factor investing in china a look at a-shares · 600+ investment professionals , 10+ years average...

Factor Investing

in China – A look at A-shares

Yogesh Padmanabhan

Portfolio Manager & Head of Best Styles EM strategies

JP Morgan Macro Quantitative Conference

Hong Kong

February 2017

For Institutional/Professional Investor use only. Not for public distribution

2

About Allianz Global Investors

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Equities

Alternatives

Multi Asset

Value, Core, Growth, Risk-optimized,

Sector and Specialty

High Yield, Convertible, Credit,

Aggregate, Advanced Fixed Income,

Emerging Market Debt

Fixed Income

Options Strategies, Commodities,

Infrastructure Debt and Equity, Volatility, Global

Macro, Long/Short Equities, Merger Arbitrage

Global Tactical Asset Allocation, Target Date

and Target Risk, Dynamic Risk Management,

Risk Parity, Liability-Driven Investments

Asset liability management

Investment advice

Portfolio risk analytics and

consulting

Pension solutions

Fiduciary services

AuM by asset class

Equity

EUR 139 bn

(29%)

Fixed Income**

EUR 207 bn

(43%)

Multi Asset

EUR 118 bn

(25%)

Alternatives

EUR 17 bn (3%)

Owned by Allianz SE – one of the world’s largest and most financially robust organizations

AuM of EUR 481bn * across Equity, Fixed Income, Multi Asset and Alternatives

25 locations worldwide – global investment and research capabilities with consultative local delivery

600+ investment professionals , 10+ years average tenure of Portfolio Managers, 550+ relationship managers

Our clients benefit from our global resources and deep understanding of investments

* As at 30 September 2016. Source: Allianz Global Investors. Any differences in totals are due to rounding. ** Includes money market.

3

Best Styles @ Allianz Global Investors

Systematic Equity is one of the leading providers of systematic investment solutions

o Successful Systematic Equity management since 1996

o USD 41bn AuM in Systematic Equity products, whereof USD 1.3bn in Best Styles Emerging Markets assets*

o One of the longest track records in the industry for factor investing with Best Styles Global Developed running since 1999

o Strong Performance:

Best Styles Global outperformed the benchmark in each five year rolling period since its inception in 1999

Best Styles Global Developed Best Styles Europe Best Styles Emerging Markets

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Be

st S

tyle

s G

lob

al D

evelo

ped

MSCI WORLD Total Return (Net)

COMP0189Outperformance in 157 of 1575-year periods as at 31/12/2016

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MSCI EUROPE WEIGHTED


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-40 -20 0 20 40 60 80 100 120 140

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ket

s

MSCI Emerging Markets Total Return (Net)

COMP0190Outperformance in 30 of 30

3-year periods as at 31/12/2016

Stable outperformance of all systematic Best Styles equity composites since inceptions

Past performance is not a reliable indicator of future results. Unless otherwise noted, index returns are presented as total returns, which reflect both price performance and income from dividend payments, if any, but do not reflect fees, brokerage

commissions or other expenses of investing. Please see the Appendix for additional disclosures and GIPS ® presentation for the composite presented above. Please also consider the risks and notes at the end of the presentation. Figures gross

of fees. Please also consider the risks and notes at the end of the presentation.

Source: IDS; data as of 31/12/2016, preliminary data in USD.

4

What is China Equity ?

Shanghai A-shares Shenzhen A-shares HK-listed China

stocks US-listed ADRs

Total Market Cap (USD bn)

4254 3301 4121 1404

Number of stocks 1211 1895 980 162

Number of stocks with Avg. Daily Traded Value >

US$ 10m 910 1383 80 27

Total

13079

4248

2400

0

5

10

15

20

25

30

35

40

45

Shanghai Shenzhen HK-Listed stocks US-listed ADRs

USD

bn

Average daily traded value (US$ bn )

Source: Allianz Global Investors, HSBC. As at January 31 2017.

