Emerging market equity funds run by Fiera Capital, Artemis and Merian Global Investors have some of the highest exposure to China as the country is plunged back into a trade war with the US, FE data shows. 
Meanwhile, a number of funds in the IA Global sector have the majority of their portfolio in North American equities, which have suffered in recent days after the trade dispute intensified.
Global stock markets have been dealing with the US-China trade spat for more than a year, after US president Donald Trump placed a 30 per cent tariff on foreign solar panels – of which China is the world’s leader manufacturer – on 22 January 2018.
Further tariffs were placed on goods over the coming months with the aim of targeting China, with China eventually retaliating by placing its own tariffs on US goods. Recent months had been relatively subdued after the two countries put the trade war on pause and held talks on its resolution.
Chronology of recent US-China trade tensions
Source: AFP - Agence France Presse
However, this period of calm came to an end last week when Trump announced a tariff increase on $200bn of Chinese goods; this week, China responded with tariffs on $60bn of US goods.
The resumption of the trade war has rattled markets, although they have not gone into freefall. Despite some falls, the S&P 500, for example, is still higher than it was a year ago.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: “If markets were to believe wholeheartedly that the trade talks with China will break down and that the US will impose tariffs on all Chinese imports, as the president has repeatedly threatened, the index would be much lower.
“If the S&P hangs in close to its current level, though, the president – who reportedly views the market as a key measure of his job performance – presumably will feel emboldened in his aggressive stance against China. The quickest way to get a deal, then, probably is for the market to drop by 5 to 10 per cent but that hasn't happened, yet, because investors believe a deal will be done.”
In this article, FE Trustnet has reviewed the IA Global and IA Global Emerging Markets sectors – which investors look to for diversified exposure to the world’s stock markets – to see which of their members have the biggest exposure to the two countries at the centre of the trade war.
Starting with the IA Global Emerging Markets sector and, of the funds that we can see full positioning data on, there are 16 that have more than 35 per cent of assets in China. They can be seen in the table below.
Fiera Capital’s Magna Emerging Markets fund has the highest allocation, at 40.5 per cent. It made a third-quartile loss of 7.99 per cent between the start of 2018 and 14 May 2019, after Chinese equities were hit hard in 2018 but rallied strongly in 2019’s opening quarter.
Managed by Ian Simmons, the £123.2m fund looks for quality companies with strong management and sustainable growth prospects at attractive valuations, with Chinese stocks Alibaba, China National Offshore Oil Corporation and Ping An being among its largest holdings.
Source: FE Analytics
Candriam SRI Equity Emerging Markets is the only other member of the IA Global Emerging Markets sector that our data shows as having more than 40 per cent in China. It has made a loss of 11.88 per cent since the start of 2018.
As can be seen, not every fund with a high weighting to China has made investors a loss since the start of the trade tensions. Quilter Investors Emerging Markets Equity Growth, BlackRock Emerging Markets and JPM Emerging Markets were all in positive territory when the above data was run.
The largest name on the above list is the team-managed GS Emerging Markets Equity Portfolio, with has assets under management of £2.3bn. Seven of the portfolio’s 10 largest stocks are in China, including Tencent, Alibaba and China Merchants Bank.
In their latest update, the team argued that the wider emerging markets asset class remains attractive despite China being in a trade war. “It is important to remember that emerging markets remain a highly heterogeneous asset class,” they said.
“Even with something as pervasive as US protectionism, the impact will be extremely different depending on the country in question. For instance, US tariffs on Chinese imports have resulted in market share gains for countries like Mexico in certain product categories, whereas Chinese retaliatory tariffs on American soybeans have benefited Brazilian and Argentine producers.
“In addition, emerging markets remain a largely domestic-facing universe, where many countries are somewhat insulated from escalating trade tensions and in aggregate emerging market companies only derive 8 per cent of total revenue from the US.”
Turning to the IA Global sector, FE Analytics shows that 14 funds have more than 65 per cent of their portfolios in North American equities, which is largely US stocks but may include some Canadian names also.
The largest exposure is found in Tom Wildgoose and Ilan Chaitowitz’s Nomura Global High Conviction fund, where 76.3 per cent of the £9.6m portfolio is in the US. Stocks such as Mastercard, Lockheed Martin and PayPal are found among its top holdings.
At the end of 2018, Wildgoose and Ilan Chaitowitz noted that the election of Trump as US president may herald an era of greater trade protectionism and said that the events of the past year had “only served to reinforce [their] caution”.
Source: FE Analytics
“We continue to believe that in the current environment a strategy of buying good companies at a discount to intrinsic value will outperform over time,” the Nomura Global High Conviction managers added.
“Regardless of the trajectory of US interest rates and the global economy, we believe the extended period of low volatility is behind us. This should favour our approach as it presents more opportunities to buy our favourite names at discounted prices.
While the US is at the heart of the trade war, its stock market outperformed last year and as a result many of the funds listed above are in the IA Global sector’s top quartile since the start of 2018.
James Thomson’s Rathbone Global Opportunities fund leads with a 17.61 per cent total return while Stonehage Fleming Global Best Ideas Equity, Nomura Global High Conviction and Pictet Security are all up more than 10 per cent.
In addition, four of the funds have assets under management of more than £1bn: Vanguard FTSE Developed World ex-UK Equity Index (£5.6bn), GS Global CORE Equity Portfolio (£4.7bn), Pictet Security (£3.8bn) and Rathbone Global Opportunities (£1.5bn).