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Li Shuchao, reporter of China Fund News

Under the "seesaw effect" of the stock and bond markets, fixed income assets are favored while equity assets are neglected.

“Fixed Income +” Funds Reduce Equity-Containing Positions

Recently, many interviewed "fixed income +" fund managers said that they reduced their equity positions and increased their holdings of fixed income assets. The latest total market value of "fixed income +" fund holdings is 175.6 billion yuan, which has been declining for three consecutive years; the shareholding ratio has fallen below 16%, a new low in the past four years.

Wei Yumin, manager of the Bank of Communications Peace of Mind Income Fund, said that, on the one hand, judging from the market conditions, the equity market maintained range fluctuations in the first half of this year, and bond assets performed well. Considering the risk-return ratio between different assets, fund managers may appropriately reduce equity positions and optimize the position structure. On the other hand, with the decline in investors' risk appetite, the demand for "fixed income +" products is concentrated on low-volatility products, and low-volatility products also require controlling equity positions, thereby controlling volatility and drawdowns.

Guolian Fund said that "fixed income +" funds tend to increase fixed income assets to reduce the uncertainty risks brought by stock market fluctuations. In addition, facing performance pressure, some fund managers also choose to reduce equity positions to maintain the stability of fund net value and control risks, so as to avoid excessive impact of stock market fluctuations on fund performance.

Public data also shows that the market value and shareholding ratio of "fixed income +" funds have further declined.

Dongcai Choice data shows that as of the end of June 2024, the total market value of holdings of "fixed income +" funds was 175.585 billion yuan, which has been declining for three consecutive years; the shareholding ratio also dropped from the high of 18.71% in 2020 to 15.96%, a new low in the past four years.

In terms of shareholding ratio, 100 products in secondary bond funds have zero shareholding ratio, which has increased from 13.93% at the end of last year to 17.64%; in the same period, 45 products in debt-biased hybrid funds have zero shareholding ratio, accounting for 6.08%. Overall, there are as many as 145 products in the above two categories with zero shareholding ratio, an increase of 38 from the end of last year.

Wang Lu, a fund analyst at the Shanghai Securities Fund Evaluation and Research Center, said that in recent years, against the backdrop of a weak stock market, the performance of stocks and convertible bond assets that are more affected by the stock market has been unsatisfactory. Fund managers can appropriately reduce equity positions to help reduce product volatility.

A "fixed income +" fund manager added that the stock market was sluggish in the first half of this year, with a clear differentiation in the market, while the bond market was smooth sailing, and the active reduction of positions was also reasonable.He believes that compared with the decline in equity market value, the active decline in positions may not be much.

The future allocation role of equity-related assets will be more prominent

Although the equity-linked assets have been reduced, this type of assets still has unique value in the asset allocation of "fixed income +" products.

In Wei Yumin's view, investment in "fixed income +" products requires multi-asset comparison, in the hope of allocating equity-containing assets to replace pure bond assets at the right time to increase returns; fund managers need to understand the main logic and potential risks of the operation of the bond market, and must pay sufficient attention to and understand the equity market.

She said that the equity-containing assets that can be invested in "fixed income +" products are mainly stocks and convertible bonds. From 2019 to 2021, equity-containing assets brought relatively obvious excess returns to "fixed income +" products compared with bond assets; from 2022 to 2023, due to the volatile adjustments in the equity market, the effect of "+" was not very obvious and even dragged down the net value.

From an investment perspective, many people believe that the current allocation value of equity assets has once again been highlighted.

"As bond yields have clearly declined, there are indeed many companies with stable operations and active returns to shareholders whose yields have exceeded those of long-term bonds, and the allocation role of equity assets in 'fixed income +' products has become more prominent," said Wei Yumin.

She said that the current valuation of equity assets is at a historical low. With the convening of important meetings, policies emphasize strengthening counter-cyclical regulation, economic expectations will improve, and combined with the current obvious downward trend in bond market yields, from the perspective of asset price ratios, the allocation value of equity assets has increased.

Guolian Fund said that looking forward to the second half of this year, with the continued increase in macroeconomic policies, the economy is expected to continue its positive trend, and positive market factors are also accumulating, and the subsequent market of A-shares is worth looking forward to. In addition, the current equity market valuation is at a relatively low level, and the improvement in corporate profitability has made the investment value of equity assets increasingly prominent.

Editor: Captain

Review: Xu Wen

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