5

China is very dynamic with quick changes in market sentiment Shanghai Composite has had twice as many down years in the last 25 years vs. S&P500

Shanghai Composite has had 12 down years

compared with 6 for the S&P500 in the last 25 years

Shanghai Composite has had 5 down years vs. 2 for

the S&P500 in the last 10 years

Retail investors have a large presence in China,

providing liquidity, and contributing to large swings

Large breadth, large depth make China a good

testing ground for quantitative investing

Risk management is critical to survive the bouts of

volatility

Shanghai Composite S&P500

1991 129.4% 26.3%

1992 166.6% 4.5%

1993 6.8% 7.1%

1994 -22.3% -1.5%

1995 -14.3% 34.1%

1996 65.1% 20.3%

1997 30.2% 31.0%

1998 -4.0% 26.7%

1999 19.2% 19.5%

2000 51.7% -10.1%

2001 -20.6% -13.0%

2002 -17.5% -23.4%

2003 10.3% 26.4%

2004 -15.4% 9.0%

2005 -8.3% 3.0%

2006 130.4% 13.6%

2007 96.7% 3.5%

2008 -65.4% -38.5%

2009 80.0% 23.5%

2010 -14.3% 12.8%

2011 -21.7% 0.0%

2012 3.2% 13.4%

2013 -6.7% 29.6%

2014 52.9% 11.4%

2015 9.4% -0.7%

2016 -12.3% 9.5%

2017 (YTD) 1.7% 2.5%

Source: Allianz Global Investors, Bloomberg, data as of 31st January 2017

6

Performance success of factors in China A-Shares

Excess Return and Tracking Error for typical stock selection criteria

rev 6m sy

rev 3m

upgrades 3m cps growth

by

upgrades 1m

dps growth

ey 12m tr

ey 12m fwd

rev 1m

dy 12m fwd

cy

upgrades 6m

op-cy

eps growth

payout

roe

gross margin

by 12m fwd

12m ex 3m momentum

rnoa

merton

evebitda change in roe

debtasset netmarg

24m ex 3m momentum

ebitint

12m ex 1m momentum

trailing eps growth 5y

1m mean reversion

3m mean reversion

6m mean reversion

12m mean reversion

LowVol

breadth of earnings estimates

4%

9%

-5% 0% 5% 10%

perf

orm

an

ce s

tab

ilit

y

(Tra

ckin

g E

rror

in %

p.a

.)

Relative Return (p.a.)

Stable excess

returns

High excess

returns

Source: AllianzGI, 2004-201612, relative performance of the most attractive top 20% of the factor, implemented on a sector neutral basis vs. an equal weighted benchmark.

Calculations performed by the portfolio management team. Not independently verified.

Revisions

Quality

Value

Momentum

Growth

Mean

Reversion

7

Correlation analysis of single factors

Source: AllianzGI, 2004-201612, relative performance of the most attractive top 20% of the factor, implemented on a sector neutral basis vs. an equally weighted benchmark.

Calculations performed by the portfolio management team. Not independently verified.

sy ey by cy evebitda

op_cy

by_12m_fw

d

ey12m_tr

dy_12m_fw

d

ey_12m_fw

d

reversi

on_1m

reversi

on_3m

reversi

on_6m

reversi

on_12m

debtass

et

highvol

eps_gro

wth

cps_

grow

th

dps_gro

wth

trailin

g_eps_gro

wth_5y

upgrades_

3m

upgrades_

1m

upgrades_

6m

rev6

rev3

rev1

rnoa

roe

payout

net_m

argin

gross

_marg

in

merto

n

ebitint

change_in

_roe

mom

entum

_12x1m

mom

entum

_12x3m

mom

entum

_24x3m

sy 1.00 0.58 0.58 0.74 0.59 0.61 0.53 0.59 0.47 0.55 -0.07 0.27 0.31 0.34 0.08 -0.26 -0.37 0.10 -0.03 -0.08 0.00 0.22 0.08 -0.31 -0.31 -0.16 -0.02 -0.10 0.10 -0.41 -0.32 -0.18 -0.11 -0.23 -0.42 -0.37 -0.43

ey 0.58 1.00 0.41 0.68 0.71 0.51 0.53 0.88 0.54 0.83 0.06 0.32 0.36 0.29 0.06 -0.08 -0.32 0.13 -0.02 0.13 0.18 0.09 0.28 -0.21 -0.11 -0.04 0.22 0.24 0.23 -0.20 -0.20 -0.19 0.02 -0.13 -0.34 -0.23 -0.23

by 0.58 0.41 1.00 0.71 0.53 0.61 0.59 0.39 0.08 0.26 -0.09 0.07 0.10 0.27 0.16 -0.29 -0.43 -0.18 -0.35 -0.40 -0.29 0.21 -0.22 -0.45 -0.44 -0.31 -0.43 -0.43 -0.21 -0.39 -0.40 -0.45 -0.49 -0.27 -0.45 -0.45 -0.58

