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Since the first batch of products were approved, pension FOF (fund of funds) has been "sailing" steadily for six years. So far, the number and scale of pension FOF products have shown an upward trend, from 14 to 273 today, and the scale has increased from 5.3 billion yuan to over 64 billion yuan. As an emerging force in public funds, pension FOF has advantages such as small drawdown and stable returns. Despite the constant market fluctuations in recent years, the first batch of pension FOFs still handed in a brilliant "report card", and some products have achieved a yield of more than 45% since their establishment. However, some products also face the problem of small scale and difficulty in growth. Looking to the future, many fund managers said that they are optimistic about the long-term development prospects of such products. With the development of the market and the further expansion of policies, more and more investors may recognize such products.

The first batch of products has achieved impressive long-term performance

On August 6, 2018, China's public fund industry ushered in a historic moment - the first batch of 14 pension FOFs (shares are combined, the same below) officially received regulatory approval. At that time, 14 fund managers including Huaxia, CEIBS, ICBC Credit Suisse, Southern, Penghua, Fullgoal, Yinhua, GF, E Fund, China Universal, Xingzheng Global, CCB, Manulife (formerly TEDA Manulife), and Wanjia took the lead.

Time flies. In the blink of an eye, it has been six years since the first batch of products were approved, and the overall scale of the first batch of pension FOFs has also shown an upward trend. According to iFinD data from Tonghuashun, as of the end of the second quarter of 2024, the latest scale of the above 14 products totaled 8.636 billion yuan, an increase of 60.64% from the total issuance scale of 5.376 billion yuan.

However, behind the overall growth, there is differentiation between different products. Specifically, the latest scale of 8 products in the first batch of pension FOFs has increased compared with the issuance scale. As of the end of the second quarter, the combined scale of Huaxia Pension 2040 Three-Year Holding Mixed FOF, Xingquan Antai Balanced Pension Three-Year Holding FOF, and China Europe Foresee Pension 2035 Three-Year Holding FOF ranked the top three in the first batch of products, at 1.377 billion yuan, 1.129 billion yuan, and 1.087 billion yuan, respectively, all of which have increased significantly compared with the issuance scale. During the same period, the latest scale of Penghua Pension 2035 Three-Year Holding Period Mixed FOF and Manulife Taihe Balanced Pension Target Three-Year Holding Mixed FOF was only about 100 million yuan, at 117 million yuan and 107 million yuan, respectively.

Yang Delong, chief economist of Qianhai Kaiyuan Fund, commented that the development of pension FOF has been six years. With the continuous growth of the number of products, it has basically met the investment needs of investors. Although the growth of product scale has slowed down due to the market decline in recent years, and some products have even suffered certain losses, the overall operation is still relatively stable. In general, compared with equity funds, pension FOF still plays a role in dispersing risks, and the drawdown of related products is relatively small.

As Yang Delong said, the current growth rate of the scale of pension FOF has slowed down. Previously, the overall scale of pension FOF exceeded 100 billion yuan. According to iFinD data from Tonghuashun, the scale of pension FOF exceeded 100 billion yuan for the first time at the end of the third quarter of 2021, and reached a historical peak of 113.25 billion yuan at the end of 2021. It then showed a fluctuating trend, and the current scale has declined compared to its peak period.

Although the growth rate of pension FOF has slowed down, the long-term performance of the first batch of products is still considerable. Data shows that as of August 5, the first batch of pension FOFs have achieved positive returns since their establishment, with an average return of 23.35%. Among them, the return rate of Xingquan Antai Balanced Pension Three-Year Holding (FOF) A since its establishment has reached 45.96%, leading the rest of the products. During the same period, the A/C shares of the China-Europe Foresight Pension 2035 Three-Year Holding FOF and the A/C shares of the Southern Pension Target Date 2035 Three-Year Holding Mixed (FOF) also achieved returns of more than 30%.

Looking back on the operational management experience, Xingzheng Global Fund said that in the past two years, investment has indeed become more difficult, especially for equity products. However, the advantages of FOF are also obvious. "For example, the advantages of Xingquan Antai Balanced Pension Three-Year Holding FOF are that, first, it has a wide range of investments and uses different assets and strategies to help customers achieve diversified portfolio returns; second, it reduces unnecessary trading anxiety for customers by reducing volatility, prolongs the investment cycle, and increases the probability of profit."

A fund manager of a public pension FOF in Shanghai mentioned that the pension FOF in the entire market can be divided into two categories, one is the pension target risk type, and the other is the target date type. As the retirement date approaches, the equity position proportion of the target date fund becomes smaller and smaller. Target risk funds are divided into three risk attributes: stable, balanced, and active. "When operating and managing pension target risk funds, we pay great attention to the cost-effectiveness of investment, attach equal importance to returns and risks, allocate different asset categories in a sufficiently diversified and balanced manner, and obtain excess returns through multiple assets. By reducing performance volatility and guiding investors with more stable performance, they can hold on to market fluctuations better, thereby adhering to long-term and rational investment."

Existing "players" survive the fittest

After six years of intensive cultivation, pension FOF has successfully expanded its territory and gradually entered the stage of survival of the fittest. According to iFinD data from Tonghuashun, as of August 6, the number of pension FOFs has increased from the initial 14 to the current 273, and the latest total size as of the end of the second quarter has reached 64.447 billion yuan.

