Nearly 70% of Equilibrium Strategy Funds Lose Money Due to the Impact on the "Anti Wind Bureau"

Since the beginning of this year, the extreme interpretation of structured market conditions and the phased dominance of theme investment have led the market. The balanced style fund, which has been widely recognized in the past two years, has faced a "headwind situation".

From an industry perspective, driven by the global technology wave, the communication and media industries have led the rise, while the pro cyclical sectors of commerce and retail, food and beverage, building materials, beauty and other industries have experienced significant declines. According to Wind data, as of July 14th, the first and last differences in the rise and fall of 31 Shenwanwan level industry indices for the year exceeded 70%.

The extremely differentiated market poses a great challenge to balanced style funds, with nearly 70% of balanced style funds having negative returns during the year, and multiple products having experienced a decline of over 10% during the year. Some fund managers have stated that in the past, balanced investment may only have stayed at the level of industry balance, but this year's market is worth reflecting on by balanced style fund managers, deepening industry balance towards market value balance and style balance, and achieving true balance.

Balanced style funds encounter headwinds

The popularity of this round of balanced style funds originated in 2021. CITIC Futures Research Institute pointed out that since the end of 2021, due to the increasing uncertainty of the macro environment, the overall bearish market, and low sector success rates, more and more public offering products have switched back to balanced allocation; Especially since 2022, the overall market has been downward, with high beta rotation funds underperforming balanced funds in 2022, and balanced style funds becoming increasingly popular.

But this year, under the extreme interpretation of structured market conditions, the widely recognized balanced style fund of the past two years has encountered a headwind.

If incomplete statistics are conducted based on the standard of "equilibrium" in the name, Wind data shows that as of July 14th, there are 71 equilibrium strategy funds in the entire market, of which 48 have negative returns within the year, accounting for nearly 70%. Some products have already experienced a decline of over 10% within the year.

For example, a balanced fund managed by a well-known fund manager in South China experienced a decline of nearly 14% during the year. From the first quarter report, the fund's position balance allocation is in multiple industries such as technology, consumption, finance, and new energy. Among them, the largest heavy holding company, Guolian Shares, has dropped by over 40% this year. In addition, the fund has also heavily held multiple stocks with significant pullbacks, such as Shanxi Fenjiu and Enjie Shares, which has also dragged down the fund's returns.

For example, the general manager of the balanced strategy department of a public offering in Shanghai conducted a significant position adjustment in the first quarter, not only making some adjustments to the technology sector, but also strengthening its allocation in the semiconductor and pharmaceutical industries. Eight of the top ten heavy holdings were replaced. However, under the drastic position adjustment, the performance of the fund manager has dropped from 3% in the first quarter to -8% now, indicating that multiple individual stocks may have just added positions at the peak of the stage.

In addition to the funds with "balanced" names mentioned above, there are many star fund managers in the market who are famous for their balanced style, and they have generally performed poorly this year. The decline of products under a well-known 10 billion fund manager has exceeded 15% during the year.

Just industry balance is not enough

The headwind experienced by balanced style funds is closely related to the relatively extreme market situation this year.

In the first half of this year, driven by the wave of artificial intelligence, the technology sector led the market, while industries related to economic fundamentals such as consumption and real estate were relatively sluggish. According to Wind data, as of July 14th, the Shenwan Communication Index has increased by over 50% this year, ranking first among 31 Shenwan level industry indices; At the same time, the annual decline of the Shenwan Commerce and Retail Index exceeded 20%, with a difference of over 70% between the beginning and end, indicating significant performance differentiation among different industries.

"This extremely differentiated market this year is actually not friendly to fund managers with a balanced allocation style, because the non popular track part of the portfolio will cause a great drag on the net value of the fund." A fund manager with a balanced style in Shanghai said in an interview with the Securities Times reporter. He pointed out that in the past few years, balanced investment has been highly sought after by the market, but this year's market has posed a great challenge to balanced style. Balanced style fund managers may need to reflect on what exactly is balanced. From the most superficial understanding, equilibrium refers to the balance of industry allocation, which means that fund managers need to achieve high coverage and low concentration in industry allocation, and the deviation between the allocation ratio and the market wide base index is not significant; But he believes that equilibrium should be more of a market style equilibrium, that is, a more balanced allocation of mainstream styles such as growth and value, as well as market capitalization styles such as large, medium, and small cap, giving certain weights to the prosperity, profitability, and business model sustainability of individual stocks, in order to obtain excess returns from different sources and adapt to different market styles.

Chen Baoguo, Chief research officer of Western Leader, also pointed out that the balanced allocation of many investors is only reflected in the industry, but each industry still buys leading companies, core assets, and large market value companies. I think this is not called balanced allocation, but rather risk exposure. A truly balanced allocation should not only be balanced in the industry, but also in market value and style, "said Chen Baoguo.

For example, taking the fund managed by the General Manager of the Equilibrium Strategy Department as an example, according to Wind data analysis, although the fund's individual stocks and industries are extremely diversified, with only 28% of the top ten heavyweight stocks and 33% of the top ten industries weighted, over 95% of the fund's holdings are in a small cap growth style, and in fact, they have not achieved a balanced style.

Equilibrium is not a panacea for investment, "said the fund managers mentioned above. As the range of portfolio investable targets expands, the requirements for fund managers' diligence and investment processes will also be higher. Any link drop will greatly affect investment results.

Market structure in the second half of the year may be more balanced.

Although the market in the first half of the year was relatively extreme and focused on thematic investments, which caused the equilibrium strategy to encounter headwinds, this does not mean that the equilibrium strategy has no value. Looking ahead to the second half of the year, several fund managers have expressed that with improved economic data and renewed policy expectations, the market structure may become more balanced compared to the past.

Xu Da, a hybrid fund manager at Da Mo Modern Services, pointed out that in recent times, theme investments have continued to be active, and individual stocks have shown extreme differentiation, with pro cyclical sectors and institutional blue chips hitting new lows for the year. However, as the semi annual report approaches, the market's attention to performance will significantly increase, which may not be beneficial for previously strong sectors. The market structure is likely to be more balanced.

Some fund managers have also stated that they have recently begun to adjust their position structure towards a moderate equilibrium. For example, in the first quarter of 2023, Han Dongyan, the general manager of the equity investment business unit of Nuoan Fund, had a relatively concentrated position structure, mainly focusing on sub sectors such as communication operators, industrial digitization, and intelligent IoT in the direction of technology. With the change of the market, she said recently that the investment strategy at this stage will shift from relatively centralized to moderately balanced. In addition to the direction of science and technology, it will also focus on the direction of consumption and advanced manufacturing that can reflect the economic recovery and structural optimization. The main directions include light industry in consumer manufacturing, OTC (Over-the-counter drug) medicine and cars, wind and solar energy and new materials in new energy manufacturing.

Guotai Junan Securities also said in the public fund allocation outlook that in the second half of 2023, the allocation direction of equity funds is proposed to shift from dumbbell type centralized allocation (AI+China Special Evaluation) to balanced growth. With the subsequent steady growth gradually increasing, the balanced growth of the manufacturing direction in midstream will have a higher cost performance ratio of active funds.

Source of this article: Securities Times