Track and thematic stocks have high valuations; public funds are shifting toward undervalued assets.

Securities Times Reporter An Zhongwen

Against the backdrop of popular sectors and crowded stocks gradually facing valuation pressures, public fund allocation strategies are shifting from sector beta trends to alpha.

As market profit effects emerge, fund crowding stocks are now facing performance tests after high valuations. Fund preferences are shifting from industry stories to actual performance realization, with the beta trend driven by sectors and themes gradually receding. Many fund managers are beginning to avoid high-positioning crowded stocks and are turning to deep-dive alpha opportunities in undervalued, low-coverage stocks with solid fundamentals.

Fund Theme Investing Boosts Valuations

Since the beginning of this year, active equity funds have continued to show strong profit effects. Leveraging high-growth and high-elasticity tech stocks, public offerings have generally achieved good returns early in the year. Wind data shows that in less than three months since the start of the year, the top ten active equity funds have returns between 30% and 60%. Among them, Western Lide Fund ranks in the top three for performance, with Western Lide New Power returning about 58% year-to-date, Western Lide Strategy Select about 57%, and Western Lide Industry Theme Fund about 52%. Other public funds include GF Vision Smart Choice Fund with approximately 51%, Ping An Xin’an Hybrid around 45%, and Yinhua Tongli Selected Fund about 44%.

While performance has been impressive, many heavily held stocks in these products show signs of institutional crowding and overvaluation. Analysis of the top 30 market-wide funds indicates significant homogeneity in their holdings, with most holding similar stocks—“you have it, I have it, everyone has it”—with little variation in product features or preferences. Industry insiders believe that once market sentiment or crowding expectations shift slightly, it can trigger sharp stock price fluctuations, affecting fund net value stability.

Additionally, focusing on hot themes and thematic investments is also a key profit driver for many funds. However, emotion-driven thematic investments, after valuation surges, quickly expose risk exposure.

The Securities Times reporter notes that many funds’ crowded stocks exhibit conceptual and thematic features, with stock prices soaring without fundamental support. For example, Wanze Co., Ltd. (000534), a traditional pharmaceutical company specializing in intestinal probiotics, has become a commercial space concept stock due to its high-temperature alloy business, accounting for about 21% of revenue, and is heavily held by several large public funds. Wanze’s stock price has doubled this year, with market value recently surpassing 20 billion yuan, outpacing some A-share companies specializing in high-temperature alloys.

Public Funds Begin to Focus on Undervalued Stocks

Recent public fund research and holdings also reflect a strategic shift from beta to alpha.

Securities Times reporter notes that relatively stable, moderate-elasticity stocks have become key research targets for many fund companies. For example, GF Fund researched Haixin Food (002702) on March 11; Nuoya Fund researched Furu Jia on the same day; Penghua Fund researched small home appliance leader Whirlpool (600983) on March 10; Rongtong Fund researched Xiangpiaopiao (603711) on March 4; and Penghua Fund, Ping An Fund, Huashang Fund have all researched companies like Aidite and Hals (002615). These companies are generally characterized by low institutional crowding and low market attention, mainly in consumer sectors.

Take Aidite, a leading oral medical aesthetic materials company, as an example. By the end of December 2025, only two active equity funds had it among their top ten holdings. Its low institutional attention might actually be an important trigger for stock price increases. Since the start of 2026, amid increased volatility in tech stocks, Aidite has shown an independent trend, with its stock price rising 103% in less than three months.

Similar situations are seen in several undervalued Hong Kong stocks, including Jiangnan Biyu, Quanfeng Holdings, IFBH, Bruker, and Dashi Shares. These stocks generally have low institutional holdings or are at the bottom of industry cycles, leading to extreme valuation compression. Some high-quality stocks are only among the top ten holdings of a single fund. For example, by the end of 2025, only one mini product under Green Fund held Quanfeng Holdings, a leader in electric lawnmowers; Dashi Shares, which has expanded its pizza stores, is only among the top ten holdings of Penghua Fund; and emerging consumer stock IFBH, which specializes in coconut water, has only a few funds tentatively holding it.

A GF Fund representative stated, “Funds should avoid chasing high valuations in overheated markets, but also avoid hesitation at cycle bottoms. Only by detaching from emotional influences and thoroughly researching industry logic, cycles, and company value can they seize high-quality opportunities.”

Fund Managers Focus on Stock-Level Alpha

In the context of increasing difficulty in industry theme investing, many public fund professionals emphasize strengthening individual stock alpha strategies in 2026.

Ping An Asset Management investment manager Che Qiang said at the Ping An Fund 2026 strategy meeting that stock investment in 2026 should pay more attention to fundamentals-driven opportunities, as the beta trend of recent years may gradually fade, making alpha capture more critical. Increasing global uncertainties are elevating market risk premiums, which will put downward pressure on valuations of high-elasticity stocks lacking earnings support.

Great Wall Quality Growth Fund manager Zhang Jian believes that stock selection in 2026 should focus on attractive, undervalued, stable stocks. He predicts that rising crude oil prices and concerns over inflation expectations will reduce risk appetite. Looking at the year ahead, he favors: first, low-valuation, stable stocks across industries. The rapid development of AI and geopolitical conflicts overseas have increased asset volatility, and low-valuation, stable assets may have slower or slightly declining performance but higher long-term return potential. Second, domestic consumption. Under economic recovery, some leading companies have resilient fundamentals and even growth potential, which could strengthen further through cost reduction and efficiency improvements.

“Currently, we need to abandon the generalized AI concept layout and focus on performance certainty and industry resilience,” said Wei Fengchun, chief economist and fund manager at Chuangjin Hexin Fund. He also believes that the differentiation among tech stocks will continue to deepen. Companies with full-stack AI deployment and energy-efficient enterprises will continue to benefit from technological cycles and industry upgrades, while high-energy-consuming, unprofitable, and lacking core technology stocks will gradually be phased out. High-quality tech companies with core technologies and sustained earnings will become key long-term investment targets.