cy 0.74 0.68 0.71 1.00 0.76 0.74 0.72 0.64 0.35 0.55 -0.04 0.15 0.18 0.25 0.08 -0.36 -0.37 -0.01 -0.08 -0.19 0.01 0.16 0.10 -0.39 -0.25 -0.22 -0.08 -0.21 0.05 -0.31 -0.30 -0.21 -0.23 -0.40 -0.47 -0.45 -0.50

evebitda 0.59 0.71 0.53 0.76 1.00 0.65 0.67 0.66 0.48 0.66 0.04 0.10 0.05 0.14 -0.04 -0.37 -0.32 -0.04 -0.02 0.00 0.22 0.18 0.30 -0.24 -0.03 -0.02 0.14 -0.05 0.16 -0.14 -0.12 -0.09 -0.01 -0.32 -0.39 -0.34 -0.39

op_cy 0.61 0.51 0.61 0.74 0.65 1.00 0.59 0.48 0.32 0.45 -0.07 0.01 0.04 0.09 -0.02 -0.48 -0.27 0.07 0.04 -0.17 0.07 0.20 0.08 -0.20 -0.09 -0.08 0.03 -0.13 0.07 -0.23 -0.20 -0.13 -0.11 -0.38 -0.37 -0.33 -0.40

by_12m_fwd 0.53 0.53 0.59 0.72 0.67 0.59 1.00 0.55 0.47 0.49 -0.03 0.07 0.02 0.00 -0.08 -0.48 -0.32 0.02 0.00 -0.14 0.18 0.23 0.28 -0.26 -0.20 -0.10 0.04 -0.11 0.09 -0.04 -0.05 -0.11 -0.06 -0.27 -0.35 -0.28 -0.39

ey12m_tr 0.59 0.88 0.39 0.64 0.66 0.48 0.55 1.00 0.59 0.83 0.13 0.42 0.33 0.24 -0.05 -0.15 -0.41 0.11 0.01 0.20 0.24 0.13 0.36 -0.19 -0.14 -0.08 0.26 0.37 0.26 -0.04 -0.08 -0.10 0.08 -0.08 -0.33 -0.16 -0.13

dy_12m_fwd 0.47 0.54 0.08 0.35 0.48 0.32 0.47 0.59 1.00 0.65 -0.04 0.24 0.18 0.07 -0.34 -0.40 -0.06 0.34 0.27 0.07 0.54 0.27 0.56 0.21 0.07 0.18 0.48 0.38 0.57 0.14 0.17 0.33 0.42 -0.08 -0.04 0.07 -0.02

ey_12m_fwd 0.55 0.83 0.26 0.55 0.66 0.45 0.49 0.83 0.65 1.00 0.03 0.36 0.32 0.17 -0.10 -0.21 -0.20 0.17 0.12 0.23 0.34 0.08 0.45 -0.05 0.01 0.04 0.37 0.36 0.32 -0.04 -0.01 -0.01 0.18 -0.10 -0.28 -0.15 -0.05

reversion_1m -0.07 0.06 -0.09 -0.04 0.04 -0.07 -0.03 0.13 -0.04 0.03 1.00 0.33 0.19 0.07 -0.04 0.04 0.13 0.06 0.08 0.08 0.02 0.10 0.01 0.03 -0.09 0.01 0.12 0.15 0.02 -0.02 0.07 0.02 0.14 -0.04 0.15 0.20 0.12

reversion_3m 0.27 0.32 0.07 0.15 0.10 0.01 0.07 0.42 0.24 0.36 0.33 1.00 0.72 0.51 0.03 0.11 -0.14 -0.03 -0.03 0.07 -0.13 -0.04 0.00 -0.18 -0.37 -0.24 0.13 0.15 0.23 -0.18 -0.13 -0.01 0.10 0.01 -0.32 -0.08 0.02

reversion_6m 0.31 0.36 0.10 0.18 0.05 0.04 0.02 0.33 0.18 0.32 0.19 0.72 1.00 0.71 0.12 0.17 -0.15 0.04 -0.03 0.09 -0.15 -0.09 -0.08 -0.21 -0.36 -0.30 0.10 0.07 0.25 -0.29 -0.15 -0.09 0.01 -0.05 -0.40 -0.27 -0.15

