Consumer stocks may be on the verge of breaking out of their "cold bench" status, emerging as critical substitutes in the eyes of fund managers. Throughout the year, fund managers have shown little enthusiasm for heavily investing in consumer stocks, leading to poor performance in both consumer stocks and related thematic funds. Notably, consumer funds that stand out tend to exhibit significant style drift. However, as institutional investors anticipate a dampening trend in risk appetite and recognize the vital role of domestic demand in stabilizing growth, the influx of funds into consumer funds has accelerated considerably in the fourth quarter. This is in contrast to the net value deviations seen in technology funds amid market fluctuations, signaling a potential turning point for a consumption sector that is now positioned to cater to both offense and defense.
In the midst of significant market volatility, the previously underperforming consumer-themed products have experienced a revitalization. Recently, Huasan Fund announced that its Huasan Guozheng Hong Kong Stock Connection Consumer ETF will be launched on October 22. The initial stocks being purchased include Yum China, Nongfu Spring, China Resources Beer, Anta Sports, and Li Ning. Importantly, data shows that throughout the first three quarters of this year, the consumer ETFs struggled to gain traction, with the market favoring technology-themed ETFs and innovative drug funds instead. Funds from leading firms like Penghua Fund, Huitianfu, and Fortune Fund, which track the Guozheng Hong Kong Stock Connection Consumer Index, collectively raised only modest amounts—298 million, 279 million, and 228 million yuan respectively—by July, indicating an average fundraising of under 300 million yuan for these three major public funds.
The timing of fundraising and strategic investments for public funds is particularly crucial. As investors shift their focus towards tangible profit returns and valuations in the fourth quarter, the consumer sector has emerged as a key target for reallocating funds. Notably, Huasan Guozheng Hong Kong Stock Connection Consumer ETF attracted an impressive 639 million yuan, becoming the largest fund raised in recent months within the consumer ETF segment. This stark contrast from previous amounts below 300 million yuan to now surpassing 600 million yuan highlights a significant turning point for consumer-themed funds. Even investors who previously favored technology ETFs are redirecting their interests towards consumer-themed funds, as recent trends indicate rare market premiums for certain consumer ETFs.
On October 17, Invesco Great Wall Fund announced that the trading price of one of its consumer ETFs was trading well above its net asset value, showcasing a notable premium. The ETF's latest share net value was reported at 1.2924 yuan while its latest secondary market trading price rose to 1.380 yuan, reflecting a premium nearing 7%. The fund company advised investors to remain vigilant regarding premium risk associated with secondary market trading.
The resilience of consumer fund net values is becoming evident. The recent uplift in consumer-themed funds can be attributed to the significant decline in technology fund net values and the strong anti-drag capabilities of high-weight consumer stocks. In the past week, high-volatility stock sectors have emerged as significant factors in fund managers' net value losses, with many seeing substantial reductions in annual performance figures. Notably, a well-known fund manager in Shenzhen launched a new fund focusing on high-volatility sectors in January and saw its performance peak at a 32% profit by the end of September. However, due to a major drop in its heavy-weight stocks, the fund's net worth plummeted, leaving its annual returns at a mere 3%.
Conversely, a consumer industry fund, which previously focused on liquor and medical beauty sectors, has faced challenges as it shifted towards cloud computing, semiconductors, and artificial intelligence given the underwhelming performance of consumer stocks. This fund has also reported a net value decline of over 10% in the last week, transitioning from profit to loss for the year.
In contrast, consumer-focused public funds are beginning to garner more attention and exhibit robust defensive performances. For instance, funds managed by prominent manager Lin Yingrui have shown substantial differentiation from overall market trends, with his Guangfa Xinrui Fund—targeting emerging consumption sectors—defying market downturns with a 2.4% increase last week. Furthermore, some fund managers with heavy technology stock investments are pivoting toward defensive segments like consumer stocks. On October 17, Huazhong Yuan Da Anxin Fund, managed by Li Wuqing, recorded a 0.66% rise, making it one of the few funds in the market to achieve positive returns on that day, despite all its top ten stocks being focused on technology sectors that suffered declines on the same day.
This divergence between net values and stock performances hints at a significant transition in the underlying core assets of this technology-themed fund, suggesting substantial deviations from its previous quarter’s holdings.
Looking ahead, several public fund-related experts see potential in domestic demand stocks as a viable substitute going into year-end. Yang Jianhua, deputy general manager of Great Wall Fund and manager of the Great Wall Consumption 30 Fund, suggests that variables affecting the capital markets in the fourth quarter may increase. As there is little doubt about meeting domestic economic growth targets this year, the potential for a slight push in fiscal policies cannot be ruled out. Moreover, external factors might exert indirect pressure on exports due to tariffs.
Given the substantial gains in the domestic equity market during the third quarter and the increase in uncertainties, market fluctuations are expected to rise in the fourth quarter. If risk appetite remains suppressed, dividend sectors may show localized performance, potentially impacting the Chinese industrial landscape and creating new investment opportunities.
Alongside Yang, fund manager Zhang Jian notes that the trend of economic recovery is continuing, although the timing is still in question. Stock performances often lead fundamentals, suggesting that low-priced domestic demand assets warrant attention as they may be less prone to declines while retaining upside potential. Additionally, Minsheng Jaiyin Fund has indicated expectations for a continued low-slope upward trend in the market, with persistent influxes of new capital suggesting market stability.
As the October quarterly reports approach, industries are anticipated to show earnings growth, further strengthening market confidence from a fundamentally supportive stance. Overall, the market outlook appears to be positive.
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