The pharmaceutical and biotech sector has recently demonstrated notable strength, delivering substantial outperformance relative to the CSI 300 Index. Within this space, the Contract X Organization (CXO) segment has taken the lead, emerging as one of the most prosperous sub-sectors in the healthcare industry.
Over a longer horizon, the CXO index (851563.SI) has climbed 56.0% since the start of the year, ranking first among all pharmaceutical sub-sectors. (Data source: iFinD; data range: January 1, 2026, to September 18, 2026; figures are point-in-time values. Index performance differs from individual fund performance, does not represent fund results, and should not be taken as a future return guarantee or investment advice. For authoritative details, refer to official index company releases. The CXO index's annual returns over the past five years: 11.50%, -33.24%, -23.50%, -23.60%, and 46.75%.)
Regarding valuation shifts, as of September 18, the pharmaceutical sector's price-to-earnings ratio stood at 28.36 (PE TTM, aggregate method, excluding negative earnings). The valuation premium over the CSI 300 was 123.51%, while the premium relative to all A-shares excluding banks was 12.35%. This suggests that the sector's valuation premium over the CSI 300 has been trending upward with fluctuations recently. (Data source: iFinD)
What has truly prompted institutions to re-evaluate healthcare is the "15th Five-Year Plan for the Development of the Pharmaceutical Industry," jointly issued by ten government departments on September 18. Several figures from this blueprint merit attention: by 2030, revenue for pharmaceutical industrial enterprises above a designated scale should exceed 3.5 trillion yuan; the innovative drug sector is targeted to grow at an average annual rate of over 20%; first-in-class (FIC) drugs should account for more than 25% of the global share; at least five products should achieve annual global sales exceeding $1 billion; and cumulative approvals for innovative medical devices should surpass 200.
More importantly, there has been a shift in positioning. The pharmaceutical industry, once classified as a "strategic industry" during the 14th Five-Year Plan period, is now explicitly designated in the 15th Five-Year Plan as one that should "accelerate its emergence as a national emerging pillar industry." Behind this change in wording lies a systematic alignment of policy resources, reimbursement mechanisms, and the entire review-and-approval pipeline.
While the industry's fundamentals are on an upward trajectory, capital has not yet fully returned. As of the end of the second quarter of 2026, the total scale of healthcare-focused funds stood at 331.5 billion yuan, down 22.3 billion yuan from 353.8 billion yuan at the end of the first quarter of 2026. Meanwhile, the allocation to healthcare by non-healthcare active equity funds has fallen to roughly 4.51%, a historically extreme low. (Data source: iFinD)
This divergence—industries delivering on their potential while capital allocations remain at depressed levels—may be the core logic behind the current window for building healthcare positions. The only remaining question is which instrument to use to express that view.
A Steady Play on Beta: CITIC Prudential CSI 800 Healthcare
If you are bullish on the overall beta of the healthcare sector and prefer not to make additional stock-selection judgments, this serves as a relatively standard tool-oriented product. It tracks its benchmark closely: through rigorous tracking-error control and meticulous management, the CITIC Prudential CSI 800 Healthcare Index (LOF) has consistently delivered outperformance relative to its benchmark for ten consecutive years. Over the past decade, its annual net value growth rates against benchmark returns are: 2025: 14.59% vs. 10.86%; 2024: -10.06% vs. -13.01%; 2023: -6.03% vs. -8.09%; 2022: -22.99% vs. -23.99%; 2021: -2.12% vs. -11.56%; 2020: 58.63% vs. 44.07%; 2019: 31.74% vs. 28.27%; 2018: -23.44% vs. -26.72%; 2017: 22.45% vs. 14.95%; and 2016: -9.97% vs. -10.59%. The fund, established on August 16, 2013, was converted from the CITIC Prudential CSI 800 Healthcare Index Graded Securities Fund on January 1, 2021. Performance data is sourced from fund periodic reports, with figures as of December 31, 2025. Past performance does not indicate future results, and fund net values are subject to volatility.
Adherence to the benchmark is disciplined: per the fund contract, the CITIC Prudential CSI 800 Healthcare Index (LOF) employs a full-replication strategy to track the index, aiming to keep the absolute daily tracking deviation between the fund's net value return and the benchmark no higher than 0.35%, with an annual tracking error not exceeding 4%.
Its track record extends over a decade: launched in August 2013, it has been operating for over 13 years, navigating multiple bull and bear cycles in the healthcare sector.
