Survival samples from the fund industry under K-shaped differentiation

◎Reporter Wang Peng, Chen Yue

In a differentiated market environment, fund products are also facing different situations: on one side, top-performing funds themed around technology growth are seeing soaring popularity, with frequent purchase limits; on the other side, newly launched funds in traditional sectors such as consumption are being met with a slump, forcing multiple institutions to extend the fundraising period.

How long will this “K-shaped” divergence continue? After the market’s differentiation, will it move toward convergence? In response, institutional players are also left puzzled. However, the increasingly frequent actions taken against the tide themselves signal something.

Song of Ice and Fire

Recently, a batch of top-performing funds has released purchase-limit announcements in close succession.

On June 26, Cathay Fund announced pause or large-amount purchase limits for multiple of its products. Among them, Cathay Artisan Select One-Year Holding Period Hybrid and Cathay Prosperity Select One-Year Holding Period Hybrid have, effective June 26, been paused for subscription, regular fixed-amount investment, and conversion-in business. The purchase-limit amount for Cathay Growth Select Hybrid and Cathay Integrated Circuit Industry Stock has been lowered from the previous 500 yuan to 100 yuan. Data from Choice shows that as of July 3, the net asset value gains over the past year for the above funds are all above 400%.

On June 25, E Fund announced that the purchase-limit amount for its E Fund Information Industry Hybrid and E Fund Information Industry Select Stock has been lowered to 10k yuan. On the same day, Fosun Fund announced that Fosun Innovative Technology, effective June 26, will pause accepting subscription, conversion-in, and regular fixed investment applications from a single fund account for a single fund share exceeding 100k yuan. As of July 3, the net asset value gains over the past year for these three funds are all above 200%.

According to statistics: as of July 3, among actively managed equity funds with net asset value gains over the past year exceeding 100%, nearly one fifth have either paused subscriptions or paused large-amount subscriptions; among actively managed equity funds with net asset value gains over the past year exceeding 200%, nearly two fifth have either paused subscriptions or paused large-amount subscriptions. From the latest disclosed holdings, most of the funds with outstanding performance have large positions in sectors such as artificial intelligence and semiconductors.

Meanwhile, consumption-themed funds and other traditional-sector thematic funds have fallen into an issuance “ice point.” According to statistics, since the beginning of this year, there have been only 16 newly issued funds with the word “consumption” in their names, with an average fundraising size of just 228 million yuan.

To ease pressure from fundraising falling short of expectations, many fund companies have extended product fundraising periods. For example: a large fund company in Shanghai had a consumption-themed product originally scheduled to raise from June 5 to June 30; on June 30, the company announced extending the fundraising period to September 4. Another large fund company in Beijing had a consumption-themed fund originally scheduled to raise from June 1 to June 26; on June 26, it announced extending the fundraising period to July 24.

Convergence within Divergence

Different circumstances for fund products are a reflection of the market’s “K-shaped” divergence.

Data from Choice shows that as of July 3, the year-to-date gains of the Shenwan Electronics and Shenwan Communications indices are 68.2% and 54.5% respectively, ranking top two among 31 Shenwan first-level industry index benchmarks. In the same period, the Shenwan Commerce and Retail index fell 27.44%, ranking last; the Shenwan Food and Beverage index also dropped 18.56%.

A fund manager focusing on cyclical sectors said that in April, after cyclical sectors pulled back to key levels, they showed a certain resilience; changes in fundamentals even at the stage level could trigger positive feedback, and the portfolio’s net asset value performance was steady at the time. But as AI technology continues to receive large-scale capital expenditure, along with industrial orders expanding, valuation estimates appear to offer extremely high cost-effectiveness, and capital has accelerated toward the technology sector. This “siphoning effect” was further strengthened after May.

“From the standpoint of pricing based on fundamentals, the market has shown a clear deviation, but the real challenge is that the turning point cannot be predicted. Based on the judgment of ‘technology being too crowded in trading and cycles having oversold rebound momentum,’ I reduced holdings in technology upstream materials in the second week of May and shifted positions toward cyclical sectors. The original intention was to set up a mean-reversion strategy; the result was that the technology sector kept rallying and the cyclical sector kept hitting lows, so the return gap was widened further,” the fund manager said.