With more "players", the problem of homogeneity is also emerging. The watershed of scale has effectively cleared out some tepid products. Since the beginning of this year, many pension FOFs have left the market due to scale reasons. Public data shows that as of August 6, 6 pension FOFs have been liquidated this year, and the reason is related to the small scale of the products. It is understood that the above-mentioned liquidated products are all initiated funds. When the scale is less than 200 million yuan after 3 years of establishment, the liquidation conditions of the fund contract are automatically triggered.

Yang Delong believes that the liquidation of some pension FOFs due to shrinking scale is also a form of survival of the fittest in the market. "From overseas experience, the investment advantage of pension FOFs lies in long-term investment, that is, to beat the market and obtain good returns from a long-term perspective. Therefore, it is necessary to do a good job in investor education and let investors focus on the medium- and long-term performance of related products."

According to iFinD data from Tonghuashun, as of the end of the second quarter, among the 270 pension FOFs for which current data is available, there are still 177 products with a combined scale of less than 200 million yuan, and as many as 64 products with a scale of less than 50 million yuan. Currently, the largest pension FOF with a combined scale is the Bank of Communications Schroder Anxiang Stable Pension Target One-Year Holding Period Mixed FOF, which is 5.102 billion yuan; the smallest is the Yingda Yanfu Pension Target 2055 Three-Year Holding Mixed Initiation FOF, which is only 7.8422 million yuan.

Jia Zhi, managing director of Hualin Securities Asset Management Tribe, believes that pension FOF has played a certain role in raising the awareness of pension for all people. However, when promoting such products, fund managers emphasize serving the elderly and have introduced "imported strategies" such as target dates and target risks, which have strengthened the holders' expectations for absolute returns and ignored the objective fluctuations. At the same time, when selling and promoting products, they artificially raised the holders' expectations, which increased the psychological gap and distrust of the holders after the market adjustments in recent years.

Jia Zhi emphasized that "the experience of overseas pension FOFs is worth learning from, but it cannot be copied and pasted. Domestic investors are still adapting to the stage of breaking the rigid guarantee and net value. Pension FOFs should emphasize the functions of pension savings and medium- and long-term preservation and appreciation of value. It is recommended to ignore short-term fluctuations and build confidence in medium- and long-term investment."

Exploring sustainable development paths

As an investment category still in a booming growth stage, pension FOF carries investors' earnest expectations for pension planning. Compared with traditional public funds, pension FOF has its own distinct characteristics, and also shows many differences in investment strategy, risk management and product positioning. However, in the view of industry insiders, although pension FOF has achieved certain results in the short term, it still needs to make some changes if it wants to develop in the long run.

Yang Delong suggested that pension FOF should still provide investors with better performance returns in the future, especially when the market is sluggish, and be able to properly control the drawdown. Since this type of product is an investment for the purpose of retirement, it is still necessary to put risk control first and return second, so as to avoid a large decline in net value.

A senior investment researcher at a large public fund said that if pension FOF is to become bigger and stronger, it first depends on the development of personal pension business. Only when the scale of personal pension business is improved can the pension FOF be promoted to a better development. Therefore, from the perspective of fund managers, they can cooperate with channels to carry out continuous pension publicity and go into enterprises to conduct pension investment education.

With the heavy task of pension ahead, fund managers who understand the characteristics of pension FOFs are also actively exploring the path to sustainable development. Through a series of innovative strategies and precise positioning, they are injecting new vitality and growth points into such products.

"At the product level, we can encourage more innovation in strategies and mechanisms to enhance the attractiveness of pension FOFs to investors. For example, we can study and promote the implementation of more flexible pension withdrawal mechanisms, including mechanisms for public funds to make long-term payments to customers within personal pension accounts, and provide investors with continuous or even perpetual cash flow. In addition, pension investment needs vary from person to person, and will be diversified due to the customer's age, education level, income level, and investment philosophy. Therefore, it is also important to accurately portray the profile of pension customers and provide tiered management and investment education services to customers." said the above-mentioned senior public fund investment research person.

From the perspective of investment institutions, Xingzheng Global Fund mentioned that, first of all, it is necessary to continue to improve the pension product line, further broaden the breadth of research, and strengthen the exploration of various types of pension products. On this basis, further strengthen the research on domestic and foreign pension systems, increase and improve the layout of innovative products. Secondly, we must adhere to the multi-asset strategy to obtain more cost-effective investment returns. In addition, we must continue to promote the implementation of pension investment education, with the goal of improving investors' understanding of pension investment, with the issues that investors care about as the content, and popularize pension investment knowledge through investment education forms close to investors, and improve the level of pension investment services.

Promoting retirement investment is difficult but correct. Although the development of retirement FOF is still facing various difficulties, industry insiders are optimistic about its long-term development trend.

China Europe Fund said that pension investment should occupy a certain proportion in the asset allocation of each family. It is recommended that investors can first open a personal pension account, and then make a small amount of allocation. After understanding various products, they can gradually find an investment plan and a trustworthy manager based on their risk characteristics. When allocating pension products, you can make a comprehensive selection based on your age, risk preference, income, risk tolerance and other characteristics, or refer to some professional opinions. We are optimistic about the long-term development prospects of pension FOF, and believe that with the development of the market and the further expansion of policies, more and more investors will recognize pension FOF.

Beijing Business Daily reporter Li Haiyuan