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The "self-narration" of practitioners has put public FOFs in the spotlight.

Recently, an employee of Caitong Asset Management published a "small essay" on social media, describing the "disagreement" between the employee and Caitong Asset Management, and mentioned the pain points of FOF fund selection. In response, Caitong Asset Management issued a statement on July 29, saying that the employee published false information about the company and related employees on public platforms such as WeChat Moments and WeChat chat groups, seriously infringing the reputation and legal rights of the company and related employees.

It is still unknown how this dispute will end, and the "Caitong Asset Management Kangheng Balanced Retirement Target Three-Year Holding" mentioned in the above "essay" did underperform the benchmark.

According to WIND statistics, as of July 25, the return rate of the three-year holding of Kangheng Balanced Retirement Target Fund of Caitong Asset Management this year was -6.21%. During the same period, the benchmark return rate of this FOF was 1.02%; its return rate since its establishment on September 7, 2023 was -8.25%. During the same period, the benchmark return rate was -3.86%.

In fact, it is not just the above-mentioned products. Looking at the entire market, the annual return performance of public equity-oriented mixed FOFs and target-date FOFs is generally poor.

According to data compiled by WIND by a reporter from 21st Century Business Herald, as of July 26, only 30 FOFs, or 7.7%, had a positive return this year among equity-oriented mixed FOFs and target-date FOFs. Over a longer period of time, the number of FOFs with a positive return in the past two years is even rarer.

While the performance was poor, as of the end of the second quarter of this year, the management scale of public offering FOFs had fallen back to 138.7 billion yuan. At the end of the second quarter of 2022, the management scale of public offering FOFs once exceeded 220 billion yuan.

Image source: IC photo

Equity-oriented and target-date FOFs have poor performance

In recent years, the public offering business of China Caitong Asset Management has developed rapidly, and the company is also one of the securities asset management companies that entered the FOF field earlier.

First, in July 2022, Caitong Asset Management launched a hybrid FOF. In August of the same year, the company established two bond-type FOFs. Since 2023, the company has successively established a hybrid FOF and two pension-target FOFs.

Among them, Caitong Asset Management Kangheng Balanced Retirement Target Three-Year Holding is the first retirement target FOF under Caitong Asset Management, and Zhang Wenjun, deputy general manager (in charge of work) of the FOF investment department of Caitong Asset Management, serves as the fund manager. As of July 25, the unit net value of this FOF was only 0.9175 yuan.

The other two hybrid FOFs also performed poorly. According to WIND statistics, as of July 26, the returns of the debt-biased hybrid FOF Caitong Asset Management Tongda Future 6-month Holding A and the equity-biased hybrid FOF Caitong Asset Management Bohong Active 6-month Holding A were -0.18% and -12.01% respectively so far this year; during the same period, the performance benchmark yields of these two FOFs were 2.50% and 0.27% respectively.

The performance of these funds is also a microcosm of the current "stalemate" in FOF investment.

WIND statistics show that as of July 26, among equity-oriented mixed FOFs and target-date FOFs, only 30 FOFs have achieved positive returns this year, accounting for 7.7%; at the same time, there are 45 FOFs with annual returns below -10%, accounting for about 11.6%.

Among them, since the beginning of this year, the net value of Hua Xia Ju Sheng Youxuan one-year holding, Ping An Yingcheng Active Allocation six-month holding, and BOC Securities Huize Jinqu three-month holding have all fallen by more than 15%.

In addition, during the year, the five-year holding returns of BoCom Smart Selection Star C and ICBC Pension Target Date 2060 were also weak, at -13.86% and -13.11% respectively.

In contrast, the performance of bond-type FOFs is relatively stable.

As of July 26, there were 31 bond-type FOFs in the market, and the returns of these FOFs have exceeded 1% so far this year.

In addition, according to the three-level classification of Tianxiang FOF, in the second quarter of 2024, the bond FOF had the best overall return rate performance, with an average increase of 0.82%, which was lower than the Tianxiang Bond Fund Index and the China Bond Comprehensive Full Price Index yields; the worst performance was the stock FOF, with a decline of 3.53%, which was lower than the Tianxiang Stock Fund Index, but higher than the CSI 300 Index.

Fund selection chaos and investment difficulties

As we all know, FOF's investment targets include stocks, bonds, funds and other assets. Since the beginning of this year, the A-share market has been extremely polarized, and the return performance of active equity funds has also shown great differences. These factors have increased the difficulty of FOF investment. However, no matter how the market performs, FOF managers should give full play to their ability to allocate major asset classes and create value for investors. Their active management capabilities are still the key.

Behind the overall poor performance, the challenges faced by FOF managers are gradually emerging.

The above-mentioned Caitong Asset Management employee mentioned in his "small essay" that "the researchability of funds is much worse than that of individual stocks, because historical performance, fund manager's style, roadshow rhetoric, analysis based on historical data, etc. have basically zero correlation with the fund's future performance."

This statement has been recognized to some extent by industry insiders.

A senior practitioner pointed out that the experience of managing ordinary funds cannot be fully replicated in FOF. For example, managing FOF requires a deep background in fund research.

"But currently many FOF practitioners do not have relevant experience." The person further said that the professional level of FOF practitioners still needs to be improved.

