Some Hedge Funds Don't Match China Gains

A recent drop in several Chinese-focused hedge funds could indicate poor fund management, according to Dow Jones Newswires.

Chinese-focused hedge funds have been reporting double-digit gains all year, with several up more than 100%. The 788 China Fund was up 104% through November and Golden China Fund was up 100% during the same period, while other China funds are up 30% or more, making Chinese stocks seem like a guaranteed money maker.

But a number of hedge funds tumbled last month when China stocks fell, raising questions about their stability.

The Golden China Fund lost 9.3% in November and the more recently launched Golden China Plus Fund dropped 12.9%, bringing its year-to-date return to 30% at the end of November.

In contrast, the Shanghai Composite Index had returns of 82% through November and the Hang Seng returned 43.5%. Savvy investors could have still made strong returns without paying hedge fund fees.

If an investor is only interested in long exposure to China's growth, they could invest in China exchange-traded funds like the iShares FTSE/Xinhua China 25 Index Fund (FXI) ETF, and skip the hedge funds and their heavy costs, said Veryan Allen, a hedge fund advisor who specializes in institutional investors in Japan.

"We can all make money when the sun is shining," Allen said. "If for whatever reason you think China's going up, you might as well go with the simplest and cheapest and most direct product."