Key Highlights:
The technology sector has experienced extreme volatility this year, surging in the first half before sliding into consolidation from July. In this turbulent environment, several fund managers with assets under management exceeding 10 billion yuan appear to have fallen into a "chasing highs" trap. During the second quarter, notable fund managers including Zhang Kun, Hu Xinwei, Liu Yanchun, and Zhao Bei diversified into tech stocks, only to see net asset value (NAV) declines across their portfolios. For instance, Liu Yanchun's Invesco Great Wall Dingyi fund posted a near-monthly return of approximately -20%.
Missed Opportunities in Liquor and Hong Kong Tech
Zhang Kun's E Fund Blue Chip Select fund, previously focused on blue-chip consumer stocks, added Yang Siliang and He Yicheng as co-managers in May. In the second quarter, the fund reduced holdings in consumer and internet blue chips to buy tech stocks. Specifically, among its top ten holdings, positions in Tencent Holdings, Kweichow Moutai, Yum China, CNOOC, Luzhou Laojiao, Wuliangye, Shanxi Fenjiu, and Alibaba-W were significantly cut, with share counts dropping by approximately 47.98%, 47.13%, 46.34%, 41.40%, 51.76%, 70.68%, 70.91%, and 75.40%, respectively, compared to the end of the first quarter. Meanwhile, popular AI stocks Semiconductor Manufacturing International Corp (SMIC) and Dongshan Precision Manufacturing entered as the eighth and ninth largest holdings, marking their first appearance in the fund's portfolio. However, from July to early August, consumer and Hang Seng Tech sectors rebounded, while AI stocks experienced a sharp pullback. From July 1 to August 5, Tencent Holdings and Kweichow Moutai rose 14.52% and 10.20%, respectively, while SMIC and Dongshan Precision fell about 23.94% and 28.02%. The E Fund Blue Chip Select fund's cumulative return for this period was only about 0.24%, lagging behind the liquor and Hang Seng Tech indices.
Shifting Away from Industry Leaders
Hu Xinwei's China Universal Value Creation fund, previously allocated to industry leaders like Tencent Holdings in internet, CATL in new energy, Zijin Mining in metals, and Kweichow Moutai in liquor, underwent a major overhaul in the second quarter. Six of the top ten holdings were replaced, with optical module leaders ZJ INNOLIGHT and Eoptolink Technology becoming the top two. New entries included electronic component firm Jianghai Co Ltd, semiconductor equipment makers Changchuan Technology and Tuojing Technology, and chipmaker Hua Hong Semiconductor. Only Zijin Mining, Midea Group, and Kweichow Moutai remained from the previous holdings, with reduced positions. In the second-quarter report, Hu Xinwei expressed optimism about domestic consumption while increasing allocations to tech and high-end manufacturing, reducing exposure to resources and energy. From July 1 to August 5, the China Universal Value Creation fund posted a cumulative return of about -10.86%.
Complete Overhaul of Top Holdings
Liu Yanchun's Invesco Great Wall Dingyi fund, which had consistently held liquor, consumer, and medical stocks, replaced all of its top ten holdings in the second quarter after appointing a new co-manager in May. As of the end of June, the top holdings were Jiangfeng Electronics, ZJ INNOLIGHT, Dongfang Tantalum, Tuojing Technology, Jerry Oilfield Services, CATL, Xinjinlu Chemicals, Wanchen Group, China Tungsten High-Tech, and Xinqi Micro-Lithography. This marked a shift from years of top holdings in Kweichow Moutai, Shanxi Fenjiu, and Wuliangye. The fund's second-quarter report highlighted a focus on AI-driven technology changes, particularly in semiconductor materials and equipment, as well as strategic resources and export-oriented capital goods. It maintained some consumer exposure, such as snack retailer Wanchen Group. The heavy bet on AI has led to significant NAV declines, with the fund's cumulative return from July 1 to August 5 at about -22.83%.
From Pharma to AI
Zhao Bei's ICBC Credit Suisse Growth Select fund, previously focused on innovative drugs, made a dramatic shift in the second quarter. Among its top ten holdings, only one stock—Biocytogen-B—remained from the pharmaceutical sector, while the other nine were AI-related stocks. New positions included Cambricon Technologies, Xinwei Microelectronics, Luxshare Precision, AMEC, Hygon Information, Dongshan Precision, GigaDevice, Eoptolink Technology, and Montage Technology. In the fund's report, Zhao Bei noted a strategic allocation to tech sub-sectors like semiconductor equipment, memory, and computing power, while still maintaining a significant position in innovative drug stocks. However, from July 1 to August 5, the fund's cumulative return was about -17.89%, as it missed the rebound in the pharmaceutical sector. The CSI Innovative Drug Index and CSI Medical & Health Index rose about 7.52% and 9.25%, respectively, during this period.
Overcrowding in Tech Sparks Concern
The strong performance of the tech sector in the first half led many mutual funds to rebalance into this space, creating a crowded trade. Data from Tianxiang Investment Consulting showed that as of the end of the second quarter, the top ten A-share holdings of active equity funds were ZJ INNOLIGHT, Eoptolink Technology, Dongshan Precision, Cambricon Technologies, CATL, AMEC, Yuanjie Technology, GigaDevice, Northern Huachuang, and Sanhuan Group. The most reduced stocks were CATL, Kweichow Moutai, and Zijin Mining. Tianxiang noted that ZJ INNOLIGHT had a high "herding degree" of 18% among active funds, signaling strong market consensus. This concentration raises investor concerns about overcrowding and potential diminishing returns. GF Securities reported that active equity funds' allocation to the electronics sector reached 43.4% of portfolio value as of the end of the second quarter, compared to its 23.6% free-float market-cap weight in the entire A-share market, resulting in an overweight of about 20 percentage points. The last time a single sector's weighting exceeded 30% was in June 2009, when banks were overweight by 16%. GF Securities believes that since late June, many tech stocks have corrected 30% to 40%, making the adjustment "fully sufficient." Tech remains a medium-term theme, with the "dual-creation" (ChiNext and STAR Market) dominance likely to persist, though the structure may shift.
This article is for reference only and does not constitute investment advice. Investing involves risk, and caution should be exercised.
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