As the fiscal quarter comes to a close, public mutual funds have unveiled their latest performance reports and investment tendenciesThe landscape reveals an interesting reality characterized by the terms "underperforming the market" and "portfolio adjustment and collaboration," which have become synonymous with the first quarter of this fiscal year.
As of March 31, 2023, public mutual funds held A-shares of 5.74 trillion yuan, accounting for 7.99% of the circulating value of A-sharesThis figure is notably higher than foreign investments, private equity, and insurance, positioning public funds as the leading institutional investors in A-shares.
The profitability of public mutual funds primarily stems from management fees, with larger management scales naturally leading to higher earningsDuring the first quarter, the net profits of public equity funds and mixed funds reached 113.89 billion yuan and 93.60 billion yuan, respectively, indicating substantial profitability for these institutions.
While fund companies reaped significant profits, customer returns have not demonstrated similar successAccording to data from iFinD, the average return for equity funds was 5.25%, with a median of 3.75%, while mixed funds had an average of 2.52% and a median return of 1.72%.
Comparatively, the Shanghai Composite Index rose by 5.94% in the first quarter, and the Shenzhen index surged by 6.45%. Essentially, this implies that most equity funds failed to outperform the market since the beginning of the year, which caught many investors off guard.
The underwhelming performance of these funds can be partially attributed to the extreme fluctuations seen in the market conditions
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Though the major indices demonstrated overall positive performance, significant disparities existed among different sectors.
On one side, sectors like TMT, driven by AI advancements, soared due to an influx of favorable newsConversely, traditional blue-chip sectors represented by the "Mao Index" and the new economy "Ning Composition" faltered, leaving well-known blue-chip indices still bearing the consequences of prior market exuberance.
Among the heavy hitters in public funds, prominent positions were held largely in traditional blue-chip stocks, primarily represented by the "Mao Index" and "Ning Composition." For instance, Kweichow Moutai topped the charts with a holding value of 150.83 billion yuan, while Contemporary Amperex Technology secured its place as the second-largest holding at 113.70 billion yuan, with over 1,000 public funds invested in these firms.
The failure of funds to align with market hotspots led to a majority of public mutual funds falling short in the performance race against the market.
Notably, among the titans of the mutual fund industry, the biggest winner in the first quarter was Cai Song Song, who actively invested in the semiconductor sectorHis five managed funds each garnered returns exceeding 14%, with the "Nuoan Active Return" achieving almost a remarkable 50% return for the quarter, topping the list among actively managed equity funds.
Besides Cai, most of the top-performing funds in the first quarter significantly focused on technology-related industries such as TMT, while the bottom-performing funds primarily concentrated on manufacturing sectors such as new energy.
Data highlights that the fastest-growing fund in terms of net value in the first quarter was the Huaxia Fund's gaming ETF, which saw a near 60% ascent, leading the market
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In stark contrast, the GF Advanced Manufacturing C found itself witnessing a decline of 15.16%, marking the lowest performanceThe disparity between the top and bottom performers stands at a staggering 74.99%.
The extreme differentiation in market performance has led to a similar divergence among equity fundsChoosing the correct track translates to a bull market, while the wrong gamble leads to a bearish scenario.
Reflecting on "portfolio adjustments and collaborative strategies," firms facing market divergence have intuitively opted for significant repositioning, particularly rallying around AI resources.
In an area where funds previously showed hesitation, the sentiment now can be summarized as: "Not buying AI equals stagnation, chasing AI leads to potential lossEither way could lead to poor outcomes, so why not take a chance?" This epitomizes the current narrative in the mutual fund landscape.
Furthermore, according to research from Shenwan, the quantity of TMT-centric funds in February was merely 45, skyrocketing to over 300 by March, marking an almost sevenfold increaseAs of March 31, 2023, actively managed stock funds invested a staggering 470.7 billion yuan in TMT sector stocks, amplifying their holdings by 116.3 billion yuan in the first quarter.
In parallel, funds heavily investing in new energy have seen a contrasting trendThe count of such funds plummeted from nearly 300 at the year's commencement to less than 150 by early April, with total investment falling from 380 billion yuan to 223.3 billion yuan.
Even established star fund managers cannot ignore the prevailing market trends
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For instance, Zhang Kun's E Fund, renowned for its focus on blue-chip investments, has broadened its horizons to include prominent tech stocks including TSMC and Meituan in AI engagements.
Xie Zhiyu's Xingquan Helon Fund also integrated emerging AI players like Lanke Technology and Jingchen Shares into its top ten holdings by the end of the quarter.
Amidst the shifts in public fund allocations, the AI concept stock that attracted the most new funds was Kingsoft Office, which debuted on the Sci-Tech Innovation BoardThis particular stock saw its presence grow from 301 funds at the year's end to a total of 614 funds holding shares by the end of the first quarter.
Kingsoft Office became the only AI concept stock to make the list of the top ten holdings among public mutual funds, marking its first appearance in over three years.
Despite the significant gains witnessed within the AI and tech sectors, adjustments within public funds appear to have only begun.
Calculations from Haitong Securities indicate that by the first quarter of 2023, the proportion of technology stocks within fund allocations rose by 5.5%, with a 4.1% over-allocation compared to the weight in the CSI 300.
Yet, this remains at the 10% percentile of the last decade.
Historically, significant shifts in public fund allocations often persist over four quarters
For example, alterations from real estate to TMT between 2012 and 2013, from TMT to alcoholic beverages from 2016 to 2017, and from alcoholic beverages to new energy industries from 2020 to 2021.
In light of current market trends, several manufacturing and consumption funds have neglected industry signs and begun to pivot towards AI investments.
For instance, the Hui Tian Fu Emerging Consumption A fund, which previously emphasized companies within the liquor and beauty sectors, pivoted during the first quarter to flexibly lean towards TMT concepts, with two of its top three holdings constituting media and gaming companies.
A more extreme case was the Haitong Advanced Manufacturing A fund, which changed almost all of its top ten holdings to newly embrace AI concepts from its original focus on new energy.
In realities where industry styles consistently rotate, instances of mutual fund style drift to align with short-term performance metrics and expand managed scope have become commonplace.
For example, in 2021, several education and internet-themed funds dramatically redirected their investments towards the emerging semiconductor sector; by the end of 2022, various entertainment-focused funds included shares of automotive and TMT companies while reporting negligible investments in their key sectors.
While cross-industry fund reallocations towards AI are arguably a strategic move, the shift in thematic funds can arguably border on disingenuous
Such a short-sighted approach often lacks patience and the spirit of contractual commitment, making it challenging to achieve long-term success.
This concern arises since no one can foresee when market trends will take an unexpected turn.
Amidst the soaring trend of AI, some fund managers remain true to their fundamentals and patiently wait for the cyclical nature of markets to present opportunities anew.
Take, for instance, Zhang Kun's flagship fund, E Fund Blue Chip Selection, which staunchly maintains its investments in traditional sectors such as liquor, while Ge Lan’s primary fund, China Europe Medical Health, remains focused on the innovative drug supply chain.
Compared to AI and tech sectors, traditional industries like consumption and pharmaceuticals are unlikely to become immediate market darlingsHowever, companies within these sectors boast unique advantages for "sustainable growth," with their consistent performance showcasing a practical growth narrativeOnce extended over time, their performance-driven bullish trends will still stand as a vibrant landscape within the capital market.
In light of the first quarter, many funds successfully jettisoned their new energy stocks, while others opted to persevere.
One notable example is Liu Gesong's Guangfa Small Cap Growth Fund, renowned for its new energy investments, which comprised eight new energy stocks among its top ten holdings by the end of the first quarter
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