known category among offshore Chinese equities. This market is largely open to Chinese domestic investors via the Stock Connect programmes. Red-chips and P-chips are also listed in Hong Kong but by Chinese companies incorporated outside mainland China. A number of Chinese companies, particularly in the technology sector, are accessible through US-listed ADRs. 1 Source: World Federation of Exchanges; as at end February Source: Goldman Sachs; as at February 2018.

2 A best ideas fund managed with a flexible approach The Fund aims to tap China s opportunities via a concentrated portfolio comprising the investment team s highest conviction ideas, while remaining flexible across markets (onshore and offshore), market capitalisation, sector and factor. In maintaining a flexible allocation between onshore and offshore Chinese equities, the Fund is able to access all Chinese stocks listed globally, whether they are listed in mainland China, Hong Kong, the US or elsewhere. This ability to freely invest in onshore and offshore Chinese equities across the full range of market capitalisation potentially allows the Fund to access a wider breadth of opportunities. In addition, Chinese equities have been demonstrating higher sector return dispersions 3, offering active stock pickers a rich investment universe. The Fund does not face any particular sector or factor constraints, meaning the portfolio manager has free rein to invest in their very highest conviction ideas in order to construct this best ideas fund. The quality of these ideas are dependent on the fund manager s research and judgment and may not necessarily lead to higher fund performance. As a result the Fund will likely have higher active sector and stock positions vs. a benchmark-aware long-only equity fund, but this concentrated nature will also bring higher risk. The portfolio team seeks to blend the best opportunities in a higher alpha engine, taking advantage of the nuances in the Chinese equity markets. Some of these nuances include valuation differences between various markets, factors in favour during different market cycles, or sector-specific opportunities as outlined in the chart below: Unique sector exposure offering interesting investment opportunities 35% Exposure to internet retailers in offshore and white goods in A-shares Unique exposure in beverage sub-sector (e.g. baijiu companies) Heavier weight in machinery, construction & electrical equipment More choices in pharmas Most internet software & services companies are listed as ADRs Opportunities in smaller, niche, new materials players (leading companies are typically dual-listed) Most major telecom service providers are listed only in Hong Kong Consumer Discretionary Consumer Staples Energy Financials Healthcare Industrials Information Technology Materials Real Estate Telecommunication Utilities Offshore (MSCI China 10/40) Onshore (MSCI China A International) Source: MSCI, BlackRock, March Source: BlackRock, based on MSCI index data; as at September 2 DOCUMENT TITLE

3 Introducing the BGF China Flexible Equity Fund The tightly focused, long-only Fund comprises of the investment team s highest conviction, fundamental-driven ideas across Chinese onshore and offshore equity markets. With the flexibility to invest across the entire range of market capitalisations, the portfolio is expected to have significant off-benchmark allocation. This means performance may deviate significantly from the MSCI China index. A more focused portfolio with higher active weight positions brings higher risks, with an estimated tracking error range of 500 to 900 basis points. But these risks are managed using the methodology and cutting-edge systems of BlackRock s proprietary Risk Quantitative Analysis (RQA) team which feed into the investment process. However, there is no guarantee that a positive investment outcome will be achieved. Given the flexible approach, the portfolio can tilt towards A-shares or mid- and small-cap stocks from time to time when compared with its benchmark, the MSCI China 10/40 index. Paper portfolio gross performance October October 2015 October October October BGF China Flexible Equity (paper portfolio) 13.3% 33.1% MSCI China 10/40 0.5% 38.0% Source: BlackRock as at end October. Active performance out/under-performance of Fund vs. benchmark 80% BGF China Flexible Equity (paper portfolio) Active return MSCI China 10/40 Sep 2015 Nov 2015 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Source: BlackRock, as at end September. The figures shown relate to past performance. Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. Performance is calculated based on monthly returns. The performance track record described here is for illustrative purposes only and may or may not be executed. It should not be constructed as investment advice or an investment recommendation and is subject to change. There can be no assurances that the fund will achieve the performance. The product mentioned herein does not currently exist. It is a long-only paper portfolio and has not yet been launched (and may not launch), subject to regulatory approval and that no filing for its authorisation has been made. Performance is based on paper trading performance from 8 September 2015 calculated gross of fees. Data based on monthly returns expressed in USD. The paper portfolio is intended to demonstrate the potential of the investment strategy to be employed and the stock picking capabilities of the manager. The results are disclosed for illustrative purposes only.

