As the market deliberates whether to continue investing in technology, numerous funds have already doubled in value this year. The AI (Artificial Intelligence) rally persists, though sector rotations are accelerating and volatility within specific segments is increasing.
Following the surge in AI-related tech stocks, a growing number of funds have seen their net asset values double in 2024. Data shows that as of June 23, a total of 82 funds have achieved year-to-date returns exceeding 100% (counting only primary share classes). Among these, 72 are actively managed funds, while 10 are passive index funds, with the top performer boasting returns over 160%.
The top holdings of these doubling funds are concentrated within the AI industry chain. However, recent sharp volatility in global AI technology stocks has heightened market concerns about the sustainability of the AI rally. Questions arise about whether AI computing power demand will cool, if capital expenditures will continue to expand, and when the bubble risk behind high valuations might materialize.
Proliferation of Doubling Funds
The AI narrative is reaching an extreme, a reality keenly felt by fund investors this year. The experience of funds heavily invested in tech stocks is entirely different from those focused on other sectors this year. One investor noted that funds in his portfolio with allocations to chemicals and liquor have delivered mediocre returns, some even in negative territory. Another private equity investor admitted that due to a late switch into the tech sector, their current returns are only slightly above 10%.
So, how have funds betting on the technology direction performed? Data indicates that as of June 23, over 82 funds have doubled their net asset value year-to-date. Seventy-two of these are actively managed funds, spanning categories like flexible allocation, partial equity hybrid, ordinary equity, and QDII (Qualified Domestic Institutional Investor) funds.
Specifically, a fund managed by Caitong Fund leads with a year-to-date return of 160.9%. Fund manager Jin Zicai dominates the top four spots, with four of his managed funds achieving returns over 140%, and another three surpassing 100%. It is relatively rare in the industry for one manager to have seven funds double in value within a year.
Based on first-quarter holdings, these seven funds were heavily concentrated in the AI computing power segment, with an extreme focus on high-growth investments driving up fund values. Beyond Jin Zicai, products from fund houses like Founder Sealand, GF Fund, Huashang Fund, and Ping An Fund have also successfully ridden the tech wave.
For instance, funds such as Founder Sealand Core Advantage, GF Far-sighted Smart Selection, Huashang Balanced Growth, Caitong Growth Select, and Ping An Technology Select have all posted year-to-date returns exceeding 130%. Their major holdings span sectors like computing infrastructure, storage, optical modules, optical fiber, and semiconductor chips.
In contrast, funds not positioned in the technology sector remain mired in losses. Data shows several funds focused on consumer goods, tourism, real estate, and healthcare themes have incurred losses exceeding 20% this year. The performance of index funds investing in Hong Kong-listed internet stocks is even more dismal, with many down over 30%.
Recurring Volatility in Tech Stocks
While some funds have doubled their returns through tech stocks, the journey has been far from smooth, marked by intense volatility. For example, on June 23, all three major A-share indices closed lower, with most broad-based indices declining and trading volume shrinking across the two markets. This came just a day after the market recorded its second-highest historical trading volume. The sharp correction in tech stocks notably impacted the ChiNext Index, which fell 3.84% on June 23, while the Shenzhen Component Index dropped 3.17%. Sectors like non-ferrous metals, power equipment, and defense led the declines.
The adjustment in A-share tech stocks is also linked to global tech stock movements. Judging from overnight U.S. stock performance over the past few trading sessions, when the seven major tech giants collectively corrected, the Asia-Pacific markets, particularly South Korea and Japan, were significantly impacted the following day.
In fact, since the major rebound in tech stocks in April, sector trading concentration has continued to climb. The sector has experienced overall pullbacks occasionally due to profit-taking, external news, and market divergences, but has quickly recovered.
On June 24, the tech sector, which had corrected the previous day, became active again. The STAR 50 and STAR 100 indices led gains among mainstream A-share indices. Concept indices like semiconductor equipment, advanced packaging, and lithography machines surged, with several semiconductor chip ETFs rising over 6%.
Although the recovery boosted confidence, any slight tremor in global tech stocks keeps the market on edge. Core investment debates currently revolve around whether AI capital expenditures can persist, if computing power demand will cool, and when a potential bubble might burst.
Simultaneously, many non-tech sectors remain depressed, awaiting a market reversal.
Is It Still Time to Invest?
How to allocate assets effectively and navigate the high risks of the tech sector is a current market focus. A recent viewpoint from a fund manager notes that the rebound in domestic tech stocks since April is closely linked to the logic of overseas markets, but the market has entered a period of volatility after trading concentration in the tech sector increased. From mid-May to early June, the market experienced consecutive short-term, rapid, and significant adjustments due to trading factors. The issue of loose shareholding structure has been somewhat alleviated; once the market regains upward momentum, new leading themes are expected to drive an index recovery.
The manager believes technology is the core driver of market earnings improvement, and this trend is likely to continue. Given the relatively low domestic interest rate environment, the attractiveness of dividend stocks for asset allocation has increased. Meanwhile, market volatility may continue to rise against a backdrop of strengthening consensus on capital flows, where the low-volatility characteristic of the dividend sector can help build portfolio defensiveness. Therefore, one can capture the structural bright spots in domestic industries, focusing on opportunities in both technology and dividend sectors.
Another fund manager suggests that the short-term market will continue to digest external pessimistic expectations, and volatility in high-position, crowded tech stocks may persist. After panic sentiment is fully released, capital is expected to return to segments with stronger earnings certainty and ample room for domestic substitution.
How to withstand short-term market fluctuations? The manager recommends keeping one eye on industry trends and the other prepared for defensive counterattacks. During the interim report earnings verification window, it's even more crucial to avoid high-priced, high-valuation thematic stocks lacking earnings support. Against the backdrop where the tech sector is not yet significantly in a bubble, high-growth directions still possess some capacity to withstand liquidity disturbances.
So, how much further upside remains for the tech sector? A research-focused fund manager stated that the semiconductor industry's complete cycle—from chip design, tape-out, adaptation to mass production—takes 3 to 5 years. Short-term market sentiment fluctuations do not alter the medium- to long-term industry trend.
Regarding the recent rally in the storage sector, the core driver is believed to be the explosive demand for SSD storage brought by AI inference computing power, with industry prosperity potentially trending upward throughout the year.
The manager further analyzed that, driven by both cyclical and growth factors, the semiconductor industry still has ample room for growth. Subsequent investment should consistently follow two main lines: the innovation theme (AI)—focusing overseas on general computing power leaders like NVIDIA, and domestically on domestic AI chips and ASIC-specific computing power chips, requiring continuous tracking of product iterations and marginal changes in major client adoption; and the manufacturing equipment & materials theme (independent innovation)—where overseas semiconductor equipment leaders possess the ability to navigate cycles, and chip process upgrades drive exponential growth in equipment capital expenditures. Domestically, the semiconductor industry chain is shifting from passive import substitution to active technological innovation, with the long-term growth logic for equipment and materials remaining unchanged.
Regarding the upcoming market outlook, another fund house expressed that the recovery in PPI in the first half of the year, driving corporate profit repair, is expected to provide strong support for the market's center. Although overseas macroeconomic fluctuations may recur, their impact on the domestic market is relatively limited. From a medium- to long-term perspective, against the backdrop of global geopolitical games and fluctuating macro liquidity expectations, macroeconomic volatility may increase, but major A-share broad-based indices are still expected to exhibit a relatively strong, oscillating pattern.
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