The underlying benchmark is the CSI 800 Pharmaceuticals and Biotechnology Index, an industry index comprising all securities from the "Pharmaceuticals and Biotechnology" secondary industry within the CSI 800. The CSI 800 combines the CSI 300 and CSI 500, covering large-, mid-, and small-cap core assets across A-shares. As a result, this index naturally blends the stability of large-cap blue chips with the flexibility of mid-cap growth.
First, this is not an index that screens healthcare stocks from the entire market; instead, it incorporates all pharmaceutical-sector stocks within the CSI 800. This ensures broad coverage, avoiding omissions of specific sub-segments due to screening preferences. At the same time, with market-capitalization weighting, weights naturally concentrate toward leaders, which accurately reflects the current industrial landscape of the healthcare sector.
Second, as of now, the index holds 48 constituent stocks spanning chemical pharmaceuticals, medical services, traditional Chinese medicine, biologics, chemical products, and medical devices, covering all healthcare sub-sectors. It is neither an "innovative drug index" nor a "traditional Chinese medicine index," but rather a tool-oriented product covering the entire healthcare industry.
Third, the weighting structure mirrors the true industrial pattern of the sector today. The top ten holdings in the CSI 800 Pharmaceuticals and Biotechnology Index are currently: WuXi AppTec (603259.SH) at 20.60%, Hengrui Medicine (600276.SH) at 12.81%, Kelun Pharmaceutical (002422.SZ) at 3.46%, Yunnan Baiyao (000538.SZ) at 3.44%, Pharmaron (300759.SZ) at 3.43%, NHU (002001.SZ) at 3.18%, Pianzhihuang (600436.SH) at 2.82%, Asymchem (002821.SZ) at 2.47%, BeiGene (688235.SH) at 2.38%, and Allist (688578.SH) at 2.30%. (Data source: iFinD and the index company, as of September 22, 2026. For authoritative details, refer to official index company releases. The fund manager does not endorse any sector or industry mentioned, and this does not constitute investment advice or a recommendation.)
A notable feature of this weight structure is that WuXi AppTec alone exceeds 20%, with Hengrui Medicine at 12.81%. This implies the index's performance is highly correlated with the prosperity of the CXO and innovative drug segments, both of which are currently among the strongest-performing sub-sectors in healthcare. The index's weight allocation aligns conveniently with industries exhibiting strong trends. It is not an "evenly distributed" index but an industry tool that is "broad in coverage yet clear in direction."
Fourth, the constituent adjustment mechanism ensures ongoing renewal. The index rebalances semiannually, taking effect on the trading day following the second Friday of June and December. This means newly listed, significant pharmaceutical companies have the opportunity to be included, preventing the index from "aging"; companies with deteriorating fundamentals are removed to avoid dragging down performance; and shifts in industry trends are reflected in a timely manner.
Investors who favor tool-based allocation, are sensitive to fees, and seek low-cost exposure to the average returns of the healthcare industry may find this product worth understanding. It serves as the standard component for a healthcare position.
An Alpha Seeker: CITIC Prudential Healthcare Select Mixed Fund
If you believe healthcare returns will not be "evenly distributed" and need someone to handle stock selection, this is that person. Consider the credentials of fund manager Chen Yajie (serving since April 22, 2026). He holds a bachelor's degree in pharmacy from Wuhan University, with a double major in economics, followed by six years of combined master's and doctoral study in chemical biology at Peking University, focusing on synthetic chemical probes to address biological questions. This interdisciplinary background in chemistry and biology gives him a deep understanding of drug mechanisms. Joining a public fund company's international business division in 2021, his research footprint over nearly five years has spanned A-shares, H-shares, and U.S. markets across various healthcare sub-sectors, with particular attention to high-growth areas like innovative drugs and CXO.
His investment framework can be summarized in three principles. Sub-sector diversification: by spreading across sub-sectors, he aims to control portfolio drawdowns. The 2026 mid-year report shows the CITIC Prudential Healthcare Select Mixed Fund's holdings cover both A-shares and Hong Kong-listed stocks, spanning multiple sub-sectors including innovative drugs, CXO, medical devices, and consumer healthcare.
Concentrated individual positions: to enhance portfolio returns and sharpness. The second-quarter 2026 report indicates the top ten holdings concentrate at 17%, with the ability to allocate up to 9-10 percentage points to deeply researched, long-term tracked key targets. Concentration in individual stocks is for sharpness; diversification across sub-sectors is for drawdown control.
Flexible A/H allocation: within the fund contract's cap of 50% of equity positions for Hong Kong stocks, the manager will reduce the Hong Kong allocation during periods of low liquidity to avoid shocks, and may raise it when global liquidity spills over to enhance elasticity.
