Former Barclays quant thrives in China

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It survives in the person of Li Xiaowei, BGI’s former head of active equity management in Greater China, and the $ 51 billion business she leads for Fullgoal Asset Management. She has turned it into the largest quant manager in China.

Prior to BGI, Li worked for index provider MSCI and still stays in touch with Deborah Yang, head of MSCI’s business in Europe, Middle East and Africa.

After successfully running BGI’s quant business, Li became managing director of Fullgoal Asset Management, based in Hong Kong, in 2012. It is a subsidiary of Shanghai-based Fullgoal Fund Management, incorporated in 1999.

According to a 2012 corporate statement, Fullgoal Fund wanted to create a “bridge between mainland China and international capital markets by providing foreign investors with high quality services”. Li’s multi-award winning quant funds evidently fitted the bill.

Li said: “When I worked at BGI, we applied for a licence in 2007 to manage A shares [listed in mainland China]. We didn’t get the licence, but we’d done a lot of research on them, and I decided to move to Fullgoal.”

Like BGI in its early years, Fullgoal Asset Management uses data on earnings forecasts, based on broker research and corporate data, to drive investment decisions. It incorporates earnings revisions into its models and goes to great lengths to analyse the quality of data.

Fullgoal takes care to base its investment decisions on clean data, but also assesses the quality of less reliable information to see whether it throws up any interesting trading patterns, before being discarded.

Li says Fullgoal is programmed to respond to earnings signals in the same way as US managers but she added: “Data vendors are not in a monopoly position. You get different vendors, for different collections of data.

“The quality of data forecasting has improved over the last 10 years. In 2000 the industry did not exist, but it’s developed really fast.” At times, she added, Fullgoal has advised data providers on ways to improve their offerings.

Fullgoal has benefited from the paucity of competition from quant managers in China. Li pointed out that the Chinese market is dominated by retail investors and traders, giving Fullgoal the chance to benefit from its approach.

Since launch in 2009, its core 300 Enhanced Index Fund has produced an annualised return of 34.6%, against 0.3% from its benchmark. The fund had a difficult trading period in the first quarter, which saw it produce -11.2% against 12.7% from the benchmark. From launch to the end of 2015, the fund was sporting a cumulative gain of 51.6%, against 14.9% from the benchmark.

The only year when the fund lagged was 2013, where it produced -8.5% against -5.8%. The benchmark is equivalent to 95% of the CSI 300 index, plus 1.5%. Stocks in Fullgoal’s portfolio have turned over up to twice a year over the past three years, which looks high by western standards.

But the Chinese market is far more volatile than western markets and fund redemptions are more frequent. Li said the average turnover for equity funds in China was six times. She rebalances the enhanced fund once a week to avoid the risk of being forced to trade far larger amounts every month, or every quarter.

For now, the enhanced fund will continue to specialise in Chinese A shares.

But Li has carried out research into the Hong Kong equity market, and may invest in it. She said: “China accounts for much of Hong Kong’s earnings, but it is much more of a value-driven market than China.”

The Fullgoal enhanced fund manages 1.66 billion renminbi ($ 249 million) but the firm offers a range of other strategies, including a growth bond fund which has generated a cumulative return of 221%, against 64.8% from its benchmark.

As well as range of mutual funds, Li said her business manages funds for China’s National Council for Social Security Fund. It manages a market neutral fund and an exchange-traded funds that tracks the Shanghai composite index, by sampling representative companies. The firm has just launched an ETF on the London Stock Exchange.

The parent business Fullgoal Fund is 27.8% owned by Bank of Montreal, the first overseas concern to buy a stake in an established Chinese fund manager.

The rest of Fullgoal Fund is owned by Haitong Securities, Shenyin Wanguo Securities, Shandong International Trust and Investment Corporation.

BGI and its iShares ETF business continue to prosper at BlackRock.

This year BlackRock chief executive Larry Fink promised to invest more in the company to cater for growing interest in its business which includes factor-driven products and smart beta.

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