Events in the mainland and the United States have been having a major impact on the performance of markets all over the world. Despite the recent turbulence, however, most funds - both equity and fixed income - finished last year up. The First State Hong Kong Growth Fund achieved a return of 55.1 per cent last year. It had a three-year average return of 34.3 per cent and a five-year average of 40.7 per cent. 'The market environment last year and early this year was driven by two factors,' said Scott Cooley, chief financial officer of Morningstar in Chicago, the United States. 'One was how much exposure direct and indirect you had to China. Even in markets far from China - America and Europe - you saw coal, energy and basic materials companies benefiting from China. China has been driving events even in distant markets.' The second issue determining a fund's performance last year was how much exposure it had to the subprime problems in the world's largest economy. 'Again, how much of that exposure you had affected countries around the world,' Mr Cooley said. 'European bank UBS was seriously affected by the subprime problem. Some of the fund managers that did well last year benefited from the rise of China and avoided the subprime crisis in the United States.' Equity funds and fixed income funds posted positive returns last year despite the turbulence that marked the last two quarters. Overall, 88.04 per cent of funds posted positive returns against 11.96 per cent, which posted negative returns. 'The M&G Global Basics Fund had exposure to energy and basic materials, and performed exceptionally well. Another example, on the fixed income side, was M&G Pimco, which invests in bonds that completely avoided some of the subprime problems that hit some of the other fixed income managers.' The Morningstar Awards are held each year. They were established to recognise funds and fund groups that have outperformed their peers - over the previous year and over the long haul. Accessibility to retail investors, management team stability, fundamental risks and a consistent investment strategy are all part of the selection criteria. 'The intent of the awards is to highlight the funds that have performed well over the short term and the long term,' Mr Cooley said. 'The other key criteria are that risk is taken into account and there is a qualitative overlay.' Morningstar combines quantitative and qualitative selection criteria. A quantitative scoring system is used to score the fund, with points awarded based on its return, which accounts for 70 per cent of the total score, and risk, which accounts for the remainder. After that, the top 10 funds in each category are reviewed by qualitative research analysts. 'An example of this is a fund can have performance numbers and look good over the short term and the long term, but if the investment team walked out last week we would not give them an award,' Mr Cooley said. 'So the bottom line is that the funds that win an award have to pass a lot of qualitative and quantitative screens.' To be eligible, funds need to be available for sale in Hong Kong and have a five-year performance history. Categories are equities and fixed interest. Equities include global, Europe, North America, emerging markets, Asia-Pacific including Japan, Asia-Pacific ex-Japan and Greater China, and Greater China. Fixed income funds include dollar bond, non-dollar bond, high-yield bond, Asia bond and emerging-market bond.