reversion_12m 0.34 0.29 0.27 0.25 0.14 0.09 0.00 0.24 0.07 0.17 0.07 0.51 0.71 1.00 0.23 0.21 -0.22 -0.12 -0.23 0.01 -0.33 -0.14 -0.27 -0.39 -0.43 -0.34 -0.10 -0.12 0.05 -0.37 -0.35 -0.24 -0.15 -0.24 -0.59 -0.50 -0.40

debtasset 0.08 0.06 0.16 0.08 -0.04 -0.02 -0.08 -0.05 -0.34 -0.10 -0.04 0.03 0.12 0.23 1.00 0.45 -0.13 -0.36 -0.33 -0.06 -0.54 -0.28 -0.43 -0.30 -0.27 -0.25 -0.51 -0.37 -0.32 -0.37 -0.45 -0.59 -0.54 -0.07 -0.27 -0.31 -0.25

highvol -0.26 -0.08 -0.29 -0.36 -0.37 -0.48 -0.48 -0.15 -0.40 -0.21 0.04 0.11 0.17 0.21 0.45 1.00 0.07 -0.24 -0.19 0.32 -0.43 -0.41 -0.35 -0.07 -0.05 -0.01 -0.24 0.01 -0.22 -0.16 -0.22 -0.47 -0.22 0.28 0.05 0.05 0.16

eps_growth -0.37 -0.32 -0.43 -0.37 -0.32 -0.27 -0.32 -0.41 -0.06 -0.20 0.13 -0.14 -0.15 -0.22 -0.13 0.07 1.00 0.20 0.38 0.04 0.11 -0.07 -0.01 0.44 0.35 0.35 0.11 0.07 0.10 0.10 0.20 0.18 0.28 -0.01 0.47 0.39 0.34

cps_growth 0.10 0.13 -0.18 -0.01 -0.04 0.07 0.02 0.11 0.34 0.17 0.06 -0.03 0.04 -0.12 -0.36 -0.24 0.20 1.00 0.38 0.02 0.42 0.18 0.35 0.40 0.21 0.27 0.45 0.45 0.36 0.06 0.23 0.36 0.43 0.07 0.37 0.43 0.39

dps_growth -0.03 -0.02 -0.35 -0.08 -0.02 0.04 0.00 0.01 0.27 0.12 0.08 -0.03 -0.03 -0.23 -0.33 -0.19 0.38 0.38 1.00 0.18 0.52 0.10 0.49 0.35 0.37 0.29 0.43 0.34 0.30 0.23 0.27 0.32 0.46 0.07 0.34 0.32 0.23

trailing_eps_growth_5y-0.08 0.13 -0.40 -0.19 0.00 -0.17 -0.14 0.20 0.07 0.23 0.08 0.07 0.09 0.01 -0.06 0.32 0.04 0.02 0.18 1.00 0.26 -0.18 0.35 0.09 0.25 0.16 0.41 0.57 0.07 0.34 0.26 0.04 0.32 0.29 0.03 0.09 0.26

upgrades_3m 0.00 0.18 -0.29 0.01 0.22 0.07 0.18 0.24 0.54 0.34 0.02 -0.13 -0.15 -0.33 -0.54 -0.43 0.11 0.42 0.52 0.26 1.00 0.29 0.87 0.46 0.56 0.45 0.65 0.54 0.45 0.45 0.43 0.56 0.61 0.10 0.32 0.31 0.28

upgrades_1m 0.22 0.09 0.21 0.16 0.18 0.20 0.23 0.13 0.27 0.08 0.10 -0.04 -0.09 -0.14 -0.28 -0.41 -0.07 0.18 0.10 -0.18 0.29 1.00 0.22 0.13 0.02 0.28 0.12 -0.03 0.18 -0.08 -0.03 0.15 0.14 -0.01 0.16 0.01 -0.16

upgrades_6m 0.08 0.28 -0.22 0.10 0.30 0.08 0.28 0.36 0.56 0.45 0.01 0.00 -0.08 -0.27 -0.43 -0.35 -0.01 0.35 0.49 0.35 0.87 0.22 1.00 0.35 0.49 0.33 0.62 0.55 0.40 0.43 0.31 0.44 0.55 0.19 0.16 0.23 0.24

