Author | He Fan, Lin Hongtao, Gu Huaiyu, Guo Yuwei, Lu Political Commissar
Bond funds, fund performance
Recently, the bond fund released its report for the first quarter of 2024.
In the first quarter of 2024, the scale of the debt base continued to rise, the scale of pure bond funds continued to grow, and the scale of the secondary debt base decreased more. At the end of the first quarter of 2024, the net value of bond funds totaled 9.33 trillion yuan, an increase of 0.29 trillion yuan from the end of the previous year, an increase of 3% quarter-on-quarter and a year-on-year increase of 22%.
From the perspective of asset allocation, bond funds increase the proportion of bonds and reduce the proportion of stocks and other assets. From the perspective of bond asset allocation, the proportion of interest rate debt allocation of bond funds changed slightly, the proportion of credit bonds increased, and the proportion of NCD decreased.
From the perspective of duration and leverage strategies, in the first quarter of 2024, bond yields will decline rapidly, bond funds will generally extend their duration, short-term funding rates will remain stable, the arbitrage space between bond interest rates and short-term funding rates will be compressed, and most bond bases will reduce their leverage ratios.
From the perspective of fund performance, in the first quarter of 2024, the highest average return among the bond base was the enhanced index bond fund, with an increase of 1.69%, followed by the passive index fund with an increase of 1.33%, and the medium and long-term pure bond fund, primary bond fund and short-term pure bond fund with similar increases, with 1.22%, 1.04% and 0.96% respectively. Affected by the correction in the equity market, the return of the secondary bond fund with a high proportion of weighting was relatively low, rising by 0.59%, while the convertible bond fund performed relatively poorly, falling by 2.49%.
Recently, the bond fund released its report for the first quarter of 2024. This article will comment on the asset allocation, trading strategy and performance of bond funds in the first quarter of 2024. 1. Market trend review and outlook 1.1 Market review in the first quarter of 2024 In the first quarter, the GDP growth target of about 5% of the two sessions was in line with market expectations, but the ultra-long-term special treasury bond issuance plan and intensity exceeded expectations, the central bank cut the reserve requirement ratio by 0.5 percentage points, provided liquidity to the market by 1 trillion yuan, and MLF parity continued, but the 5-year LPR interest rate was reduced by 25bp. The yield on the 10-year Treasury note fluctuated to the downside, closing near 2.3%. Specifically, in terms of fundamentals, the PMI in February went below the withering line for the fifth consecutive month, the PMI rose to 50.8% in March beyond expectations, and the cumulative investment in fixed assets from January to February recorded 4.2% year-on-year, the previous value was 3.0%, and the market expectation was 3.0%; the retail sales of consumer goods recorded 5.5% year-on-year, the previous value was 7.4%, and the market expectation was 5.6%; the industrial added value recorded 7.0% year-on-year, the previous value was 6.8%, and the market expectation value was 5.2%, and the data was higher than market expectations as a whole. On the one hand, the market is concerned about the sustainability of economic data, and the superimposed price data is still less than market expectations; on the other hand, real estate investment and new home sales are weak, and the basic sentiment disturbance in the bond market is limited. In terms of policy, the Ministry of Finance stated that the fiscal policy was "moderately strengthened", the central bank cut the reserve requirement by 0.5 percentage points, providing liquidity to the market by 1 trillion yuan, and MLF parity continued, but the 5-year LPR interest rate was lowered by 25bp, which exceeded market expectations. In terms of funds, the supply of government bonds in the first quarter was slow, the net financing scale of large banks was large, the overall capital was stable, and the volatility was at a seasonal low. 1.2 Market outlook for the second quarter of 2024 The market fundamentals are expected to be weak, coupled with the low duration of banks' bond allocation at the beginning of the year and the rapid expansion of wealth management scale, which determines that there is little room for a short-term rebound in bond market interest rates, and the 10-year treasury bond interest rate of 2.4%-2.5% is the upper limit of the band, which can increase allocation. At the same time, the level of capital is the key factor restricting the downside of 10-year treasury bonds, and under the pressure of the exchange rate, the fluctuation of capital prices is significantly lower than that of the same period in previous years, and there is no downward trend in capital prices. The scale of single-term treasury bonds issued in April has risen, and the current Ministry of Finance has not announced the issuance plan of 30-year and 50-year treasury bonds in the second quarter or preparations for the issuance of ultra-long-term special treasury bonds, focusing on the disturbance of the supply of ultra-long bonds and local special bonds to the bond market. At the same time, the high point to the low point of the past round of interest rate downward cycle lasted 9 months (December 2022-August 2023), and this round of 6 months has been close to the previous round of decline (3.35%-2.6%), and the past round of policy rate fell by 25bp (December 2022-August 