To The Moon

On July 21st, the second quarter reports for the four funds managed by E Fund's Zhang Kun were all disclosed. The four public funds are E Fund Blue Chip Select, E Fund Quality Select, E Fund Quality Enterprise Three-Year Holding, and E Fund Asia Select.

Among these, E Fund Blue Chip Select is currently Zhang Kun's largest product by scale. As of the end of the second quarter, the fund's size was RMB 20.416 billion, shrinking by approximately RMB 6.4 billion compared to the end of the first quarter. By the reporting period's end, the fund's net asset value per share was RMB 1.5273, with a period NAV growth rate of -13.52%. The benchmark return for the same period was 2.03%.

In terms of asset allocation, the equity position of E Fund Blue Chip Select was sharply reduced from 93.12% in the first quarter to 75%, only slightly higher than the 70.29% at the fund's inception at the end of 2018. Regarding geographic allocation, the Hong Kong stock position was also cut from 46.07% in the first quarter to 25.11%, nearly halved.

The top ten holdings of E Fund Blue Chip Select are, in order: TENCENT (00700), Kweichow Moutai Co.,Ltd. (600519.SH), YUM CHINA (09987), CNOOC (00883), Luzhou Laojiao Company Limited (000568.SZ), Wuliangye Yibin Co.,Ltd. (000858.SZ), Shanxi Xinghuacun Fen Wine Factory Co.,Ltd. (600809.SH), SMIC (00981), Suzhou Dongshan Precision Manufacturing Co.,Ltd. (002384.SZ), and BABA-W (09988). SMIC and Suzhou Dongshan Precision Manufacturing Co.,Ltd. are new additions to the portfolio, while all other holdings were significantly reduced.

Regarding specific operations, Zhang Kun stated in the second-quarter report that E Fund Blue Chip Select began to be managed by a team in the second quarter, with adjustments made to the portfolio structure. The allocation to sectors such as electronics, communications, utilities, transportation, and non-ferrous metals was increased, while the allocation to sectors like food & beverage, internet, and healthcare was reduced.

In the AI domain, the focus was on allocating to areas benefiting from the inference era, such as optical communications, semiconductor equipment, upstream AI raw materials, as well as the domestic computing power sector.

Zhang Kun noted that in the second quarter, companies primarily exposed to domestic demand generally faced significant operational pressures, with stock prices experiencing declines in both earnings and valuations. This reflects not only cyclical pessimism among investors but also structural pessimism. He believes the current valuation levels of domestic-demand companies are not commensurate with the growth potential of a developing nation progressing towards becoming a moderately developed country.

On AI, Zhang Kun pointed out that as the use of AI Agents further materializes, the Annual Recurring Revenue of large domestic and international models continues to accelerate its growth. The contradiction between the growth in AI demand and shortages caused by difficulties in rapidly expanding production for certain raw materials creates an area most susceptible to price elasticity. The domestic AI commercial loop is gradually materializing, even achieving overseas expansion with more cost-effective models.

"The improvement in large model capabilities and the resulting productivity gains are real, and the supply-demand imbalance for computing power is also a fact," he said.

However, Zhang Kun believes that, in the long term, the supply-demand imbalance is related to the stock of computing power rather than the incremental additions. The imbalance more reflects insufficient cumulative capital expenditure on AI in the past, rather than a shortfall in capital expenditure for 2026.

For hardware companies, their nature remains that of durable goods, with performance linked to the amount of annual capital expenditure. Even if cloud service providers' annual capital expenditure does not grow, the cumulative capital expenditure will allow the stock of computing power to continue growing for several years, and supply tightness will also ease.