SHANGHAI, July 10 - As Chinese individualsscramble into the country's boiling stock market throughlong-only mutual funds, a newly-launched fund index shows howinvestment marathoners with risk-hedging tools can win out inChina's roller-coaster markets. Yanlian China Hedged Fund Index, which tracks 50 Chineseinvestment funds with hedging strategies, generated anannualized return of 11.5% over the past five years, comparedwith an annualized loss of 4% for the CSI300benchmark. "I have witnessed several cycles of bull and bear markets,"said Liu Wencai, founder of Shanghai-based risk-managementconsultancy D-Union, which launched the index. "In every bull market, people rush in, only to be trappedwhen the market turns bearish," said Liu, who describes China'scurrent bull as a liquidity-driven "water buffalo". The CSI300 jumped to five-year highs this week, also boostedby government support, capital reform hopes and signs ofeconomic recovery. BofA said investors poured the most cash intoChina funds since July 2015. However, fears are growing of a repeat of the 2015-16 bubblethat saw the benchmark Shanghai index fall more than 40%from its peak in just a few weeks. A growing number of long-only mutual funds have startedrestricting inflows. The Yanlian index, which tracks 20 mutual funds, and 30private funds, could potentially provide a tool for investorsseeking relatively stable returns in a low-yield environment. The funds tracked by the index use derivatives such as stockindex futures or options to hedge risks and iron out excessivefluctuations. It could also help overseas investors navigate China'scrowded fund market as regulators are expected soon to allowqualified foreign institutions to directly invest in localprivate securities funds. Another impetus for risk-hedging is China's ongoing campaignto bar asset managers from guaranteeing to protect investors'principal. REUTERS
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