Some actively managed equity funds that made concentrated portfolio switches in the second quarter saw all their previous gains wiped out in just one month. The net asset values of new funds that established positions at high levels were even more severely hit, with some quickly "halved" and rapidly falling below the 0.6 yuan mark...
Actively managed public funds that aggressively adjusted their portfolios towards the tech sector in the second quarter faced a painful moment in July as tech stocks plummeted.
In the second quarter, high-dividend and consumer sectors in the A-share market were continuously sold off, while massive funds flowed into tech sectors dominated by artificial intelligence (AI) and semiconductors. According to calculations by CITIC Securities, the proportion of holdings in the electronics industry by actively managed public funds reached a historical high of 42.64% at the end of the second quarter.
However, since July, amid volatility in global chip stocks and a deep correction in the A-share tech sector, as of the close on July 30th, the ChiNext Index fell 25.29% in July, the STAR 50 Index dropped 28.06% for the month, and the Sci-Tech Innovation Composite Index fell over 30% in the same period. Funds that "boarded the train" at the June high point for the tech sector faced a stage of net asset value "judgment." Several veteran managers who previously adhered to value investing saw their managed funds suffer significant net value drawdowns due to chasing high-flying tech stocks. Some actively managed equity funds that concentrated on switching positions in the second quarter saw all their earlier gains erased within a single month. The net asset values of new funds that established positions at high levels were even more severely "halved," quickly falling below the 0.6 yuan mark...
Value Veterans "Chase Tech"
Piecing together the second-quarter fund reports reveals a vivid picture of public fund institutions' "All in" frenzy for tech growth.
What caught the market's attention most was the portfolio adjustments made by several star managers with previously hundred-billion-scale AUM who were known as "consumer believers." Second-quarter report data shows that star fund manager Zhang Kun's E Fund Blue Chip Selected significantly reduced its holdings in baijiu stocks, considered its "ballast," in the second quarter. The reductions in holdings of Kweichow Moutai, Luzhou Laojiao, and Wuliangye reached 47%, 52%, and 71%, respectively. Correspondingly, SMIC and Dongshan Precision made their first appearance among the fund's top ten holdings.
A similar scenario played out with star fund manager Liu Yanchun of Invesco Great Wall and star fund manager Zhu Shaoxing of Fullgoal Fund. The Invesco Great Wall Dingyi, jointly managed by Liu Yanchun and Ke Haidong, completely "changed blood" in its top ten holdings in the second quarter, clearing out all consumer and pharmaceutical stocks and replacing them with semiconductor and computing power targets like Jiangfeng Electronics and Zhongji Innolight. The Fullgoal Tianhui Growth managed by Zhu Shaoxing removed Kweichow Moutai, held for six years, from its top ten holdings in the second quarter and added Zhongji Innolight.
"This phenomenon is not common in history. When staunch value investors abandon their principles, it often signals that sentiment for a single sector has reached an extreme," a senior chief strategist at a securities firm told the Economic Observer. "An electronics industry holding proportion exceeding 40% easily reminds people of new energy in 2021 and 'Internet+' in 2015. An overly crowded trading structure itself poses the greatest risk."
Data further corroborates this extreme portfolio adjustment by equity-focused public funds. According to Wind data statistics, in the second quarter, 67 actively managed equity funds significantly increased their TMT (Technology, Media, and Telecommunications) exposure. The average weighting of these funds in the TMT sector was only 6.75% in the first quarter but skyrocketed to 54.99% by the end of the second quarter. Broadening the statistical scope, nearly 300 actively managed equity funds significantly increased their tech stock allocation in the second quarter.
The Price Paid by Those Chasing Highs
The accelerated surge of tech stocks to a peak in June left many fund managers who entered the market during this period precisely standing at the mountaintop.
Entering July, the tech sector collectively slumped, with the previously sharply rising AI industrial chain and semiconductor stocks bearing the brunt. Those actively managed equity funds that abandoned their original diversified holdings in the second quarter to embrace tech concentration swiftly faced severe net asset value backlash. Funds that significantly increased TMT exposure all turned negative in July, with an average decline exceeding 20%, and 12 of these funds fell over 40%.
