Strategy
The Sub-Fund seeks to achieve its investment objective by investing primarily (i.e. not less than 70% of its NAV) in RMB-denominated and settled short-term deposits and high quality money market instruments issued by governments, quasi-governments, international organisations, financial institutions. The Sub-Fund may invest up to 30% of its NAV in non RMB-denominated deposits and high quality money market instruments. High quality money market instruments include but are not limited to high quality debt securities, commercial papers, certificates of deposits and commercial bills.
Debt securities invested by the Sub-Fund may include but are not limited to government bonds, fixed and floating rate bonds. The Sub-Fund will only invest in debt securities rated investment grade or above by an independent rating agency, such as Standard and Poor’s, Fitch Ratings and Moody’s. For the purposes of the Sub-Fund, investment grade is defined as below:
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a short-term debt security which is rated A-3 or higher by Standard & Poor’s or F3 or higher by Fitch Ratings or P-3 or higher by Moody’s or equivalent rating as rated by one of the international credit rating agencies, or, in case of short-term onshore PRC debt securities, rated A-1 or above by one of the credit rating agencies in the PRC; and
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a long-term debt security which is rated BBB- or higher by Standard & Poor’s or Fitch Ratings or Baa3 or higher by Moody’s or equivalent rating as rated by one of the international credit rating agencies, or, in case of long-term onshore PRC debt securities, rated AA+ or above by one of the credit rating agencies in the PRC. For the avoidance of doubt, the Sub-Fund does not intend to invest in debt securities with a long term to maturity remaining at the time of investment. The long-term credit ratings will be considered where the Sub-Fund invests in debt securities which have been rated long-term credit ratings, but have a shorter term to maturity remaining (subject to the requirements on remaining maturity, weighted average maturity and weighted average life of the portfolio of the Sub-Fund as set out below) at the time of purchase by the Sub-Fund.
For this purpose, if the relevant debt security does not itself have a credit rating, then reference can be made to the credit rating of the issuer or guarantor of such debt security. For split credit ratings, the highest rating shall apply.
The Manager will assess the credit risks of the debt securities on an ongoing basis based on quantitative and qualitative fundamentals, which may include the issuer’s leverage, operating margin, return on capital, interest coverage, operating cash flows, industry outlook, the firm’s competitive position, corporate governance etc., to ensure that the debt securities in which the Sub-Fund invests are of sound credit quality.
There is no specific geographical allocation of the country of issue of the high quality money market instruments or deposits, except that the Sub-Fund will invest less than 70% of its NAV in onshore PRC debt securities (which may include short-term and high quality urban investment bonds (城投債)) through the mutual bond market access between Hong Kong and the PRC (“Bond Connect”), the CIBM Direct (as defined in the Explanatory Memorandum) and/or the Manager’s Qualified Foreign Investor (“QFI”) status.
The Sub-Fund’s investment in urban investment bonds, which are debt instruments issued by PRC local government financing vehicles (“LGFVs”), will not exceed 30% of its NAV. These LGFVs are separate legal entities established by local governments and / or their affiliates to raise financing for public welfare investment or infrastructure projects.
The Sub-Fund will maintain a portfolio with weighted average maturity not exceeding 60 days and a weighted average life not exceeding 120 days, and must not purchase an instrument with a remaining maturity of more than 397 days, or two years in the case of Government and other Public Securities (as defined in the Explanatory Memorandum).
The aggregate value of the Sub-Fund’s holding of instruments and deposits issued by a single entity will not exceed 10% of the total NAV of the Sub-Fund except: (i) where the entity is a substantial financial institution and the total amount does not exceed 10% of the entity’s share capital and non-distributable capital reserves, the limit may be increased to 25%; or (ii) in the case of Government and other Public Securities, up to 30% may be invested in the same issue; or (iii) in respect of any deposit of less than USD1,000,000 or its equivalent in the base currency of the Sub-Fund, where the Sub-Fund cannot otherwise diversify as a result of its size.
The Sub-Fund may invest up to 10% of its NAV in other money market funds authorised by the SFC under Chapter 8.2 of the Code on Unit Trusts and Mutual Funds (the “Code”) or regulated in other jurisdictions in a manner generally comparable with the requirements of the SFC and acceptable to the SFC, including PRC money market funds authorised by the China Securities Regulatory Commission. Any PRC money market funds in which the Sub-Fund may invest will maintain a portfolio with weighted average maturity not exceeding 60 days and a weighted average life not exceeding 120 days. Where the Sub-Fund invests in any money market fund managed by the Manager or any of its Connected Persons, all initial charges and redemption charges on such money market fund(s) must be waived.
The Sub-Fund may invest not more than 15% of its NAV in asset-backed securities (including asset backed commercial papers and mortgage backed securities).
The Sub-Fund may borrow up to 10% of its NAV but only on a temporary basis for the purpose of meeting redemption requests or defraying operating expenses. The Sub-Fund will not write any options.
The Sub-Fund may enter into sale and repurchase transactions for up to 10% of its NAV but only on a temporary basis for the purpose of meeting redemption requests or defraying operating expenses. The amount of cash received by the Sub-Fund under sale and repurchase transactions may not in aggregate exceed 10% of its Net Asset Value. Such sale and repurchase transactions will be conducted over-the-counter.
The Sub-Fund may invest up to 50% of its NAV in financial derivative instruments (“FDIs”) for hedging purposes only.
Save as disclosed above, the Manager will not enter into any securities lending, reverse repurchase or other similar over-the-counter transactions in respect of the Sub-Fund, and the Sub-Fund currently has no intention to invest in structured deposits, structured products or over-the-counter securities, or to take any short positions. If any of these changes in the future, prior approval of the SFC will be sought (if required) and not less than one month’s notice will be provided to Unitholders before the Sub-Fund enters into any such transactions.
Use of derivatives / Investment in derivatives
The Sub-Fund’s net derivative exposure may be up to 50% of the Sub-Fund’s NAV.
