Assessment of Chinese green funds: Performance and industry allocation

Facing the challenge of resource and environmental constraints, China has been adopted green development as the national strategy for pursuing sustainable long-term target at the stage of rapid industrialization, which naturally promotes green finance. The considerable growth in green investment within China has motivated intense debate on the implications of incorporating financial performance and green criteria into the portfolio selection process. However, few literature studies newly-emerged green funds' performance. This article tackles the financial performance of China green funds as well as analyzing the allocation difference across industries of green funds. We find that the performance of China green funds is sensitive to the market factor, small cap and value stocks for the full period. In contrast, after entering the new normal period, China green funds have not been sensitive to the market index, only to value stocks. Green funds play an important role in supporting the main direction of Chinese industrial restructuring and upgrading for the purpose of gaining new competitiveness in the markets. The study finds also that green funds exhibit different industry betas consistent with different portfolio positions. At the individual fund level, green funds have a high weight on manufacturing industries, which shows that China green funds have a characteristic of industry concentration instead of diversification; and steadily confirms that green funds' industry preference has a positive correlation with innovation indicators, indicating that innovation and R&D activities of enterprises are driving the new economy. Especially, the percentage of new intelligent manufacturing has an increasing trend in the new normal. Our findings suggest that green funds can work as a financial power to promote green technological innovation for industries, and to benefit small and medium-sized enterprises with new smart and green technologies.