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With the disclosure of the second quarter report of 2024 of public funds, their portfolio adjustment trends were exposed.

The 21st Century Business Herald reporter noticed that in the second quarter of this year, the stock positions of active equity funds declined. At the same time, as the A-share structural market continued to develop, active equity funds significantly increased their positions in the electronics, communications, and defense and military sectors, and reduced their positions in food and beverage, computers, power equipment, pharmaceuticals and biology, and media industries.

In terms of fund holdings, according to statistics from research institutions, compared with the previous quarter, E-Sun, Foxconn, BYD, and Yangtze Power have entered the top 20 of active equity fund holdings. China Mobile, China Micro, Wanhua Chemical, and China Merchants Bank have exited the top 20 of active equity fund holdings.

It is worth mentioning that by the end of the second quarter of 2024, electronics has become the largest publicly-funded sector. 21st Century Business Herald reporters noted that the logic behind fund managers' increased allocation to the electronics sector in the second quarter was mainly based on profit recovery and demand pull.

Stock positions fall back

In the second quarter of this year, the risk appetite of the capital market was under pressure, and the main A-share indexes fluctuated and fell. Among them, the Shanghai Composite Index, the CSI 300 Index, and the ChiNext Index fell by 2.43%, 2.14%, and 7.41% respectively.

During the market adjustment, the stock positions of public hybrid funds declined slightly.

According to statistics from Tianxiang Investment Consulting, in the second quarter of 2024, the average stock position of all market mixed funds decreased by 1.17 percentage points from the previous period, falling from 78.49% in the previous quarter to 77.32%; the average bond position increased by 0.35 percentage points from the previous period, rising from 13.80% in the previous quarter to 14.15%.

At the same time, statistics from the strategy team of Industrial Securities show that after the stock positions of active equity funds (including ordinary stock funds, equity hybrid funds, and flexible allocation funds, the same below) fell from a high level in the first quarter of 2024, their stock positions fell to 84.07% in the second quarter of 2024. Among them, the stock positions of ordinary stock funds fell from 89.97% to 88.70%, equity hybrid funds fell to 86.93%, and flexible allocation funds fell to 75.40%.

From the perspective of fund managers, in the second quarter, Jiangxin Fund, Beijing Jingguan Taifu Fund, Tianzhi Fund, China Resources Yuanta Fund, Yimin Fund, Hongta Hongtu Fund, Caitong Asset Management, Xinghe Fund, Yuanxin Yongfeng Fund, and Ruida Fund increased their stock holdings; Tianzhi Fund, Debang Fund, Hongtu Innovation Fund, Yuanrong Fund, Zhongke Wotu Fund, China-Canada Fund, Hui'an Fund, Huatai-PineBridge Fund, Cinda Australia and Asia Fund, and Changan Fund increased their bond holdings.

From the perspective of shareholding market value, according to statistics from the strategy team of Industrial Securities, as of the end of the second quarter of 2024, the market value of A-shares held by all public funds in the market was 5.02 trillion yuan, a decrease of 4.27% from the previous quarter. The proportion of public fund holdings in the total market value of A-shares rose slightly from 6.80% at the end of the first quarter of 2024 to 6.83%, which is at the 87.7% percentile level since 2010.

Among them, the market value of holdings of active equity funds was 2.93 trillion yuan, a decrease of 7.29% from the previous month. "Market volatility and decline in positions are the main factors for the decrease in the market value of holdings of active equity funds," said the strategy team of Industrial Securities.

Add electronics, communications; subtract food and beverages, computers

In the second quarter, A-shares were still dominated by structural trends, among which low-valuation and defensive sectors performed well. For example, the Shenwan Bank Index and the Utilities Index rose by 5.80% and 5.24% respectively, the two best performing sectors in the period. The electronics index and coal index followed closely behind, rising by 1.55% and 1.35% respectively, and the transportation index rose by 0.28%.

The other 26 Shenwan first-level industry indexes all showed a downward trend.

From the fund level, in the second quarter, active equity funds significantly increased their holdings in the electronics, communications, and defense and military sectors.

According to statistics from the strategy team of Industrial Bank Securities, based on the proportion of increased holdings, in the second quarter, the industries in which active equity funds increased their holdings more were electronics, communications, national defense and military industry, home appliances, and public utilities; the industries in which active equity funds reduced their holdings more were food and beverages, computers, power equipment, pharmaceuticals and biology, and media.

Judging from the absolute positions of primary industries, electronics has become the largest publicly-funded industry, and the proportion of holdings has exceeded the high point between 2020 and 2021. Overall, as of the end of the second quarter, the top five industries for active equity funds were electronics, pharmaceuticals and biology, power equipment, food and beverages, and nonferrous metals.

A reporter from 21st Century Business Herald noted that the logic behind fund managers increasing their allocations to the electronics sector in the second quarter was mainly based on the perspectives of profit recovery and demand pull.

