As we approach the end of 2024, a fascinating trend has emerged within the world of investment funds, particularly focusing on the behavior of Fund of Funds (FOF) managersThese "professional buyers" are not just random fund holders; they are making strategic choices in the diversified landscape of investment optionsOne of the most notable insights came recently with the disclosure of the fourth-quarter reports, which unveiled the shifts and trends within their asset allocations.
Interestingly, fixed income funds, specifically bond funds, have gained a considerable amount of favor among FOF managersThe fourth-quarter report indicates not only a strong preference for these instruments but also an aggressive increase in positions held in various Exchange-Traded Funds (ETFs). It is noteworthy that bond ETFs, gold ETFs, and American stock ETFs featured prominently in the portfolios, signifying a strategic pivot toward assets perceived as stable and less risky.
The emphasis on "defensive" strategies among several notable FOF managers was also apparent in the reported figures
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Many have opted to reduce their holdings in high-volatility, high-potential growth products, which have seen considerable price increasesInstead, their portfolios now predominantly feature actively managed equity funds characterized by strong dividend yields or those managed by well-regarded investment personalitiesThis shift encapsulates a broader narrative in the investment landscape, where caution has become a prized approach amidst fluctuating market conditions.
Fixed Income and ETFs: Top Choice for FOFs
According to statistics from Tianxiang Investment Advisors, as of the fourth quarter's close, FOFs held the largest allocation in pure bond funds, with a total of 22.31 billion RMB allocated, accounting for 32.29% of their total holdings, followed by mixed bond funds at 8.47 billion RMB, or 12.25% of the totalThese allocations exemplify the strong inclination towards stable instruments amid potential market uncertainty.
In terms of performance, the overall best-performing category for the fourth quarter of 2024 was the bond-focused FOFs, which showcased a slight increase of 1.28% due to the favorable bond market conditions
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In stark contrast, equity-focused FOFs suffered a decline of 2.92%, underscoring the challenges faced in growth-oriented investments during this period.
Specifically, as of the end of the fourth quarter of 2024, the top bond fund being heavily favored by FOFs was the Jieyin Yulong pure bond fund, with a total holding of 739 million RMB, followed closely by the Xingquan Hengyu bond fund at 606 million RMB, which represented a decrease of 11.03% from the previous quarterSuch specific allocation patterns reflect strategic management decisions aimed at balancing risk and reward.
As the ETF landscape evolves, FOFs have likewise intensified their focus on building positions within this asset classThere has been a notably increased investment in bond ETFs, gold ETFs, and American stock ETFsThis trend solidifies the narrative of safety-first investing philosophy during uncertain economic times.
Per data from Wind, by the end of 2024, the top five ETFs in terms of market value held by FOFs included the E-Fund CSI 300 ETF, E-Fund SSE Star 50 ETF, Bosera Gold ETF, Huaan Gold ETF, and Huaxia National Index Semiconductor ETF, with their respective values being 19.2 billion RMB, 16.9 billion RMB, 13.4 billion RMB, 13.1 billion RMB, and 12.5 billion RMB
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Such distributions point to a keen interest in sectors perceived to have potential growth or resilience.
Among this data, the Huaxia Hang Seng ETF has been notably included in 19 FOF products, with an impressive share amount of 625 millionThis ETF has emerged as the top holding in major FOF products such as the Xingquan Antai Active Pension Target Five-Year Fund and the Xingquan Global Preferred Balanced FundThe Huaan Gold ETF stands out as well, being present in 56 FOF funds where it represents the primary holding in the Zhongtai Xinghui Balanced Fund.
Furthermore, other products such as the Southern S&P 500 ETF and the Bosera S&P 500 ETF have been heavily invested by FOFs, surpassing amounts of 100 million RMB in holdingsThis showcases a clear trend towards diversifying and exploring international equity markets by these managers.
The insights from Haitong Securities suggest a noticeable increase in investments in A-share ETFs, particularly within two categories: technology-themed ETFs and defensive dividend-themed ETFs
This reflects a "barbell strategy" employed by FOF fund managers, balancing high-growth tech stocks against stable dividend generators, providing a strategic hedge against market volatility.
Active Equity Funds Also Attracting Attention
A number of actively managed equity products have also captured the attention of FOF managersAccording to the latest quarter reports, one of the highest allocations was seen in the E Fund Supply Side Reform Mix, amounting to 439 million RMBFollowing closely were the E-Fund Science and Technology Transform and E-Fund Science News funds, both of which are under the management of E Fund.
Concerning fund performance, Zhongtai Xinyuan Value Preferred fund has consistently held significant positions in high-dividend stocks, such as China State Construction, China Merchants Bank, and ICBC, making it a favorite among 19 FOF funds
The fund manager, Jiang Cheng, noted that “compared to potential high odds, we favor long-term high winning rates,” symbolizing a methodical approach to capital allocation.
Looking ahead, Jiang Cheng expressed a slightly more optimistic viewpoint for the long-term based on newly emerging information from the fourth quarterHe pointed towards the series of stimulus policies being rolled out and their structural impacts on individual stocksHe has notably zeroed in on debt-related measures, which he regards as a particularly optimistic aspect of the policy landscape. “Our fundamental outlook hasn’t changed: the resilience of the Chinese economy remains strong, with relatively high potential return rates compared to other major economies, alongside significant scope for industrial restructuring,” he commented.
Moreover, several high-profile fund managers have drawn significant attention from FOF managersNotable examples include the Guofeng Yuanshi fund managed by Tang Xiaobin and Yang Dong, which has amassed over 250 million RMB in holdings within various FOF products, showcasing the power of brand and reputation in this space
Likewise, Xie Zhiyu's Xingquan Harmony and Xingquan Serenity funds, and Zhou Haidong's Huashang New Trend Selection all exceed 100 million RMB, reflecting a noteworthy trend towards established fund managers.
Defensive Strategies Take Center Stage Among FOF Managers
Within the FOF quarterly reports, the concept of “defense” has emerged as a prevailing themeVarious managers have shared their inclination towards a more protective positioning within their portfolios.
For instance, the Guotai Youxuan fund sold off high-volatility tech-related ETFs and internet ETFs positioned for high returns in 2024, while simultaneously significantly increasing their stakes in ETFs linked to dividends and resources
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