In the midst of ongoing fluctuations within the A-share market, the behavior of fund managers, particularly those in charge of recently established funds, illuminates the complex dynamics of investment strategiesAs they navigate the uncertain waters of market volatility, it has become evident that opinions on entry timing and position sizing diverge significantly among fund managersVarious newly launched active equity funds have shown notable changes in their net asset values, reflecting the diverse approaches being adopted.
Some funds are operating with high exposure levelsFor instance, the Galaxy Technology Growth Fund, which commenced on December 27, experienced a decline of 0.58% just a week after its inception; however, by January 17, 2023, the fund had rebounded to a rise of 3.24%. Similarly, the Ruiyuan Hong Kong Stock Connect Core Value Fund, also established at the end of December, has showcased more significant fluctuations in its net value, currently witnessing a drop of around 3.25%. This raises questions about the overall market sentiment as fund managers elevate the exposure of a fund valued at 1.18 billion yuan within such a short timeframe.
In the period following a significant market surge on September 24, the A-share market has seen a subsequent pullback, leading to many newly established funds struggling to achieve positive net values amidst this consolidation
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Achieving excess returns in such an environment proves challengingYet, some funds have defied this trend, recording double-digit gainsAn example is the Yongying Technology Intelligence Selection Fund, which boasts a remarkable increase of 14.84%. The fund manager defines the technology theme to encompass companies involved in various sectors, including next-generation information technology, semiconductors, integrated circuits, artificial intelligence, big data, and cloud computing among othersMoreover, it also pays attention to sectors like high-end equipment and new materials.
Another noteworthy performer is the Huafu Semiconductor Industry Fund, which has reported an increase of approximately 4.7%. Both of these funds have aligned their investment strategies in the semiconductor sector, one of the few areas that have managed to yield positive returns in the wake of the market's recent downturn.
Conversely, several thematic funds, such as the Anxin Pharmaceutical Innovation and Great Wall Pharmaceutical Industry Selected Funds, launched in October, have taken a cautious approach by targeting pharmaceutical stocks at lower price levels
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However, this sector has yet to exhibit signs of recovery, leading to noticeable pullbacks in net values after rapid position escalations.
In stark contrast to the more aggressive strategies, there are those who prefer a tempered entrance into the marketDespite a resurgence in market sentiment after late September, new entrants like the Bank of China ESG Theme Fund, established at the end of October, have reported negligible changes in their net valuesA similar pattern can be observed in the Hua’an Prosperity Fund, which has only increased by 0.27 since its September launch.
The Zheshang Huijun Dividend Opportunity Fund has also encountered minimal fluctuations since its inceptionFund manager Zhou Wenchao commented in a report regarding another fund he oversees that during the market downturn in September, reducing positions was necessaryHe noted a perceived turning point in the market post-September 24, leading to a gradual increase in equity positions with an emphasis on high-quality dividend-paying companies within the consumer, pharmaceutical, and media sectors
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The final week before the holiday saw the market unexpectedly surge, with heightened investor enthusiasmHowever, he has chosen to take profits on some of the best-performing stocks to also decrease exposure heading into the holiday.
Analysis shows that Zhou Wenchao’s cautious attitude has been reflected across other products he managesThe Zheshang Huijun Transition Upgrade Fund has maintained equity asset allocations below 70% for several quarters since he took the helm, dipping to 56% after the surge at the end of September.
Experts in the industry have pointed out that a lack of zero tolerance for net value fluctuation risks can create a vicious cycle for new fundsIf these funds quickly incur losses, managers often experience performance pressure that can lead further down the path of larger losses, which may complicate recovery efforts towards the 1 yuan face value.
A public fund professional from North China remarked that for new funds, if the market remains subdued, fund managers can strategically time their entries and control drawdowns through appropriate positioning
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They can also gradually build positions to lower average acquisition costs, increasing safety margins for investment layoutsOn the other hand, established funds face positioning limitations; for instance, stock assets cannot fall below predetermined ratios, meaning that the cost basis for held stocks might be relatively highConsequently, new funds have a better opportunity to outperform in terms of net value during volatile markets.
Looking ahead, the A-share market may tilt toward profit-driven investment strategiesMeng Jie, a fund manager at Manulife Investment Management, emphasizes that technology and exports will present long-term opportunities within A-sharesAfter recent market rebounds, disparities in valuation levels within the technology growth sector have emerged, and three main themes are capturing attention: cloud-side artificial intelligence, edge-side artificial intelligence, and domestic semiconductor production
Exports are also viewed as a mid-term trend, with overseas expansion likely to optimize industry competition, particularly in sectors like auto parts, new energy, and machinery.
Soon-to-be-released products by Tianhong Fund, managed by Du Guang, are being shaped by attractive valuations in comparison to stock pricesThe current investment focus includes domestic demand sectors such as banks, liquor, building materials, and machineryDu anticipates that the market fundamentals may be nearing their lows, and given the previously compressed nature of prices, a significant upward adjustment is anticipated as negative expectations start to stabilize.
Shen Ai Qian, Director of Equity Investment at Ping An Fund, predicts improvements in economic data will lead to an uptick in profitability cycles, further shifting the driving forces of the equity market from valuation-driven to profit-driven dynamics
He also highlights that cyclical core assets, consumer sectors, artificial intelligence, domestic technological innovation, and new energy sectors will benefit from policy and industrial momentum, thus creating ample investment opportunities.
At the end of last year, Harvest Fund introduced a dividend-themed product, asserting that the global era of dividend investing has commenced, and China's dividend investment is only just setting sailTheir projections predict considerable growth potential for dividend assets in the future.
The initial market focus on dividend assets had previously been significantly low, leading to extreme underestimation and a subsequent valuation correctionHowever, it is yet to reach overheating territoryThere is also a rich variety of dividend asset categories beyond the high-dividend, stable sectors that have performed well in recent years, indicating ongoing performance opportunities