BEIJING, Nov. 13 -- Mutual funds operated by overseas institutions to invest in yuan-backed securities beat their Chinese counterparts last month as many heavyweight stocks staged impressive gains, an industry report said over the weekend.

    The average return on investment hit 4.90 percent in October for 11 funds managed by overseas financial firms under the Qualified Foreign Institutional Investor (QFII) scheme, said Lipper, a Reuters fund-research unit, in a monthly report.

    That compared with a 3.67 percent return for equity-invested funds operated by domestic money managers, the report said. China's yuan-denominated securities are open to domestic investors and QFIIs, which trade on behalf of overseas clients via mutual funds.

    "Compared with domestic funds, QFII products tend to focus more on blue chips and under-valued shares," Zhou Liang, Lipper's China researcher, said in the report. "The market spotlight's shift (to large-cap firms) helped QFIIs catch up with local fund firms."

    China's benchmark Shanghai Composite Index rose 4.90 percent last month, extending its year-to-date climb to 62.2 percent. The SSE 50 Index, which covers the bourse's top 50 listed firms by market value, added 6.99 percent for the month ended Oct. 31.

    The cumulative investment return for QFII funds amounted to 23.11 percent for the past six months, still 2.15 percentage points shy of the figure for domestic equity funds, the report said.

    Lipper advised investors that they should keep an eye on local closed-end funds, which are traded at a nearly 24 percent discount to the value of the assets they hold.

    The research company recommended that investors hold on to the closed-end funds until they turn out hefty dividends by the first half of next year. Closed-end funds are funds that have a limited number of units and can be traded on the stock exchanges.

    Foreign investors should look for funds that invest in China's foreign-currency stock, or B shares, the report said.

    China's B shares, open to both local and foreign investors, are traded at levels more than 60 percent lower than A shares, a valuation that is worth investment, the report said.

    (Source: Shanghai Daily)