Adding Hong Kong Equity Funds to Risk-Budgeted Portfolios

Summary

This report examines domestic Chinese fund products that provide exposure to Hong Kong equities and their role in broader asset allocation. It reviews access routes and fund types, including actively managed products and index funds, then compares the historical relationship between Hong Kong and mainland Chinese equities. The report describes rolling correlation analysis and regression analysis, noting that Hong Kong equities are influenced by both mainland and US markets and that mainland–Hong Kong co-movement has increased.

For its allocation study, the report builds fund-of-funds portfolios from equity and bond ETFs and applies risk-parity methods. It reports that adding Hong Kong equity exposure reduced correlations within the portfolio and improved annualized return and information ratio in the tested comparisons. Because results weakened when mainland and Hong Kong markets were highly correlated, it also examines dynamically reallocating risk budgets using their correlation as a timing input. These are historical empirical findings; the summary provides no detailed implementation, costs, or robustness tests. The report also identifies selecting active funds and controlling total portfolio risk as unresolved research challenges.

Key ideas

• The report evaluates domestic funds as a convenient route for mainland investors to access Hong Kong equities.
• It describes index and actively managed Hong Kong fund products and their differing profiles.
• Its analysis finds relatively low long-run mainland–Hong Kong equity correlation, while noting that linkage can rise.
• Risk-parity portfolios incorporating Hong Kong ETFs showed improved reported performance in the historical comparison.
• A dynamic risk-budget approach uses mainland–Hong Kong correlation, but its results depend on that relationship.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.