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GAM China Evolution Equity

Reasons to Invest

Focus on China’s growth drivers

Companies in consumer-driven sectors not only generate faster earnings growth, but also typically exhibit low levels of debt, due to their strong cash flow generation abilities.

Increasingly accessible

The on-going addition of China’s A-shares in MSCI benchmark indices paves the way for increased inflows into China from overseas investors and further integrates China’s domestic stock markets into global capital markets.

Alpha generation

The higher inefficiencies of Chinese equity markets, and lower quality of broker research than in developed countries, can result in mispriced stock opportunities for active managers.

Strong performance

The fund has generated strong outperformance over the MSCI China Index since inception, and won the Lipper Award for the best China fund over three years (2017).

Our Edge

Deep China expertise

The manager’s in-depth knowledge of China’s economy and companies is key to successful stock picking, as market trends can evolve more quickly than in developed markets.

Differentiated stock picking approach

The manager has developed a series of ‘winning stock patterns’ from investment thought leaders’ time-tested Western approaches, and invests in Chinese stocks that fit one of these ‘winning stock patterns’

Large network of local contacts

Communication with customers, employees, suppliers and competitors offers the manager insights not covered by conversations with company management teams or analysts.

Mitigation of downside risk

The manager’s tactical use of low-beta stocks supplements high-conviction growth and value stock picks within the portfolio and helps protect on the downside.

Philosophy and Process

Investment Philosophy

The manager’s philosophy is founded on the belief that the next evolution in China’s economy will be driven by Chinese consumers. As the state continues to strategically transform the economy to be more consumer-driven, ‘new economy’ sectors will develop and prosper while old, heavy industries will become less important growth drivers. The manager identifies themes related to China’s evolution towards a consumer- and innovation-driven economy and invests in companies positioned to benefit in the coming years. She believes local knowledge and insights can add significant value and generate consistent returns in all market conditions.

Investment Process

The process starts by identifying attractive sectors in the Chinese economy in which to invest. Subsequently, the manager conducts bottom up stock picking in these sectors through applying time-tested Western investment approaches to Chinese equities. In particular, the manager screens for companies that fit into the ‘winning stock patterns’ framework. Fundamental analysis, company visits and valuation modelling result in a list of stocks which the manager believes offer an upside potential >30% over 12-24 months. Stock weightings are based on conviction and risk considerations. If not enough attractively-valued stocks are found, low-beta stocks are added to mitigate downside risk. She monitors risk factors continuously and adjusts the portfolio when risk parameters exceed acceptable levels.

1. Stock screening

  • Universe screened by growth, value and quality factors
  • Growth and value stocks identified for in-depth analysis

2.Company analysis

  • Blend of fundamental analysis, company visits and valuation modelling
  • Selection of stocks with more than 30% upside potential over 12-24 months

3. Portfolio construction

  • High-conviction and lower-risk stocks sized at 3-4%; other stock picks sized at 1-2%
  • Low-beta stocks are typically from telecoms and utilities sectors

4. Risk management

  • Downside protection, factor exposure, tracking error and stock correlation
  • Scenario analysis focuses on exposure to macro events and liquidity risk

Investment Team

GAM China Evolution Equity is managed by Jian Shi Cortesi, a highly experienced manager with a strong understanding of the Chinese economy, companies, consumers and financial markets.

Jian has ultimate responsibility for investment decisions but leverages the expertise of GAM’s in-house sector specialists. Sector and theme specialists assists with providing information on industry and thematic trends, stock ideas and company analysis while GAM’s fixed income and currency team provides macroeconomic insights and inputs.

Jian is supported by GAM Investments’ risk team, which provides independent risk oversight, as well as investment administration and operations teams.

Our edge lies in our ability to combine deep China expertise with a Western-style stock-picking approach.
Jian Shi Cortesi, Investment Director

Fund Information

Key Risks

Currency Risk

The value of investments in assets that are denominated in currencies other than the base currency will be affected by changes in the relevant exchange rates which may cause a decline.

Liquidity Risk

Some investments can be difficult to sell quickly which may affect the value of the Fund and, in extreme market conditions, its ability to meet redemption requests.

Currency Risk - Non Base Currency Share Class

Non-base currency share classes may or may not be hedged to the base currency of the Fund. Changes in exchange rates will have an impact on the value of shares in the Fund which are not denominated in the base currency. Where hedging strategies are employed, they may not be fully effective.

Market Risk / Emerging Markets

Emerging markets will generally be subject to greater political, market, counterparty and operational risks.

Single Country Risk

Investment in companies of a single country may be subject to greater political, social, economic and tax risks and may be more volatile than investments in more broadly diversified funds. Local tax law may change retrospectively and without notice.

Special Country Risk / China

Changes in China’s political, social or economic policies may significantly affect the value of the Fund’s investments. China’s tax law is also applied under policies that may change without notice and with retrospective effect.

Equity

Investments in equities (directly or indirectly via derivatives) may be subject to significant fluctuations in value.

Onshore Renminbi Currency Risk

Currency control decisions made by the Chinese government could affect the value of the Fund’s investments and could cause the fund to defer or suspend redemptions of its shares.

Shanghai-Hong Kong Stock Connect / Shenzhen Connect Risk

The Fund may be investing in China A Shares via the Shanghai – Hong Kong Stock Connect / Shenzhen Connect which may entail additional clearing and settlement, regulatory, operational and counterparty risks.

Capital at risk

All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

Credit Risk / Structured Products

Should the counterparty to a structured note default, the value of those structured notes may be nil.

Resources

Fund profile - GAM China Evolution Equity

Risk management at GAM

Contacts

GAM Multistock - China Evolution Equity is a sub-fund of Gam Multistock, registered office at 25, Grand-Rue, L-1661 Luxembourg, an umbrella investment company