Bets on consumer-related stocks and high-end manufacturers have helped Grace Lu vault to the top ranks of China-focused hedge fund managers this year, bucking industry-wide losses.

Lu, who runs the $85 million GH China Century Fund at Singapore-based Lygh Capital, said she is up 12.6 percent this year through August. That's the second-best performance among China-focused long-short equity funds, according to Eurekahedge.

Funds investing in China lost 1.6 percent through August, Eurekahedge said in a report, as the Shanghai Composite Index has fallen 15 percent this year.

Lu said her top picks among consumer-related stocks include Red Star Macalline Group Corp, a Hong Kong-listed operator of furniture malls, and carmaker Guangzhou Automobile Group Co.

Among manufacturers, she likes Best Pacific International Holdings Ltd, which supplies fabrics to lingerie makers including Victoria's Secret and Wacoal, and glassware producer Fuyao Glass Industry Group Co Ltd.

"The broader market is still muddling along," Lu said in an interview. "But the consumer sector is still performing quite well. You can see that there are still companies where the products sell very well."

Guangzhou Automobile shares have risen 55 percent this year, Best Pacific has rallied 83 percent, and Fuyao Glass is up 12 percent. After falling 20 percent this year, Red Star Macalline is trading at 5.3 times earnings, according to data compiled by Bloomberg, making it "very very cheap", Lu said.

She is also on the lookout for firms benefiting from consolidation in industries not dominated by China's State-owned enterprises.

"SOEs don't mind losing money, because they're not losing their own money," she said. "That's why consolidation is extremely difficult in SOE-dominated sectors like steel or coal."

Smaller industries dominated by private companies have more potential for consolidation, and investors can bet on the winners gaining market share, Lu said. Private companies exit markets when they don't see the possibility of regaining profitability, she said.

One firm that has benefited is Tianneng Power International Ltd, a supplier of batteries for low-speed electric vehicles in China. The industry has been culled from more than 1,000 battery manufacturers to less than 100, and the top two control 80 percent of the market, Lu said.

Tianneng last year said it's expanding production capacity to meet surging demand. Analysts forecast sales of 21 billion yuan ($3.2 billion), more than double the amount four years earlier, according to data compiled by Bloomberg. Its shares have gained 7.2 percent this year.

The consolidation theme also plays out among container-board makers, where Nine Dragons Paper Holdings Ltd and Lee & Man Paper Manufacturing Ltd, which makes linerboard, are set to benefit, Lu said. Nine Dragons shares have surged 50 percent this year, while Lee & Man is up 61 percent.

The fund had more than 50 percent of its assets in cash in December, helping it dodge the worst of the market turmoil in January and February, Lu said. She declined to give her current cash position.