For example, Ye Feng, the manager of the Xingye Global Quality Select Hybrid Fund, increased his holdings in the electronics sector in mid-June "because he saw the AI-related software upgrades launched by Apple at the WWDC conference and believed that the improvement of Apple's competitive advantage in the mid- to long-term dimension of its ecosystem would lead to an upward revision of earnings of related domestic manufacturing industries, so he increased his holdings in the electronics sector. This is also in line with the consistent idea mentioned earlier of increasing allocations when new changes in electronics demand are observed."

In addition, Zhang Jianxin, a hybrid fund manager of Changjiang Emerging Industries, pointed out that since the peak of the last cycle in the fourth quarter of 2021, the semiconductor and electronics sectors have experienced about two years of adjustment, and we have observed certain signs of bottoming out in different links. Under the influence of the cyclical upward repair of the industry itself and the resonance driven by new demand, we are optimistic about the continued opportunities of the TMT sector for a long period of time in the next two years.

On the other hand, active equity funds still have the intention to increase their holdings of dividend assets that have performed well in the past two years.

According to statistics from the strategy team of Industrial Bank Securities, among the stocks that are heavily held by equity-oriented funds, positions in the Dividend Low Volatility Index and the CSI Dividend Index constituent stocks have risen to 2.76% and 6.17% respectively, which are at the percentile levels of 25.60% and 33.30% in the past decade.

The team pointed out that in terms of over-allocation ratio, the over-allocation ratio of the Dividend Low Volatility Index and the CSI Dividend Index constituent stocks held by equity funds among their heavy holdings fell to -3.72% and -4.84%, respectively, which were at the percentile levels of 20.50% and 25.60% in the past decade.

High-dividend industries also received a small increase in holdings. In the second quarter, among the top ten industries with the highest average dividend yields from 2022 to 2024, eight industries were increased by active equity funds. They are: coal, banking, petroleum and petrochemicals, steel, household appliances, building materials, transportation, and building decoration. However, the increase was small, less than 1%.

From the perspective of key industrial chains, the research team of Haitong Securities pointed out that in the second quarter of 2024, the digital economy positions of active equity funds increased significantly, and the current over-allocation ratio is at the historical median; new energy holdings fell marginally, and photovoltaic and wind power were the main drag items; large consumer positions declined significantly, among which commodity consumption positions were significantly reduced, and the over-allocation ratio of pharmaceuticals fell to a historical low.

Four stocks newly entered the top 20 holdings

The ranking of public funds' heavily-weighted stocks has also changed: Kweichow Moutai has dropped from the largest publicly-weighted stock to the second largest.

According to statistics from the strategy team of Industrial Securities, as of the end of the second quarter of 2024, the top ten holdings of active equity funds were CATL, Kweichow Moutai, Luxshare Precision, Zijin Mining, Midea Group, Innolight, Wuliangye, Mindray Medical, Luzhou Laojiao, and Hengrui Medicine, and the size of their holdings accounted for 3.27%, 2.96%, 2.26%, 2.05%, 1.88%, 1.66%, 1.53%, 1.46%, 1.40%, and 1.11% of the market value of all holdings, respectively.

It can be seen that among the top 20 heavily-weighted stocks of active equity funds, the large consumer sector represented by food and beverages, pharmaceuticals and biology, and home appliances occupies a total of 9 seats. Among the other 11 stocks, there are 4 electronics industry stocks, 2 power equipment industry stocks, 2 communications industry stocks, 1 non-ferrous metal stock, 1 utility stock and 1 automobile stock.

In contrast, the team pointed out that compared with the previous quarter, Eosun, Foxconn, BYD, and Yangtze Power entered the top 20 of active equity fund holdings. China Mobile, China Micro, Wanhua Chemical, and China Merchants Bank exited the top 20 of active equity fund holdings.

In terms of the increase in holdings, the strategy team of Industrial Securities analyzed that the top five stocks in terms of the increase in holdings by active equity funds in the second quarter were Luxshare Precision, Zhongji Innolight, BYD, New Eosun, and Foxconn. The top five stocks in terms of the reduction in holdings were Kweichow Moutai, Luzhou Laojiao, Wuliangye, Hengrui Medicine, and Shanxi Fenjiu.

Overall, CICC's research team pointed out that the trend of active equity funds' heavy holdings increasing/decreasing is in sync with the rise and fall of individual stocks. As of the end of the second quarter of 2024, the average return rate of the 10 stocks with the largest increase in holdings month-on-month was 31.6% in the second quarter of 2024, while the average return rate of the 10 stocks with the largest decrease in holdings month-on-month was -17.6%.

In addition, regarding the degree of fund clustering that the market is more concerned about, a researcher from the Fund Evaluation Center of Tianxiang Investment Consulting pointed out that within the scope of active equity funds, CATL and Luxshare Precision had a relatively high degree of clustering in the second quarter, at 11% and 10% respectively, showing a high degree of market consistency. But at the same time, the high degree of market clustering shown by funds should also attract the attention of investors to avoid excessively crowded transactions that lead to lower expected returns.