Chen's stock-selection standards comprise three dimensions, forming a filtering chain from "can we buy" to "is it worth buying." First, company quality and governance: he prioritizes companies with top-tier industry positions, focusing on management integrity, long-term objectives, and any signs of frequent capital raising. If the odds are attractive enough, quality requirements may be relaxed but never below a baseline. This addresses whether the company itself is reliable.
Second, growth and expectation gaps: he requires strong growth potential and, critically, a differentiated view versus market consensus with a deliverable expectation gap. The source of excess returns is not "seeing good news earlier than others" but "judging more accurately whether good news will materialize." This addresses why to buy now.
Third, valuation requirements: he prefers reasonably low or significantly low valuations with clear upside potential. For fully valued companies, even with strong quality, position sizes are kept restrained. His valuation framework centers on DCF, integrating peak drug sales estimates, market-specific discount rates, and PS multiples, calibrated through multiple cycles to provide high-probability guidance. This addresses at what price to buy.
A distinctive element of Chen's risk control is that it does not mechanically enforce ratios but instead treats floating losses as a trigger for reassessing judgments. Profit-taking is applied more frequently in Hong Kong stock operations: after a stock rises, if funding conditions are weak or liquidity is unfavorable, he may actively reduce positions. Loss-cutting is governed by two thresholds: a 10% floating loss initiates a review of the fundamental thesis; a 15-20% loss prompts serious reflection. Crucially, if fundamentals are confirmed intact and the loss is purely beta-driven with no further deterioration risk, he may even add to positions against the trend. The essence of stop-loss discipline is to signal whether the thesis is wrong, not to trigger passive selling. This risk-control logic is integrated with his investment philosophy of bottom-up stock selection combined with sector beta judgment—first determine whether the view was wrong, then decide whether to sell.
What is he focusing on now? Chen believes the market is currently in the early stages of a 5-10-year prosperity cycle for China's innovative drug industry, and valuations for high-quality Chinese innovative drug companies remain far from fully priced. Selecting and investing in companies capable of winning out could yield investment returns ahead. At this juncture, CDMO and innovative drugs warrant particular attention.
On CDMO, he views Chinese CDMO firms as technology-leading, execution-efficient "water sellers" deeply embedded in the global pharmaceutical supply chain. This year, as many in-house projects enter late-stage clinical development and commercial launch phases, the second derivative of earnings and order book growth is accelerating, potentially setting up a Davis double-play for share prices. Based on analysis of order backlogs, the global competitiveness and growth sustainability of Chinese CDMO firms are not yet fully reflected in market pricing.
On innovative drugs, he notes that most pipelines from Chinese drug developers with high overseas sales potential are still in Phase II or III clinical development. The capital market applies a significant valuation discount to these pipelines to compensate for development risk. Consequently, as more positive clinical data emerges in the coming years and the probability of successful launches rises, the upside for re-rating quality pipelines is substantial. He will continue seeking potential star molecules with significant valuation re-rating headroom, as well as innovative drug companies with strong platform capabilities and replicable models.
Conclusion
The passive instrument addresses the question of "whether to hold healthcare," while the active instrument addresses "which part of healthcare to hold." The CITIC Prudential CSI 800 Healthcare A aims to deliver beta reliably—with small tracking error and cumulative excess returns, suitable as a "core position tool" in healthcare allocations. Its value lies not in "surges," but in tracking faithfully, falling less, and providing peace of mind.
The CITIC Prudential Healthcare Select Fund seeks to extract alpha on top of beta—using Chen's academic background, cross-market perspective, and dynamic valuation framework to uncover "expectation gaps not yet fully priced by the market" in segments like innovative drug globalization, CDMO, and surgical robotics. Its value lies not in "balance," but in the courage to concentrate, the sharpness to act, and the precision in selection.
One near-term catalyst is worth flagging: the 2026 ESMO Annual Meeting is scheduled for October 23-27, with multiple Chinese innovative drug companies expected to present pivotal clinical data. For investors tracking the internationalization progress of innovative drugs, this represents a catalyst window worth watching in advance.
