Sino-Stockholm Syndrome in the Mutual Fund Patch

John Smith manages a mutual fund called Golden Dragon China Opportunities and he is based in both Beijing and Shanghai.  He has a team of more than 30 analysts who regularly meet with companies in all of China’s provinces and the average amount of experience between John and his people is 20 years.  John’s been running the fund for more than 10 years and it has grown to more than $5 billion in AUM.

The John Smith above, a fictional representation of your typical China-focused mutual fund manager, would appear to be the most knowledgeable, credible person on the outlook for Chinese stocks imaginable.  On paper.  When the producers at Bloomberg or CNBC are putting together a China segment, he is the guy they call (he’s an expert!).  But in truth, he is the most dangerous, unreliable and biased person you could ever listen to on the topic – he is captured by his quarry, enamored with his subject matter and essentially a cooperative hostage by virtue of his own financial interests.

I’ve done battle with emerging markets and China fund managers on TV before. Unfortunately they are never able to admit that the picture is darkening and that maybe it’s not such a great time to invest in China.  Equally unfortunate is the fact that I am not able to say “Hey, this asshole’s job is to find something constructive to say no matter what, that’s what he gets paid for.”  In early 2011, I debated the China growth outlook with the head of commodities for Barclays Bank on CNBC, the gist of my bearish remarks on copper was that China was actively tightening to fight a real estate bubble.  The gist of his bullish case was that Barclays was launching a copper ETN and that I should know my place.  You know what’s happened since then.

Last fall I watched a China fund manager on stage at a Bloomberg event in NYC quietly sit through Gary Shilling’s thesis that China’s growth was slowing and was probably overstated anyway.  He went point-by-point through his bearish outlook, hitting on demographics, bureaucratic corruption, weather trends, global trade realities and on and on.  He used data, real-life experiences and specific examples to make his case.

And when he was finished, the China fund manager simply said, “Yes but of course this is just your opinion.  In my opinion, everything will be fine and in fact, a slowdown is good for the country, it is the pause that refreshes.”  Her response was data-free and amounted to “bad-news-is-good-news because I want it to be.”

And this is essentially what China fund managers have to do. They are captured and biased and conflicted and in many cases brainwashed anyway.

Here’s Mark Mobius of Templeton in the New York Times today stretching with all his might for a datapoint that makes the China story seem alive and well like it used to be in the mid-aughts:

Some still express confidence in the official statistics. Mark Mobius, the executive chairman of Templeton Emerging Markets Group, cited the reported electricity figures when he expressed skepticism that the Chinese economy had real difficulties. “I don’t think the economic activity is that bad — just look at the electricity production,” he said.

But an economist with ties to the agency said that officials had begun making inquiries after detecting signs that electricity numbers may have been overstated.

Don’t worry, should the electricity stats come under scrutiny, Mobius will begin citing port traffic in Zhejiang province or the amount of frozen yogurt sold at the New South China Mall.

Mobius is merely one example of many, they all do this kind of thing.  And I am picking on the China fund managers only because the collapse there has been so obvious to so many for a while.  But we can say the same for all sector or geographically-focused managers.  Imagine the gold miner fund analyst coming on TV and saying “just buy the metal because these companies suck at life and will continue to underperform.”  It would never happen.

Instead, the mantra is “find something to like and a reason to like it, even if only on a relative basis.”  When that’s the underlying investment philosophy, failure is not only likely, it is practically an acceptable outcome.

No wonder the fund business is dying.







This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. lulusan sma pns commented on Jan 31

    … [Trackback]

    […] Information to that Topic: […]