Although the technology track has been hot, some institutions have already moved first to manage high-level risks, initiating contrarian positioning or reducing exposure.

A research report from Huatai Securities shows that in the first quarter, publicly offered funds’ allocation to the consumption sector was not much. However, longer-term capital represented by insurance funds and social security funds is becoming a marginal buyer of consumption, mainly adding positions in areas such as liquor, home appliances, and pharmaceuticals (especially medical devices). This “reverse allocation” approach clearly places emphasis on the consumption sector’s cost-effectiveness, low valuations, dividend and yield characteristics.

“A few years of operations, our company’s products have performed well because they are heavily positioned in the technology growth sector. However, as the relevant underlying assets have accumulated relatively large gains, the company has become more cautious. At present, the company’s products have already reduced exposure to the technology sector across the board,” said a relevant person at a fund company in Shanghai.

Multiple Main Lines in Parallel

Regarding the market outlook for the second half of the year, publicly offered fund companies generally believe that extreme divergence market conditions are unlikely to persist, and style will also likely not show an extreme switch. In all likelihood, the market will move toward a structurally balanced pattern with multiple main lines running in parallel, where both technology growth and traditional consumption will have opportunities for phased investment.

Technology is still the “favorite” of many institutions. Cheng Xi, a fund manager at E Fund, said that trading crowding and profit-taking are the main reasons for the recent adjustment. Adjustments in overseas markets come from sentiment disturbances and do not affect the fundamental outlook of domestic semiconductor equipment. “After the index falls, the valuations of some popular sectors also decline at the same time—this is a benign adjustment. We should seize opportunities brought by market sentiment volatility rather than being led off course by sentiment. In fact, recently, orders for domestic semiconductor equipment materials are still being revised upward, and we expect that in the second half, prices in some fields will continue to rise,” Cheng Xi said.

Guotai Fund believes that in the second half, the technology growth sector will still have good opportunities, and the market may show an expansion trend. Although valuations in parts of the technology sector are currently at high levels, from a medium-to-long-term perspective, macro and industrial logic remains solid. AI is moving from “thematic concepts” toward “performance validation.” Orders for hardware links such as optical communications and storage are full, and the semiconductor industry’s cyclical upturn remains upward. The biggest feature of the technology market in the second half may be going from false to true, retaining what is real while eliminating the less so, along with internal rotation.

In terms of the consumption sector, performance has remained persistently weak over the past year, but many institutions still keep a high level of attention.

“In the second half, there will not be an extreme style switch of ‘technology completely turning to traditional sectors.’ It may evolve from extreme differentiation along a single technology main line into a structure with multiple main lines in parallel and a flourishing of multiple sectors, ultimately evolving into a broader uptrend market,” said BOC- BOC Fund.

BOC Fund believes that the consumption sector—especially the new consumption space—has gradually developed three bottoming features in terms of valuation, institutional holdings, and market sentiment. Signs of improvement in fundamentals in some sub-sectors are also beginning to show. In a market where the technology main line continues to dominate, the trading activity of the consumption sector and investors’ expectations are both at a stage-level low. The market’s level of pessimism about consumption is deep. This kind of gloom is a typical feature of a sentiment bottom, and it also implies that once positive fundamental signals appear later on, the upside elasticity of sentiment repair will be relatively large.

Li Ru Hong, fund manager of Tong Ling New Consumption Fund, said that although excellent consumption companies are distributed across different industries, many share commonalities: a moat and pricing power stemming from business models, and the stability of sustainable operations; they make relatively low capital expenditures, enabling them to continuously repurchase and pay dividends. “Differences in business-cycle conditions are not the only factor determining market performance. Moreover, consumption itself also has changes in its business-cycle phases. What we need to do is to find outstanding consumption targets and hold them with conviction,” Li Ru Hong said.

(Editor: Xu Nan Nan)

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