Note: The above content is intended solely to illustrate the fund manager's research approach and current market views, and does not constitute an investment commitment. The fund's strategy, sector allocations, specific holdings, and weightings will be adjusted based on market conditions within the bounds permitted by the fund contract. The CITIC Prudential CSI 800 Healthcare Index (LOF), established on August 16, 2013, was converted from the CITIC Prudential CSI 800 Healthcare Index Graded Securities Fund on January 1, 2021. Its performance benchmark is 95% of the CSI 800 Pharmaceuticals and Biotechnology Index return plus 5% of the financial institution deposit rate. Class A historical performance/benchmark: 2021: -2.12%/-11.56%; 2022: -22.99%/-23.99%; 2023: -6.03%/-8.09%; 2024: -10.06%/-13.01%; 2025: 14.59%/10.86%. Class C shares were established on August 26, 2021, with historical performance/benchmark: 2022: -23.29%/-23.99%; 2023: -6.40%/-8.09%; 2024: -10.43%/-13.01%; 2025: 14.14%/10.86%. Past and current managers: Wu Yanan (August 30, 2013, to March 27, 2015), Yang Xu (January 15, 2015, to September 18, 2019), Huang Zhi (since September 4, 2019). The fund manager rates this fund's risk level as R4. The CITIC Prudential Healthcare Select Mixed Fund, established on December 3, 2025, uses a benchmark of 70% CSI Healthcare Index return plus 10% CSI Hong Kong Healthcare Composite Index return (converted at valuation exchange rates) plus 20% China Bond Aggregate Total Return Index. Class A historical performance/benchmark since inception to June 30, 2026: -0.64%/-10.14%; Class C: -0.98%/-10.14%. Past and current managers: Lü Zhigang (since December 3, 2025), Chen Yajie (since April 22, 2026). The fund manager rates this fund's risk level as R4. Chen manages no other products similar to the CITIC Prudential Healthcare Select Mixed Fund. Fee rates below are drawn from the most recent prospectus and legal documents; refer to official announcements from the fund manager or distributors for specifics. Fund codes and fee structures are detailed in the prospectus: for instance, CITIC Prudential CSI 800 Healthcare E (023592.OF) charges 0% subscription fees, a 1.5% redemption fee for holdings under 7 days and 0% beyond, a 1.00% management fee, a 0.20% custodian fee, and a 0.10% sales service fee. Similar schedules apply to other share classes and the Healthcare Select funds, with tiered subscription and redemption rates based on holding periods.
Risk disclosure: Funds differ from bank deposits or other instruments offering fixed income expectations. When purchasing fund products, you may share in gains from fund investments based on holdings, but also bear potential losses. Before investing, carefully read the prospectus, product summary, fund contract, and other legal documents along with this risk disclosure to fully understand the fund's risk-return profile and product characteristics, weigh all risk factors, and consider your own investment objectives, time horizon, experience, and financial situation to assess risk tolerance. Make independent decisions and select suitable products based on your circumstances. Per applicable regulations, the fund manager provides the following risk warnings: First, funds are categorized by investment targets into equity funds, mixed funds, bond funds, money market funds, funds of funds, commodity funds, and others. Different fund types carry different return expectations and risk levels; generally, the higher the expected return, the greater the risk. Second, funds face various risks during operation, including market risk, as well as the fund's own management, technical, and compliance risks. Redemption risk is unique to open-ended funds: when net redemption requests on a single open day exceed a certain percentage of total fund shares (10% for open-ended funds, 20% for periodic-open funds, excluding special products specified by the CSRC), you may be unable to redeem all requested shares promptly, or payments may be delayed. Third, you should fully understand the difference between regular fixed-amount investment plans and savings methods like installment deposits. Fixed-amount investment is a simple way to encourage long-term investing and average costs, but it does not avoid inherent fund risks, guarantee profits, or serve as an equivalent substitute for savings. The fund manager reminds you of the "buyer beware" principle: after making investment decisions, risks arising from fund operations and net value changes are borne by investors. Past performance and net value levels do not indicate future performance, and other funds' performance does not guarantee this fund's results. The fund manager commits to managing fund assets with honesty, good faith, and diligence but does not guarantee profitability, minimum returns, or principal safety. References to specific stocks, sectors, or industries in this material are for informational purposes only, do not represent the fund manager's investment advice, fund holdings, or trading directions, and do not constitute any recommendation. Views expressed by the fund manager offer no guarantee regarding future market movements. The funds mentioned are applied for and registered with the China Securities Regulatory Commission (CSRC) under applicable laws and regulations. Fund contracts, prospectuses, and product summaries are publicly disclosed via the CSRC's electronic disclosure platform and the fund manager's website. CSRC registration does not signify a substantive judgment or guarantee of investment value, market prospects, or returns, nor does it indicate the absence of risk. If the product operates with periodic-open arrangements or minimum holding periods, you may face liquidity constraints during closed periods or minimum holding durations. Funds carry risks; invest with caution. MACD golden cross signals have formed, and these stocks are showing strong upward momentum!
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