Against the backdrop where AI narratives not only enable but also pose substitution risks, the HALO trading strategy is gaining traction and breaking into the mainstream within the mutual fund industry. As AI technology evolves and penetrates vertical sectors, the "AI+" logic that once supported the valuation of technology and internet stocks is increasingly being questioned by some institutions. High-profile tech stocks have undergone significant adjustments from their peaks, deepening fund managers' concerns that technological empowerment may turn into technological replacement.
In this context, HALO trading—centered on heavy assets and low obsolescence—emphasizes sustainable business models resilient to external disruptions. This strategy is emerging as a new focal point in mutual fund investment research. The rationale behind heavy fund holdings is shifting, with narrative strategies pivoting toward risk aversion.
The new technological revolution brings not only opportunities but also risks of disruption for fund managers' equity investments. AI-powered vertical applications were once a key theme for tech-focused fund managers seeking alpha. Light-asset, high-volatility software and internet stocks gained valuation premiums due to expectations of technological enablement, attracting crowded positions from mutual funds. However, by late 2025 to early 2026, efforts by such companies to embrace AI began to be viewed by some institutional capital as futile struggles amid technological upheaval.
As large-scale AI models rapidly advance, some mutual funds have grown concerned that AI may not just be a tool for enhancement but could become an industry disruptor. Light-asset firms reliant on human capital, algorithms, and business model innovation face erosion of their competitive moats, casting doubt on the sustainability of their profits. Valuations inflated by earlier crowded trades have begun to soften, leading to deep corrections among star tech stocks.
Adobe, a leading creative software firm with a market cap exceeding $100 billion, was once a top holding in QDII portfolios of funds such as GF Fund and China Universal Asset Management. As AI substitution fears intensified, Adobe largely disappeared from the top ten holdings of QDII funds starting December 2025, with its stock price halving from its peak. Similar AI-driven sell-offs have frequently occurred among internet, software, and even biotech companies in the U.S. market. For instance, GRAIL, a U.S. biotech star, saw its shares plunge 50% at the close on February 20, 2026, as a Shenzhen-based QDII fund reduced its holdings due to concerns that AI-powered non-invasive testing could replace blood-based cancer screening.
This narrative shift has also influenced fund allocations to Hong Kong-listed stocks. Technology names previously favored by mutual funds, such as Hong Kong-listed tech firms, have seen reductions in holdings by some products, with these stocks generally retreating 30% to 60% from their 2025 highs. Recent cumulative declines of over 20% in some Hang Seng Tech ETFs are also linked to this change in narrative.
In contrast to the correction in light-asset tech stocks, companies with tangible asset barriers, physical attributes, stable business models, and low susceptibility to AI disruption are gaining attention from fund managers. This is the core of the currently popular HALO trading strategy.
Zhang Qisi, a technology fund manager at Southern Fund, pointed out that HALO stands for Heavy Assets, Low Obsolescence—a core strategy recently emphasized by mainstream Wall Street institutions. Ultimately, as AI-related stocks have outperformed the broader market over the past two years, capital is seeking more cost-effective alternatives, focusing on companies with physical moats and irreplaceability.
Mutual funds prioritize sustainable operations, and the HALO strategy embraces low obsolescence. When valuation compression in tech and internet stars stems from business model substitution risks, the core stock selection under the HALO strategy emphasizes perpetual business models. Several fund professionals discussing HALO targets highlighted the "sustainable operation" characteristics of business models and demand.
By definition, HALO trading rests on two pillars: heavy assets, where companies rely on physical assets such as properties, stores, campuses, production facilities, and power infrastructure to build high barriers with high replication costs, long construction cycles, and strict entry requirements; and low obsolescence, where businesses and assets are minimally affected by technological iterations, exhibit rigid demand, and can endure industry cycles while providing stable cash flow.