4 The process Idea generation Portfolio Construction Sector Analysts Fundamental & Financial Modelling Presenting to >30 Investment Professionals Screening External Research Macro/Thematic Follow-up Work Team Process Risk Analysis Weighting & Exposure Conviction Company/Site Visits Research Pipeline Challenge Assumptions Rating 1-5* *Rating 1 is Strong Buy, 2 is Buy, 3 is Hold, 4 is Sell and 5 is Strong Sell From an investable universe of over 1,500 onshore stocks and 360 offshore 4, the team of research analysts leverages their sector expertise and uses a combination of company or industry meetings, macroeconomic analysis and screen-based analysis to generate investment ideas. These feed into a research pipeline where the research analyst conducts in-depth fundamental analysis covering both qualitative and quantitative aspects, as well as assigns a recommended conviction level. The ideas will then be brought to regular meetings and be thoroughly challenged by more than 30 investment professionals in the Asian and Global Emerging Markets equities team before such ideas may be considered by portfolio managers. The team covers over 360 onshore and offshore Chinese stocks and the portfolio manager has the discretion to construct a concentrated, best ideas portfolio of names from the pool. The philosophy is one of flexibility and high conviction, which meets a blend of fundamental research and BlackRock s proprietary risk analysis to seek the potential for higher alpha generation. Due to the higher concentration nature, this fund is generally subject to a higher risk profile. Key investment professionals Helen Zhu is the lead portfolio manager for BGF China Flexible Equity Fund Managing director Head of China Equities for the Fundamental Equity Division in BlackRock s active equity group Supported by a team of 10 dedicated China-focused research analysts based in Hong Kong and Shanghai Why invest in BGF China Flexible Equity Fund? The Fund could appeal to investors looking to: Gain access to alpha opportunities in China via targeted exposure Tap a wide range of investment opportunities across A-shares and offshore equities without the need to allocate to two different strategies Take advantage of the opportunities rising from China s structural transformation Due to the higher concentration nature of the Fund, investors may expect this Fund to display a higher risk profile. 4 Source: BlackRock; represents estimated size of investable universe based on market liquidity analysis; as at September

5 Risks Capital at risk. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss. Overseas investment will be affected by movements in currency exchange rates. Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore the value of these investments may be unpredictable and subject to greater variation. Investment risk is concentrated in specific sectors, countries, currencies or companies. This means the Fund is more sensitive to any localised economic, market, political or regulatory events. Smaller company investments are often associated with greater investment risk than those of larger company shares. Investments in China are subject to certain additional risks, particularly regarding the ability to deal in equity securities in China due to issues relating to liquidity and the repatriation of capital. As a result, the Fund may choose to gain exposure to Chinese equities indirectly and may be unable to gain full exposure to Chinese equity markets. Concentration Risk. Investment risk is concentrated in specific sectors, countries, currencies or companies. This means the Fund is more sensitive to any localised economic, market, political or regulatory events. Derivative Risk. The Fund uses derivatives as part of its investment strategy. Compared to a fund which only invests in traditional instruments such as stocks and bonds, derivatives are potentially subject to a higher level of risk. Important information This material is for distribution to Professional Clients (as defined by the FCA or MiFID Rules) and Qualified Investors only and should not be relied upon by any other persons. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London EC2N 2DL. Tel: Registered in England No For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. BlackRock Global Funds (BGF) is an open-ended investment company established and domiciled in Luxembourg which is available for sale in certain jurisdictions only. BGF is not available for sale in the US or to US persons. Product information concerning BGF should not be published in the US. It is recognised under Section 264 of the Financial Services and Markets Act BlackRock Investment Management (UK) Limited is the UK distributor of BGF. Most of the protections provided by the UK regulatory system, and the compensation under the Financial Services Compensation Scheme, will not be available. A limited range of BGF sub-funds have a reporting fund status A sterling share class that seeks to comply with UK Reporting Fund Status requirements. Subscriptions in BGF are valid only if made on the basis of the current Prospectus, the most recent financial reports and the Key Investor Information Document, which are available on our website. Prospectuses, Key Investor Information Documents and application forms may not be available to investors in certain jurisdictions where the fund in question has not been authorised. Austria: For further information, the prospectus, Key Investor Information Document, annual report and semi-annual report can be obtained free of charge in hardcopy form from the Austrian paying agent: Raiffeisen Zentralbank Österreich AG, A-1030 Vienna, Am Stadtpark 9. Germany: This is a financial promotion. For further information, the prospectus, Key Investor Information Document, annual report and semi-annual report can be obtained free of charge in hardcopy form from the German information centre: BlackRock Investment Management (UK) Limited, German Branch, Frankfurt am Main, Bockenheimer Landstraße 2 4, Frankfurt am Main. The paying agent in Germany is J.P. Morgan AG, CIB/Investor Services Trustee & Fiduciary, Taunustor 1 (Taunus Turm), D Frankfurt am Main.