Fund manager Tan Zhimi's Jinxin Quality Growth completely overhauled its top ten holdings, shifting from a first-quarter portfolio dominated by the healthcare sector to a second-quarter portfolio of tech stocks like Hygon Information and SMIC. Its TMT weighting surged from zero to 72.35% of the fund's net asset value. Consequently, the fund's net value plummeted in July, not only erasing June's gains but also resulting in a 26.34% decline for the month as of July 30th.
Fund manager Yan Yang's Guoshou Anbao Wenhui increased its TMT weighting to 81.46% of the fund's net asset value, after which the fund's net value plunged nearly 40% in July.
Even more staggering to investors was the operational missteps of some funds during the tech stock crash. Taking the example of Yinhua Furao Jingxuan Three-Year Holding Period Hybrid Fund, its manager Jiao Wei was previously known for favoring dividend assets and consumer stocks but drastically switched to semiconductors and the AI computing power supply chain in the second quarter. After the fund's net value shrank significantly due to continuous steep declines in tech stocks in mid-July, its daily net value performance began showing a significant negative correlation with tech stock market movements, raising market suspicions of "selling at the bottom." As of July 30th, the fund's monthly decline was 10.63%.
Furthermore, style drift became commonplace during this tech frenzy. Seven of the top ten holdings in the second-quarter report of the CCB High Dividend Theme Fund were semiconductor and optical module-related targets, including high P/E ratio tech companies like Zhongji Innolight (holding proportion 9.24%), Suzhou TFC Optical Communication, and Kingsemi, which severely contradicts the "high dividend" in the fund's name. This sparked widespread discussion among netizens in the discussion areas of third-party distribution platforms.
Whether such "selling dog meat under the label of mutton" behavior deviates from the product's positioning and breaks investors' asset allocation expectations based on the "high dividend" label remains a question mark.
The Dilemma of New "Half-Price" Funds
Apart from a few older funds struggling with their adjustments, newly issued funds also failed to escape the turmoil. In fact, new funds faced an even more dire situation due to establishing positions in tech stocks at high levels.
The Guotai Haitong New Energy Ruixuan Hybrid Initiation A, launched on June 16th, is a new product focusing on new energy and related broad tech sectors. The fund launched at a face value of 1 yuan, but within less than two months of its establishment, its net value rapidly declined. As of July 30th, its unit net asset value had fallen to 0.5509 yuan, with a -44.91% return since inception, ranking near the bottom among 5,417 similar products.
Similarly, the Rongtong New Materials A, established on June 2nd, faced analogous issues. This fund focuses on upstream AI materials, seeking investment opportunities from price increases in raw materials caused by supply-demand mismatches under the demand transmission chain: AI capital expenditure → AI computing hardware → upstream raw materials.
However, with the recent significant downturn in tech stocks, this fund's net value also suffered a setback. As of July 30th, the unit net asset value of Rongtong New Materials A was 0.6020 yuan, with a -39.80% return since inception.
The reason lies in the fact that the above two funds happened to enter their build-up period in June, coinciding with the阶段性 peak of their respective sectors. Entering July, they failed to implement effective risk control measures, suffering from the sector's deep correction.
"New funds have no historical safety cushion. Once they build positions at market highs and encounter extreme market conditions, the risk is amplified," a product department staff member at a large public fund in South China confided to the reporter. "Often, new fund issuance caters to current market hotspots. The best time for fundraising is often the tail end of a trend."
On July 31st, following a strong rebound rally in US tech-related sectors, A-share tech sectors also opened sharply higher before paring some gains. By the close, the ChiNext Index rose 3.06%, and the Sci-Tech Innovation Composite Index gained 3.69%. Multimodal AI concept stocks and computing power hardware industry chain stocks rebounded strongly, with nearly 4,700 stocks rising across the market.
Market volatility continues unabated. These funds that chased high-flying tech stocks await the market's test over a longer cycle.
This article is from the WeChat public account "Economic Observer," authors: Hong Xiaotang, Zhang Pengrui