rev6 -0.31 -0.21 -0.45 -0.39 -0.24 -0.20 -0.26 -0.19 0.21 -0.05 0.03 -0.18 -0.21 -0.39 -0.30 -0.07 0.44 0.40 0.35 0.09 0.46 0.13 0.35 1.00 0.67 0.59 0.28 0.39 0.29 0.33 0.33 0.36 0.32 0.33 0.51 0.52 0.50

rev3 -0.31 -0.11 -0.44 -0.25 -0.03 -0.09 -0.20 -0.14 0.07 0.01 -0.09 -0.37 -0.36 -0.43 -0.27 -0.05 0.35 0.21 0.37 0.25 0.56 0.02 0.49 0.67 1.00 0.65 0.32 0.37 0.21 0.40 0.25 0.28 0.30 0.24 0.36 0.31 0.38

rev1 -0.16 -0.04 -0.31 -0.22 -0.02 -0.08 -0.10 -0.08 0.18 0.04 0.01 -0.24 -0.30 -0.34 -0.25 -0.01 0.35 0.27 0.29 0.16 0.45 0.28 0.33 0.59 0.65 1.00 0.30 0.30 0.20 0.25 0.25 0.22 0.33 0.24 0.40 0.34 0.36

rnoa -0.02 0.22 -0.43 -0.08 0.14 0.03 0.04 0.26 0.48 0.37 0.12 0.13 0.10 -0.10 -0.51 -0.24 0.11 0.45 0.43 0.41 0.65 0.12 0.62 0.28 0.32 0.30 1.00 0.71 0.43 0.34 0.47 0.58 0.78 0.13 0.16 0.27 0.35

roe -0.10 0.24 -0.43 -0.21 -0.05 -0.13 -0.11 0.37 0.38 0.36 0.15 0.15 0.07 -0.12 -0.37 0.01 0.07 0.45 0.34 0.57 0.54 -0.03 0.55 0.39 0.37 0.30 0.71 1.00 0.26 0.46 0.43 0.37 0.60 0.40 0.25 0.42 0.53

payout 0.10 0.23 -0.21 0.05 0.16 0.07 0.09 0.26 0.57 0.32 0.02 0.23 0.25 0.05 -0.32 -0.22 0.10 0.36 0.30 0.07 0.45 0.18 0.40 0.29 0.21 0.20 0.43 0.26 1.00 0.15 0.22 0.38 0.31 -0.03 0.14 0.15 0.16

net_margin -0.41 -0.20 -0.39 -0.31 -0.14 -0.23 -0.04 -0.04 0.14 -0.04 -0.02 -0.18 -0.29 -0.37 -0.37 -0.16 0.10 0.06 0.23 0.34 0.45 -0.08 0.43 0.33 0.40 0.25 0.34 0.46 0.15 1.00 0.66 0.36 0.32 0.26 0.26 0.31 0.35

gross_margin -0.32 -0.20 -0.40 -0.30 -0.12 -0.20 -0.05 -0.08 0.17 -0.01 0.07 -0.13 -0.15 -0.35 -0.45 -0.22 0.20 0.23 0.27 0.26 0.43 -0.03 0.31 0.33 0.25 0.25 0.47 0.43 0.22 0.66 1.00 0.46 0.50 0.23 0.31 0.35 0.42

merton -0.18 -0.19 -0.45 -0.21 -0.09 -0.13 -0.11 -0.10 0.33 -0.01 0.02 -0.01 -0.09 -0.24 -0.59 -0.47 0.18 0.36 0.32 0.04 0.56 0.15 0.44 0.36 0.28 0.22 0.58 0.37 0.38 0.36 0.46 1.00 0.68 0.03 0.30 0.31 0.35

ebitint -0.11 0.02 -0.49 -0.23 -0.01 -0.11 -0.06 0.08 0.42 0.18 0.14 0.10 0.01 -0.15 -0.54 -0.22 0.28 0.43 0.46 0.32 0.61 0.14 0.55 0.32 0.30 0.33 0.78 0.60 0.31 0.32 0.50 0.68 1.00 0.09 0.32 0.37 0.40

change_in_roe -0.23 -0.13 -0.27 -0.40 -0.32 -0.38 -0.27 -0.08 -0.08 -0.10 -0.04 0.01 -0.05 -0.24 -0.07 0.28 -0.01 0.07 0.07 0.29 0.10 -0.01 0.19 0.33 0.24 0.24 0.13 0.40 -0.03 0.26 0.23 0.03 0.09 1.00 0.33 0.41 0.40

