Frenzy Over ChinaYou can't watch TV or read a financial publication today without hearing about China. China and the huge trade surplus; China and Internet growth and stocks up 1,000%; China and the fastest growing GDP; China and the undervalued yuan; Chinese citizens with money to burn -- ready to stop riding bicycles and start maxing out credit cards. A world of obese Chinese driving home in SUVs loaded up with consumer spoils from the mall, yapping on cell phones and eating fast food is surely right around the corner. Compared to a maxed-out, unemployed, stagnate wage-earning U.S. consumer, the smart money is betting on this new wave of prosperity. Or at least that's what a national advertising campaign for the recently launched China-U.S Growth Fund by Fred Alger & Company implies. The new fund breaks from the typical China-oriented fund by placing about half the portfolio in U.S. companies doing business in China and half in Chinese stocks. This means investors in the fund will own Yum! Brands ( YUM), which apparently does a bang-up business hocking KFC to the Chinese, and Nike ( NKE), currently building a brand in China alongside Netease ( NTES) and other less speculative Chinese stocks. The fact that these U.S. multinational companies currently do less than 5% of their worldwide business in China isn't the issue -- they're there early and will profit from the region's growth.
Retail PhenomenonChina as an investing concept appeals primarily to no-load, retail investors. While some of the oldest China funds are load funds, they have far less in assets then their newer, no-load brethren. This is in stark contrast to a world where load funds out sell no load.
The load Eaton Vance China Greater China Fund, launched in 1992, now has less than 25% of the $476 million in the no-load Matthews China fund, launched in 1996. Much of the explanation for this gap is greater performance. The no-load Guinness Atkinson China & Hong Kong fund at $129 million has more in assets than either the Eaton Vance fund or the load AllianceBernstein Greater China 97 fund with a track record similar to the latter.Matthews, a boutique firm known for its Asia funds, has brought in over a billion dollars in new assets over the last few months into their funds -- a remarkable level for a small family. Its China fund had just over $100 million in assets six months ago. Such remarkable asset growth (and the fat profits it creates for managers of high fee emerging market funds) leads to many "me-too" fund launches as others seek to get on the gravy train. Most Internet funds were launched after earlier funds brought in hundreds of millions in new assets after hot runs. Alger, a load fund family, at the zero hour decided to shift gears and launch the fund as a no load. It says there is solid interest from the brokerage community, but the differing assets and sales volume of no load to load funds in this category say otherwise. There is some irony that Alger, a fund family that is no stranger to the fund-timing scandal, would launch a fund in a category most prone to fund timing. A watchable small asset base and 2% redemption fee should keep fund timing at bay. As the fund is half U.S. stocks, other pure-play funds would provide a far more lucrative timing vehicle. Alger is nonetheless using fair value pricing, a sometimes controversial way to minimize the gap between true and last-quoted market prices.