How can global equity investors capitalize on the second largest—and one of the fastest growing—economies in the world?

The AC ONE China Fund (ticker symbol ACOIX), established in 2012, offers U.S. investors the ability to invest in China’s technological innovations and growing consumer middle class through investments in publicly-traded Chinese stocks.

Management patiently focuses on creating long term alpha for investors—not short-term results—and looks to outperform its benchmark in up markets, and to protect assets when the market trends downward.

The AC ONE China Fund is managed by AC ONE Asset Management, majority owned by Chelsea Management Company—an experienced global asset manager, providing asset management services and independent investment counsel for institutional and individual investors with a strategic and thematic viewpoint. The firm was founded in 1971 and has approximately $600 million in asset under management.

Why China?

We believe in the long-term economic growth of China. Here are six reasons why investors looking to diversify their global investment portfolio should consider investing in the growth potential of China:

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Growth of the Chinese middle class.

With an estimated population of 1.4 billion—and a middle class that makes up about 35% of the population—there remains ample room for grow of industries serving the middle class, even as growth rates moderate as the economy matures. The long-term growth potential could prove similar to that of the US during the 20 th century.

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Sector Diversity.

Being at an earlier stage of development, China can provide North American investors diversity well beyond simple geography.  Mature industries, characterized by high volumes, slow growth and low margins can be unattractive investments within mature economies.  But, in less mature economies, such as China, these market sectors, still in their build-out phase, can appeal to investors.

Steel, auto manufacturing, airlines and many retail sectors can offer much stronger growth and margins than in China than available in developed markets.  Thus, the AC ONE China Fund can diversify North American investors into sector they may find unattractive domestically.

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Increased foreign direct investment.

While today’s tariff issues may continue to prove problematic, China has clearly stated its intention to open its financial markets to more foreign investment. Very recently, Premier Li Keqiang said, “We are quickening the full opening of market access for foreign investors in banking, securities and insurance sectors,” In response to real reforms related to liquidity, transparency and reporting standards, index provider, MSCI will quadruple the weighting of Chinese mainland shares within its global benchmarks over the coming year or so.

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Broad-based innovation initiatives.

Technological innovation in manufacturing, services, and human capital is central to China’s economic and development ambitions. The Chinese government has sought to increase its current global leadership in e-commerce, smartphones, electric batteries and medical technologies, among others. As an example, in 2018, almost 600 million people used mobile payment in China. In the fourth quarter, mobile payment volume reached $7.01 trillion. These sort of sweeping innovations, can have long term, positive investment implications for Chinese equities.

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China’s central role within the world economy.

As of December 31, 2018, China was the second largest economy in size, and has had the strongest economic growth over the past four decades. At the end of 2018, 120 Chinese companies are represented in the Fortune Global 500—only six fewer than the United States. In recognition of China’s central role, Standard & Poor’s, MSCI and FTSE have all announced significant increased allocations to China for their global indices.

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Relatively high historical growth rates.

Despite the Chinese economy’s recent relative slowdown, the country’s 6.8% average GDP growth rate for the 10-years ended 2018 was more than triple the 1.8% GDP growth of the U. S economy, according to the National Bureau of Statistics of China and the U.S. Bureau of Labor Statistics. The International Monetary Fund predicts that China’s GDP may overtake the United States by 2030.

Problems persist, of course. Historically, immature market infrastructure, loose accounting standards, uneven oversight and inconsistent messaging has dampened potential investor demand for Chinese equities and fixed income. Limited opportunities for lending and borrowing of securities, hedging and derivatives reduces the efficiency of ETF. But present valuations reflect this relative risk and as China opens its markets, this discount to China’s international peers could well dissipate.

We believe that China will continue to evolve into a full member of the world’s developed economy, and that this growth opportunity can benefit the long-term investor. While all economies experience downturns and retrenchments, there is great opportunity to invest into new industries and technologies brought to the forefront in times of economic change.

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