The above-mentioned Caitong Asset Management employee also revealed in his "small essay" that "(FOF) investment directors prefer fund managers who provide emotional value. This makes it more difficult for researchers to make recommendations."

A reporter from 21st Century Business Herald noted that some equity-oriented mixed FOFs with the highest annual returns have relatively diversified assets, covering not only domestic and foreign markets, but also multiple asset categories such as stocks, gold, and bonds.

Taking Southern Haoying Progressive Select One-Year Holding A as an example, in the second quarter of this year, the net asset value growth rate of this FOF was 1.14%, while the performance benchmark growth rate in the same period was -1.11%.

In terms of holdings, as of the end of the second quarter of this year, the multi-assets allocated in the FOF portfolio included five major categories: domestic stocks, U.S. stocks, gold, overseas bonds and domestic bonds.

Its top ten heavily-weighted funds are: Hua Xia Nasdaq 100 ETF (QDII), Hua An Gold Easy (ETF), Dacheng High-tech Industry Stock C, Southern S&P China A-share Large Cap Dividend Low Volatility, Southern FTSE China State-owned Enterprise Open Win-win ETF, Baoying Consumer Theme Mixed, Harvest CSI 300 Dividend Low Volatility ETF, Dacheng Science and Technology Innovation Theme Mixed (LOF) C, Southern China Bond 7-10 Year China Development Bank Bond Index A, and Noah Advanced Manufacturing Stock A.

As of the end of the second quarter, the market value of the ten funds held by Southern Haoying Progressive Select accounted for 70.16% of the total market value of the fund; at the same time, all fund investments accounted for 92.97% of its total assets.

Xia Yingying, manager of the Southern Haoying Progressive Selected One-Year Holding Fund, said that in the second quarter, the portfolio continued to maintain the investment strategy centered on multi-asset strategic allocation since the end of last year. The overall asset allocation did not change much compared with the first quarter.

In daily operations, fund managers focus more on monitoring the allocation of portfolio assets and underlying funds, and make appropriate adjustments based on forward-looking judgments on various types of assets.

The scale has fallen back to the level of three years ago

While the overall performance of FOF has been difficult to improve, the total scale of this type of public offering products has continued to decline.

According to the statistics of the second quarter report of the fund by Tianxiang Investment Consulting Fund Evaluation Center, as of the end of the second quarter of 2024, there were 501 FOF products in the whole market (calculated by combining different shares, the same below), including 229 ordinary FOFs and 272 retirement-oriented FOFs; the number of FOFs increased by 2 from the previous quarter, a month-on-month increase of 0.40%. The total market FOF management scale was 138.7 billion yuan, of which the scale of ordinary FOF funds was 75.003 billion yuan and the scale of retirement-oriented FOF was 63.698 billion yuan. The scale of FOF management decreased by 5.151 billion yuan from the first quarter, a month-on-month decrease of 3.58%.

In terms of the scale and number of newly issued FOFs, in the second quarter of 2024, a total of 7 new FOFs were issued in the entire market, including 3 ordinary FOFs and 4 pension-target FOFs; the number of newly issued FOF funds decreased by 8 from the previous quarter, a month-on-month decrease of 53.33%.

The fundraising scale of newly issued FOF funds in the entire market was 1.755 billion yuan, of which the fundraising scale of ordinary FOF was 939 million yuan and the fundraising scale of pension-target FOF was 815 million yuan; the fundraising scale of newly issued FOFs in the quarter decreased by 1.724 billion yuan compared with the previous quarter, a month-on-month decrease of 49.55%.

It is worth mentioning that at the end of the second quarter of 2022, the management scale of public FOFs once exceeded 220 billion yuan, setting a record high for this type of product since its inception. Since then, its management scale has fallen all the way to 138.7 billion yuan at the end of the second quarter of this year, and has fallen back to the level three years ago, at the end of the second quarter of 2021 (134.365 billion yuan).

"The continued decline in FOF asset size is mainly due to the increased instability and volatility of the equity market in recent years, which in turn has limited the capital inflow and size growth of FOF. In addition, FOF's overall performance is poor and has failed to effectively attract and retain investors, which is also one of the reasons for the decline in FOF asset size." The above-mentioned researcher from Tianxiang Investment Consulting Fund Evaluation Center pointed out to reporters.

At the same time, the researcher said that FOF is mainly an allocation product, and its development time is relatively short compared to traditional equity funds and bond funds, and customer recognition needs to be improved. In addition, the current FOF strategy is quite homogeneous, and its performance as a fund portfolio in diversifying risks and stabilizing returns is not obvious enough, and the fees are relatively high, so fewer investors choose to participate.

In addition, he further pointed out that from the perspective of product structure and investment strategy, the current lack of asset categories in the market is also a factor affecting the development of FOF. In terms of major asset allocation, FOFs currently tend to focus on stocks and bonds, which makes the advantages of FOFs in major asset allocation not fully reflected.

Although FOF managers currently face many challenges, the above-mentioned researchers are optimistic about the future development trend of FOF.

"The cooling of the equity market has led to a cooling of FOF issuance in the short term. But from a long-term perspective, domestic FOF currently accounts for less than 1% of the overall public offering scale, while overseas mature markets usually exceed 10%. The gap in the middle represents that the FOF industry has a large room for development. As my country's public fund market matures, the development trend of FOF will gradually improve," he said.