momentum_12x1m -0.42 -0.34 -0.45 -0.47 -0.39 -0.37 -0.35 -0.33 -0.04 -0.28 0.15 -0.32 -0.40 -0.59 -0.27 0.05 0.47 0.37 0.34 0.03 0.32 0.16 0.16 0.51 0.36 0.40 0.16 0.25 0.14 0.26 0.31 0.30 0.32 0.33 1.00 0.83 0.60

momentum_12x3m -0.37 -0.23 -0.45 -0.45 -0.34 -0.33 -0.28 -0.16 0.07 -0.15 0.20 -0.08 -0.27 -0.50 -0.31 0.05 0.39 0.43 0.32 0.09 0.31 0.01 0.23 0.52 0.31 0.34 0.27 0.42 0.15 0.31 0.35 0.31 0.37 0.41 0.83 1.00 0.74

momentum_24x3m -0.43 -0.23 -0.58 -0.50 -0.39 -0.40 -0.39 -0.13 -0.02 -0.05 0.12 0.02 -0.15 -0.40 -0.25 0.16 0.34 0.39 0.23 0.26 0.28 -0.16 0.24 0.50 0.38 0.36 0.35 0.53 0.16 0.35 0.42 0.35 0.40 0.40 0.60 0.74 1.00

8

Cluster Analysis

9

Relative performance of the Best Styles investment factors Value, Revisions , Momentum, Quality, Growth, Low Risk, Mean Reversion and Small Cap Beta

Source: Allianz Global Investors, as at 31/03/2016. Past performance is not a reliable indicator of future results.

-2%

0%

2%

4%

6%

8%

10%

12%

Value Revisions Momentum Quality Growth Low Risk MeanReversion

Small Cap

10

Relative performance of Value factors Value measures on earnings and dividend outperform those based on book value

Source: Allianz Global Investors, as at 31/12/2016. Past performance is not a reliable indicator of future results. Calculated as using equal weighted quintile portfolios of investment factors

vs. an equal weighted benchmark. Data since 30/11/2004. Unlike actual performance data, simulations are not based on actual transactions; thus, their significance underlies inherent

limitations. Simulations are not able to account for the impact of actual portfolio trading as it may have been affected by economic and market factors, such as a lack of liquidity.

0.7

0.9

1.1

1.3

1.5

1.7

1.9

Dividend Yield

Cash Yield

Earnings Yield

Book Yield

Op. Cash Yield

Ebitda to EV

11

Relative performance of Revisions factors Revisions works better over a longer time frame in China: 3M and 6M revisions

outperform 1M revisions




0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

3M EPS Revisions

6M EPS Revisions

Upgrades / Downgrades ratio 3M

1M EPS Revisions

Upgrades / Downgrades ratio 6M

12

Relative performance of Momentum factors Momentum is weak across the board in China on most measures

Typical definitions of momentum underperform




0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

12x3M Price Momentum



6M Price Momentum

3M Price Momentum

13

Momentum strategies do not work over any horizon in China,

unlike in the developed world




-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

1M

Mo

me

ntu

m

2M

Mo

me

ntu

m

3M

Mo

me

ntu

m

4M

Mo

me

ntu

m

5M

Mo

me

ntu

m

6M

Mo

me

ntu

m

7M

Mo

me

ntu

m

8M

Mo

me

ntu

m

9M

Mo

me

ntu

m

10

M M

om

en

tum

11

M M

om

en

tum

12

M M

om

en

tum

13

M M

om

en

tum

14

M M

om

en

tum

15

M M

om

en

tum

18

M M

om

en

tum

24

M M

om

en

tum

36

M M

om

en

tum

Information Ratio of Momentum strategies

Developed World

China

14

Relative performance of Mean Reversion factors Mean Reversion is very strong in China on all horizons

Mean Reversion performs strongly even when rebalanced at lower frequencies




0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

3M Mean reversion

12M Mean Reversion

1M Mean Reversion

6M Mean Reversion

15

Relative performance of Growth factors Backward looking growth measures are weak overall




0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

Trailing 1Y Sales Growth

Trailing 3Y Sales Growth

Trailing 3Y EPS Growth

Trailing 1Y EPS Growth

Trailing 12M Net Margin Growth

16

Relative performance of Quality factors Low Vol shows better performance than other quality measures