Chen Boyang, assistant fund manager in the research department of Invesco Great Wall Fund, stated that the essence of HALO trading is to screen out targets with unsustainable profits and identify perpetual enterprises with long-term irreplaceability. The strategy's rise stems from three factors: first, crowded trades in the earlier AI theme led to profit-taking and rotation into undervalued stocks, with heavy-asset, low-valuation targets offering ample safety margins; second, global supply chain restructuring and accelerated AI industrialization have increased demand for hard assets like power, computing infrastructure, and physical terminals; third, institutional capital shifting from high to low valuations has reinforced this trend.
"AI poses greater potential risks to light-asset business models, while heavy assets offer relative safety advantages," Chen emphasized. Given the high volatility and cyclical nature of tech sectors, institutions are seeking perpetual operation targets that can hedge risks and provide long-term cash flow. Markets need "ballast" in portfolios, which is a key reason the HALO strategy emphasizes sustainability.
Liu Kaijie, an index researcher at E Fund Management, noted that recent investor interest in E Fund’s power grid equipment ETF is also related to the growing popularity of HALO trading. The heavy-asset nature of power equipment provides a moat, low obsolescence offers a safety cushion, and solid fundamentals with resilient domestic and international demand make it less susceptible to market sentiment and AI narratives, suitable as a stable core holding.
Wei Fengchun, chief economist at China Merchants Fund, suggested that despite AI breakthroughs in 2026, full-scale industrialization has not yet been achieved. Traditional heavy-asset sectors are experiencing a revival under new demand, upgrading HALO assets from traditional value stocks to those combining value and growth attributes. He views HALO assets as "water sellers" in the new technological revolution, providing underlying support such as power, resources, and infrastructure for AI and other new productive forces.
Reflecting these views, fund managers in the A-share and Hong Kong markets have already implemented stock selection based on HALO logic, with several heavy-asset leaders posting independent gains. Huazhu Group, a top holding of E Fund’s Zhang Kun, has seen its stock price rise over 70% in the past seven months; JNBY, heavily held by Invesco Great Wall, has expanded its offline stores to over 2,100, with its stock up about 60% in the past year; China East Education, a key holding of Ping An Fund, which operates numerous physical campuses across China, has quietly doubled in price over the past year.
Notably, many tech-focused funds are also adopting HALO targets for hedging. A leading tech fund in Shenzhen added DPC Dash, a chain restaurant leader in the pizza segment, to its top ten holdings in late December 2025; the company opened over 300 new stores in 2025. Meanwhile, the China Europe Hong Kong Stock Connect Digital Economy QDII fund, which focuses on software, listed Youran Animal Husbandry as its second-largest holding. Youran, a leading domestic dairy farm operator with typical heavy-asset characteristics, has seen its stock price surge 1.8-fold since early January 2025.
Despite its rise, opinions on the applicability of the HALO strategy vary within the mutual fund industry. "HALO trading is a strategy with a U.S. and European perspective, dependent on local economic conditions, and may not be directly applicable to the A-share market," Zhang Qisi of Southern Fund noted. He explained that while the logic of "AI power consumption—rising electricity prices—investment in power" holds in the U.S. due to weak infrastructure approval and construction capabilities and volatile market-based electricity prices, it may not smoothly translate to China's advanced infrastructure and regulated pricing mechanism.
Chen Boyang of Invesco Great Wall Fund believes that HALO trading and tech-growth styles should be interwoven and balanced for optimal expected returns. Under an unchanged major trend, the two logics complement each other and rotate, potentially lifting valuations in traditional sectors. However, if AI narratives reverse and affect market risk appetite, traditional sector assets may no longer retain their safe-haven attributes—a scenario differing from past experiences.
Liu Kaijie of E Fund Management argues that HALO assets attract attention in the AI era precisely because of their perpetual value, which also benefits from AI development. However, their unique asset attributes provide portfolio protection when AI narratives are questioned.
Wei Fengchun judges the HALO strategy as a phase-specific core approach amid the cyclical revival of 2026, challenging traditional dichotomies between old and new industries and the notion that value equates to low volatility. It achieves dynamic risk-return balance within a barbell allocation strategy. Going forward, companies with tangible asset barriers, stable cash flow, and low technological substitution risks are poised to benefit from both valuation repair and earnings growth.
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