Edelweiss Greater China Equity Off-shore Fund Review

Published: March 14, 2021 at 10:52 am

Last Updated on July 21, 2021

In this article, we review the Edelweiss Greater China Equity Off-shore Fund. This is an open-ended fund of fund scheme investing in JPMorgan Funds – Greater China Fund (the underlying fund).

JPMorgan Funds – Greater China Fund is an equity fund investing primarily in a diversified portfolio of domiciled companies in, or carrying out the main part of their economic activity in, a country of the Greater China region.

It is uncanny how investors look at the last one year return of a fund and assume, “this looks like a good idea for a long-term investment”. We saw this to be the case for PGIM India Global Equity Opportunities Fund(reviewed), and now with a 75% last one year return, this fund has caught the attention of investors. And as usual, the investor-interest will peak after the market peak.

Many investors may have patriotic reasons to not invest in Chinese equity. Many investors may have governance-related or lack of transparency related reasons to not invest in Chinese equity. We shall not discuss these issues here and focus only on the performance of the underlying fund.

Edelweiss MF acquired JP Morgan MF India in late 2016. So from Nov 25th 2016, JPMorgan Greater China Equity Offshore Fund became Edelweiss Greater China Equity Off-shore Fund. The fund has an inception date of 25th Aug 2009.

As per the Feb 2021 factsheet from Edelweiss MF, this is the portfolio of the JPMorgan Funds – Greater China Fund.

  • Tencent Holdings Ltd. 9.72%
  • Taiwan Semiconductor Manufacturing Co., Ltd. 9.63%
  • Alibaba Group Holding Ltd. 8.00%
  • Meituan Class B 3.99%
  • Ping An Insurance (Group) Company of China, Ltd. Class H 3.33%
  • Hong Kong Exchanges & Clearing Ltd. 2.57%
  • China Merchants Bank Co., Ltd. Class H 2.29%
  • Wuxi Biologics (Cayman) Inc. 2.14%
  • Pinduoduo, Inc. Sponsored ADR Class A 2.01%
  • Kingsoft Corp. Ltd. 1.95%
  • Alibaba Group Holding Ltd. Sponsored ADR 1.75%
  • Realtek Semiconductor Corp 1.69%
  • Sun Hung Kai Properties Limited 1.60%
  • Ping An Bank Co. Ltd. Class A 1.55%
  • NetEase, Inc 1.51%
  • Yunnan Energy New Material Co., Ltd. Class A 1.44%
  • Kingdee International Software Group Co., Ltd. 1.44%
  • Country Garden Services Holdings Co. Ltd. 1.40%
  • Chailease Holding Co. Ltd. 1.34%
  • Sunny Optical Technology (Group) Co., Ltd. 1.31%
  • Hang Seng Bank, Limited 1.26%
  • Vanguard International Semiconductor Co. 1.25%
  • Xinyi Solar Holdings Ltd. 1.23%
  • ENN Energy Holdings Limited 1.22%
  • ASPEED Technology, Inc. 1.22%
  • Parade Technologies, Ltd. 1.17%
  • ASE Technology Holding Co., Ltd. 1.10%
  • Shenzhen Mindray Bio-Medical Electronics Co., Ltd. Class A 1.01%
  • Formosa Petrochemical Corp 1.01%
  • Shenzhou International Group Holdings Limited 1.00%
  • Others 27.87%

The Edelweiss FOF has an AUM of Rs. 1200 Crores (Feb 2021), and as of Dec 2020, about 60% of it was in the direct plan. The direct plan has a TER of 1.34% which includes  0.77% TER of the underlying fund. The regular plan has an atrocious TER of 2.37%. The distributor pockets the difference in TER between the regular and direct plan from the investors current market value for those who may not know.

The since inception growth of Edelweiss Gr China Equity Off-Shore Fund (regular plan) is compared below with Nifty 50 TRI. Aside from the growth spurt over the last year, the fund’s performance has largely been unremarkable. Simple intuition should tell us that this momentum is unlikely to last and has already started ‘correcting’.

Since inception growth of Edelweiss Gr China Equity Off-Shore Fund vs Nifty 50 TRI
Since inception growth of Edelweiss Gr China Equity Off-Shore Fund vs Nifty 50 TRI

The same is true of the underlying fund when compared with its benchmark: MSCI Golden Dragon. Screenshots from MorningStar UK.

Performance of JPMorgan Funds - Greater China Fund A (acc) - USD compared with benchmarks since inception of the fund
Performance of JPMorgan Funds – Greater China Fund A (acc) – USD compared with benchmarks since its inception.
Performance of JPMorgan Funds - Greater China Fund A (acc) - USD compared with benchmarks over the last 3 years
Performance of JPMorgan Funds – Greater China Fund A (acc) – USD compared with benchmarks over the last three years.

If you look at the JP Morgan fund page, the performance will read as shown below, but the bulk of the outperformance came in the last year. There also seems to be a distinct deviation in the fund’s portfolio and the index portfolio.

JPM I (acc) – USDMSCI Golden Dragon (USD)
3 YEARS22.09%11.67%
5 YEARS27.84%19.66%
10 YEARS13.54%9.20%

Shown below is the 1524 5-year data points (rolling returns) for each series in INR. Notice that the Edelweiss Greater China Equity Off-shore Fund has only recently outperformed the Nifty 50 TRI or S&P 500 TRI INR.

Five year rolling returns of Edelweiss Gr China Equity Off-Shore Fund vs Nifty 50 TRI vs S&P 500 TRI INR
Five-year rolling returns of Edelweiss Gr China Equity Off-Shore Fund vs Nifty 50 TRI vs S&P 500 TRI INR.

Aside from patriotic or nature of the governance, even from a mere return point of view (which is all that most investors care about), there is no compelling reason to invest in Edelweiss Greater China Equity Off-shore Fund. We recommend that investor not get swayed by recent returns and avoid this fund.

This “international diversification” is often a messy business for most retail investors, incapable of measuring the impact of such portfolio clutter. At least for the moment, only the US indices seem to satisfy the young investors craving for insatiable returns, excuse me, ‘diversification’. So it is better to prefer Motilal Oswal S&P 500 Index Fund compared to this (relatively speaking).

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