0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

RNoA

RoE

Merton Distance to Default

Net Margin

Debt/Assets

Low Vol

17

Performance of key investment styles in

China vs. Emerging Markets vs. Developed Markets Momentum is the clear outlier in the China A-share market compared with

Emerging Markets and Developed Markets

Source: Allianz Global Investors, as at 31/12/2016. Past performance is not a reliable indicator of future results. Calculated as using equal weighted quintile portfolios of investment styles vs.

an equal weighted benchmark, implemented on a sector neutral basis. Data since 30/11/2004. Unlike actual performance data, simulations are not based on actual transactions; thus, their

significance underlies inherent limitations. Simulations are not able to account for the impact of actual portfolio trading as it may have been affected by economic and market factors, such as

a lack of liquidity.

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Value Revisions Momentum Quality Growth Low Risk Size

Relative Return

China

EM

DM

Information Ratio Rebalancing Period

1m 2m 3m 6m 9m 12m

Value 0.67 0.54 0.38 0.35 0.11 0.07

Revisions 1.07 0.80 0.66 0.50 0.48 0.27

Momentum -0.03 -0.22 -0.24 -0.38 -0.49 -0.42

Quality 0.23 0.14 0.15 0.06 0.03 0.03

Growth 0.47 0.48 0.40 0.23 0.23 0.27

Low Risk 0.65 0.59 0.49 0.27 0.26 0.22

Mean Reversion 0.90 0.60 0.49 0.35 0.32 0.19

Impact of rebalancing frequency on Investment Style performance Most investment style performance decays sharply at rebalancing frequencies longer than 6m.

Rebalancing every 3-6 months can be a good strategy after costs

Source: Allianz Global Investors, as at 31/12/2016. Past performance is not a reliable indicator of future results. Calculated as using equal weighted quintile portfolios of investment styles vs. an equal

weighted benchmark, implemented on a sector neutral basis. Data since 30/11/2004. Unlike actual performance data, simulations are not based on actual transactions; thus, their significance underlies

inherent limitations. Simulations are not able to account for the impact of actual portfolio trading as it may have been affected by economic and market factors, such as a lack of liquidity.

Relative Return p.a. Rebalancing Period

1m 2m 3m 6m 9m 12m

Value 5.2% 4.3% 2.9% 2.7% 0.8% 0.5%

Revisions 8.5% 6.4% 5.1% 3.7% 4.4% 2.5%

Momentum -0.3% -1.9% 0.5% -3.2% -4.3% -3.6%

Quality 1.8% 1.1% 1.3% 0.5% 0.1% 0.3%

Growth 3.1% 3.1% 2.6% 1.5% 2.3% 2.9%

Low Risk 6.9% 6.1% 5.1% 2.7% 2.3% 2.0%

Mean Reversion 7.9% 5.3% 4.3% 2.8% 3.4% 1.9%

19

Dec 2004 – Oct 2016: Historic simulation: Monthly rebalancing, performance before transaction costs.

Unlike actual performance data, simulations are not based on actual transactions; thus, their significance underlies inherent limitations. Simulations are not able to account for the impact of actual portfolio trading as it may have been

affected by economic and market factors, such as a lack of liquidity.

Investment styles can have prolonged periods of lackluster performance

Successful style investing needs to address the short-term volatility of investment styles

Relative performance of investment styles for a China universe

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

04 06 08 10 12 14

Valuation Revisions

20

The outperformance path of a diversified investment style mix of Value and Revisions is much more stable

Dec 2004 – Oct 2016: Historic simulation: Monthly rebalancing, performance before transaction costs.

Unlike actual performance data, simulations are not based on actual transactions; thus, their significance underlies inherent limitations. Simulations are not able to account for the impact of actual portfolio trading as it may have been

affected by economic and market factors, such as a lack of liquidity.

Relative performance of investment styles for a China universe

Investment style diversification is key to stable outperformance

Investment style diversification: marrying attractive performance to high performance stability

-40%

0%

40%

80%

120%

160%

04 06 08 10 12 14

Valuation Revisions Diversified Style Mix

Improving performance

through combination of Value and Revisions

Information Ratio 1 month rebalancing 3 month rebalancing 6 month rebalancing

Value 0.67 0.38 0.35

Revisions 1.07 0.66 0.50

Best Styles Combination 1.35 0.73 0.60

Separately, Value and Revisions are both risks that are priced in the China A-share market.