6 Why BlackRock? BlackRock helps people around the world, as well as the world s largest institutions and governments, pursue their investing goals. We offer: A comprehensive set of innovative solutions, including mutual funds, separately managed accounts, alternatives and ishares ETFs Global market and investment insights Sophisticated risk and portfolio analytics We work only for our clients, who have entrusted us with managing $6.288 trillion*, earning BlackRock the distinction of being trusted to manage more money than any other investment firm in the world. *Assets Under Management (AUM) as at 31 December. Netherlands: The risk indicator shown on this document refers to the A2 share class of the Fund. Higher or lower risk may apply to the other share classes of the Fund. Issued in the Netherlands by the Amsterdam branch office of BlackRock Investment Management (UK) Limited: Amstelplein 1, 1096 HA Amsterdam, Tel: BlackRock Global Funds ( BGF ) is a UCITS (icbe) as defined in section 1:1 Financial Markets Supervision Act (Wet op het financieel toezicht; FMSA ). BGF and its sub-funds are listed in the register as defined in section 1:107 FMSA. Please refer to the Key Investor Information Document (essentiële beleggersinformatie; EBI ) for further information about BGF and its sub-funds. The prospectus and EBI of BGF and its sub-funds are available on BlackRock s website All financial investments contain a certain risk. The value of the assets managed by BGF and its sub-funds may greatly fluctuate as a result of the investment policy and your initial investment is not guaranteed. Poland: BGF has been registered on the official list of the Financial Supervision Commission (Komisja Nadzoru Finansowego) for distribution in Poland. Issued in Poland by the representative office BlackRock Investment Management (UK) Limited, Dubiński, Fabrycki, Jeleński i Wspólnicy Kancelaria Prawna sp.k., ul. Zielna 37, Warszawa. Paying agent in Poland is Bank Handlowy w Warszawie SA, ul. Senatorska 16, Warsaw, Poland. Switzerland: For professional clients and qualified investors only. The BlackRock Global Funds (BGF) China Flexible Equity Fund is domiciled in Luxembourg. BlackRock Asset Management Schweiz AG, Bahnhofstrasse 39, CH-8001 Zurich, is the Swiss representative and State Street Bank International GmbH, Munich, Zurich Branch, Beethovenstrasse 19, CH-8002 Zurich, the Swiss Paying Agent. The Prospectus, Key Investor Information Document, the Articles of Incorporation, the latest and any previous annual and semi-annual reports are available free of charge from the Swiss Representative. Investors should read the fund-specific risks in the Key Investor Information Document and the Prospectus BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, ishares, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. (Splash/362266/Apr18) Want to know more blackrock.com investor.services@blackrock.com +44 (0) blackrock.nl benelux@blackrock.com