More than 50 lost more than 8%, and the highest loss was 14%! Highly concentrated operation, some FOF is far from the original intention of the product

Some FOF funds are moving away from their original product intentions and marketing selling points due to their high concentration of fund managers.

Risk control may be the core of many FOF funds, but fund managers amplify their resilience under the pressure of performance rankings, so that many FOF funds have fewer and fewer targets. Wind data shows that the loss of FOF funds in the first three quarters of this year has been close to 14%, and the total number of investment targets (funds) held by this product is only 9. Correspondingly, most of the products managed by many star fund managers hold more than 100 or even as many as 500. Some fund professionals emphasize that fewer targets mean lower accuracy and greater volatility, and higher requirements for fund managers' personal capabilities.

Buy only 9 funds to amplify risk

Wind data shows that as of September 28, 2023, more than 50 fund FOF products in the first three quarters of this year lost more than 8% during the year, and the highest loss during the year has reached 13.93%. Such a level of loss makes many FOF products increasingly lose the original design of low-risk products, especially the key selling point of risk diversification.

How did FOF products achieve the highest loss of 13.93% in the first three quarters? The answer may be that fund managers go against the original intention of FOF products and adopt a high concentration strategy in search of high flexibility.

"The marketing selling point of FOF products is to diversify investment risks with diversified asset targets, and because the number of fund products is as large as stocks, FOF has professional base selection capabilities." A fund company in South China believes that although the original intention of the product design is to diversify risks, the actual fund manager, because of the performance ranking, may violate the characteristics of the product and take the initiative to increase the flexibility of the product.

CICC Financial Selection Wealth Aggressive FOF under CICC Fund has lost 13.93% during the year, and the loss of this product reflects the risks caused by high concentration and high flexibility to a considerable extent. According to the semi-annual report disclosed by the FOF fund, the total number of fund products held by the FOF fund as of the end of the second quarter of this year was only 9, and these 9 products accounted for 91.23% of the total position of the FOF.

What is the concept that a FOF holds only 9 fund products? This is almost equivalent to the total number of stocks in a equity-biased fund being only 9, which means that the fund manager is performance-dependent on any of the 9 investment targets.

Specific to the CICC Financial Selection Wealth Enterprising FOF Fund, the brokerage China reporter noted that as of the end of the second quarter of this year, 6 of the 9 fund products held by the FOF fund accounted for more than 10% of the position in the FOF. Among them, the first position ratio is a consumer theme fund, which accounts for 16.65% of the position in the CICC Financial Selection Wealth Aggressive FOF; In second place is a military-themed fund, which also accounts for 13.78% of the above FOF. The above information means that if any of the 9 performers below expectations, it may have a significant impact on the net value of the fund.

The maximum number of star fund targets exceeded 500

Unlike CICC Financial Wealth FOF, which ranked first in performance, most of the FOF products that obtain positive returns follow the basic characteristics of FOF - dispersion.

Taking Great Wall Hengtai Pension FOF, which temporarily ranked first in the first three quarters of this year, as an example, the product achieved a positive return of 5.86% this year. As of the middle of this year, the FOF fund held 18 fund products, and there are also a number of currency funds and bond fund products in these 18 products, further controlling the volatility of the product.

Cai Min, fund manager of the FOF product, emphasized in his report that during the reporting period, he continued to adhere to investment discipline, did not chase up popular sectors, and maintained reasonable positions, appropriately reducing positions driven by speculative sentiment and significantly weakened positions with significantly weakened cost performance. When the market declines in the later stage, the investment targets with a significant recovery in the cost performance of timely and reasonable increase will continue to deploy varieties with strong long-term competitiveness and reasonable investment valuation, and constantly optimize the positions of the portfolio.

In fact, the fewer investment targets held, the greater the flexibility and volatility of the net value of fund products, and the greater the probability of losing in the investment, which is also the core logic of many star fund managers holding a wide range of holdings.

Brokerage China reporter noted that the report of Xinao New Energy Fund managed by Feng Mingyuan, star fund manager and deputy general manager of Cinda Australasia Fund, showed that as of the end of the second quarter of this year, the number of stocks held was as high as 518, not only the number of funds held was extremely high, but also 9 of its top ten heavy stocks accounted for less than 3% of the investment target.

The legendary product Jinyuan Shunan Yuanqi Flexible Fund, which has obtained positive returns every year for 6 consecutive years, has achieved a positive return of 16% this year, a positive return of 24% in the latest year, a return of 81% in the past two years, and a return of 131% in the past three years. According to the interim report, the total position of the top ten heavy stocks of the fund is only 11.78%, the highest position of a single stock is less than 1.4%, and the number of all investment targets held during the reporting period is as high as 127.

Centralized operation reduces investment accuracy

Why is it so important to increase the number of targets in a weak market? Huang Tao, executive investment director of Chuangjin Hexin Fund, said in an interview with the Securities Times reporter that diversification investment is extremely important when managing public offering products, and specific to personal operations, some tactical adjustments will be made according to market conditions, and the degree of diversification will be different in different years.

He introduced that in 2020, the number of positions in the products under his management is 30-40, which is a big year for stock investment, and in the market environment at that time, it can be moderately concentrated, because there will be no particularly big problems in concentration; 2021 is a year of structural differentiation, the number of his positions is 40-50, because in a structured market environment, the volatility of individual stocks becomes greater; In 2022 and beyond, his holdings rise to 50-60 stocks as the risk to the market rises.

"The investment method of high concentration in fund holdings requires fund managers to have a very deep understanding and judgment of listed companies, and the accuracy rate must be very high." A public offering person in South China said in an interview with a brokerage China reporter that the level of concentration not only reflects the risk appetite of the fund manager, but also shows the fund manager's ability to choose stocks to a greater extent, and the decentralized strategy does not need to be too accurate, but the high concentration requires high accuracy.

It is worth mentioning that the fund manager of CICC Financial Selection Wealth FOF said in its report that the public FOF fund has also experienced fluctuations in net value due to the overall impact of the market, but the investment philosophy of "α as the main and supplemented by β" is consistent, which helps reduce unnecessary losses in the highly volatile market, and the judgment of the stock market in the second half of the year is "two key points": First, the macro level may enter an important policy window period, observe how the policy balances the contingent risks of traditional economic modules in the process of economic transformation, how to balance the simple laws of the market economy while taking the road of its own characteristics; Second, at the micro level, it will look at a clearer industrial main line under the fresh normal, and it is necessary for large economies to develop high-end manufacturing in the process of per capita GDP from $10,000 to $20,000.

Responsible editor: Gui Yanmin

Proofreader: Wang Wei