However, both these styles suffer from periods of prolonged underperformance

A combination of these two negatively correlated styles can result in a much more stable performance

Using long term correlation structure, Best Styles strategies target style allocations that can outperform over the entire

business cycle

Dec 2004 – Dec 2016: Historic simulation: performance before transaction costs.

Unlike actual performance data, simulations are not based on actual transactions; thus, their significance underlies inherent limitations. Simulations are not able to account for the impact of actual portfolio

trading as it may have been affected by economic and market factors, such as a lack of liquidity.

Blend of smart beta factors

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1.2

1.4b

eta

GD

P

10

yrs

inte

rest

rat

es FX Oil

Co

nsu

me

rC

on

fid

ence

Mfg

PM

I

Serv

ices

PM

I

Ener

gy

Fin

anci

als

Shan

ghai

She

nzh

en

US

Stan

dar

diz

ed

exp

osu

re

Combination of rewarding investment styles – still not sufficient Unmanaged exposure to non rewarding risks can threaten outperformance

Investors risk piling on to overcrowded macro exposures or trades

Target range

un-managed risks

Establishing an exposure to the rewarding risks of investment styles means loading up also unrewarding risk factors,

such as interest rates risk, oil price risks, sector risks, policy risks, etc.

Portfolio with diversified exposures to investment styles but unmitigated exposures to non-rewarding risks

For illustrative purposes only

Source: Allianz Global Investors, Bloomberg

Summary

China has the potential to be to Emerging Markets what the US is presently to the global developed

equity markets

The depth and breadth of stocks in China provides a good testing ground for factor investors to test

their strategies

Many traditional investment styles can be harvested for risk premia in Chinese A-shares similar to the

experience in Developed Markets

China also opens up the opportunity to explore new factors like mean reversion as a means of

delivering excess returns

Diversification is the key to better risk-adjusted performance. Factors can be combined in various

ways to improve risk adjusted performance

Risk management is as important as ever for achieving stable outperformance over the long term

Disclaimer

This material is intended for the use of investment consultants and other institutional/professional investors only, and is not directed to the public or

individual retail investors. This material is provided for the personal use of the recipient or addressee who is reasonably believed to be within one of

the professional investor exemptions contained in the Securities and Futures Ordinance or “professional/qualified investors” in relevant jurisdiction for

information purposes only.

In this document, AllianzGI refers to individual companies that are ultimate subsidiaries of Allianz SE and operate under the AllianzGI brand,

including Allianz Global Investors Asia Pacific Limited. If you would like a complete list of such individual companies, please let us know.

Any form of publication, duplication, extraction, transmission and passing on of the contents of this material is impermissible and unauthorised. No

account has been taken of any person’s investment objectives, financial situation or particular needs when preparing this document. This is not an

offer to buy or sell, or a solicitation or incitement of offer to buy or sell, any particular security, strategy, investment product or services nor does this

constitute investment advice or recommendation. There is no assurance that any securities discussed herein will remain in the portfolio at the time

you receive this document. The views and opinions expressed in this document, which are subject to change without notice, are those of Allianz

Global Investors Asia Pacific Limited and/or its affiliated companies at the time of publication. While we believe that the information is correct at the

date of this presentation, no warranty of representation is given to this effect and no responsibility can be accepted by us to any intermediaries or end

users for any action taken on the basis of this information. Some of the information contained herein including any expression of opinion or forecast

has been obtained from or is based on sources believed by us to be reliable as at the date it is made, but is not guaranteed and we do not warrant

nor do we accept liability as to adequacy, accuracy, reliability or completeness of such information. The information is given on the understanding

that any person who acts upon it or otherwise changes his or her position in reliance thereon does so entirely at his or her own risk without liability on

our part. There is no guarantee that any investment strategies and processes discussed herein will be effective under all market conditions and

investors should evaluate their ability to invest for a long-term based on their individual risk profile especially during periods of downturn in the

market.

Investment involves risks, in particular, risks associated with investment in emerging and less developed markets. Any past performance, prediction,

projection or forecast is not indicative of future performance. Investors should not make any assumptions on the future on the basis of performance

information in this document. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations

and you may not get back the amount originally invested.

This material has not been reviewed by the Hong Kong Securities and Futures Commission. Issuer of this material: Allianz Global Investors Asia

Pacific Limited

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