2023). Among the major types of bonds, interest rate bonds are better than credit bonds, government and financial bonds can seize the opportunity allocation of the implied tax rate stage, and one-year and two-year local bonds have relative allocation value. In terms of term strategy, under the pressure of stabilizing the exchange rate, DR007 may still be slightly higher than the OMO interest rate, the probability of 10-1 year interest rate spread fluctuation is larger, the allocation value of interbank certificates of deposit is better than that of treasury bonds of the same maturity, and the maturity spread of 3 and 5 year treasury bonds is at the lower quantile level in recent years, which has relative allocation value. In terms of fund products, as the bond market may be volatile and weak in the second quarter, investors with low risk appetite can pay attention to government and financial bond funds and short-duration interest rate bond bases. 2. Changes in the overall size of bond funds In the first quarter of 2024, the scale of the bond base continued to rise, while the scale of the pure bond fund continued to grow, while the scale of the secondary bond base decreased more. At the end of the first quarter of 2024, the net value of bond funds totaled 9.33 trillion yuan, an increase of 0.29 trillion yuan from the end of the previous year, an increase of 3% quarter-on-quarter and a year-on-year increase of 22%. From the perspective of the scale of various bond funds, at the end of the first quarter of 2024, the scale of bond funds from large to small is medium and long-term pure bond funds, short-term pure bond funds, passive index bond bases, secondary bond bases, primary debt bases, and convertible bond bases, with scales of 5,903.1 billion yuan, 1,201.3 billion yuan, 740.9 billion yuan, 717.3 billion yuan, 692.5 billion yuan, and 38.6 billion yuan, respectively, a change of 256 billion yuan, 194.6 billion yuan, -31.4 billion yuan, -146.2 billion yuan, and 52.5 billion yuan from the end of the previous quarter. 7.5 billion yuan. Among them, the scale of medium and long-term bond funds and short-term bond funds increased more in the first quarter, and the scale of secondary bond funds shrank for two consecutive quarters.
3. Asset allocation of bond funds 3.1 Allocation of major types of assets Bond funds increase the proportion of bond allocation and reduce the proportion of stocks and other assets. From the perspective of the overall asset allocation of bond funds, at the end of March 2024, bond funds held bonds, stocks, buy-and-sell financial assets and bank deposits accounted for 96.13%, 1.05%, 1.15% and 1.19% respectively. Compared with the end of 2023, the proportion of bonds increased by 1.04 percentage points, the proportion of stocks decreased by 0.30 percentage points, the purchase and resale of financial assets and bank deposits decreased by 0.44 percentage points and 0.10 percentage points respectively, and the bond assets allocated by bond funds increased by 419.7 billion yuan and decreased by 30.4 billion yuan.
3.2 Allocation of Bond Varieties In the bond allocation of bond funds, the proportion of interest rate bonds changed slightly, the proportion of credit bonds increased, and the proportion of NCD decreased. From the perspective of the allocation of bond funds, at the end of March 2024, the scale of interest rate bonds (including treasury bonds and financial bonds, the same below), credit bonds (including corporate bonds, short-term financing and medium bills, the same below), NCD, convertible bonds and ABS were 6,651.1 billion yuan, 3,495.9 billion yuan, 266.3 billion yuan, 217.1 billion yuan and 41.7 billion yuan respectively, accounting for 61.33%, 32.24%, 2.46%, 2.00% and 0.38% respectively. Compared with the end of 2023, the proportion of interest rate bonds has changed slightly, with the proportion of credit bonds increasing by 1.42 percentage points and the proportion of NCD decreasing by 0.77 percentage points. In the first quarter, the NCD interest rate and MLF interest rate inverted sharply, and the bond base reduced the allocation weight of NCD accordingly.
The allocation of medium and long-term bond funds is tilted towards credit bonds, while short-term bond funds are tilted towards interest rate bonds, and various bond bases have generally reduced their positions in NCD. From the perspective of the allocation of various types of bonds, the allocation of medium- and long-term bonds and short-term bond funds is adjusted in the opposite direction, with the long-term bond base increasing the proportion of credit bonds and slightly reducing the proportion of interest rate bonds, while short-term bond funds increasing the proportion of interest rate bonds and reducing the proportion of credit bonds.
4. Duration and leverage of bond funds In the first quarter of 2024, the center of the 10-year treasury bond yield fell rapidly, and at the same time, due to the weak performance of the stock market, the allocation of public funds to ultra-long bonds increased, and bond funds generally extended the duration; Bond funds generally have longer durations. From the perspective of the weighted average remaining maturity of the top five heavy bonds of various bond funds, at the end of March 2024, the duration of the bond base from high to low was medium and long-term bond base, primary bond base, secondary bond base, passive index bond base and short-term bond fund, which were 2.44 years, 2.33 years, 2.19 years, 1.95 years and 0.95 years, respectively, compared with the end of 2023, the duration of medium and long-term bond base, primary bond base, secondary bond base, passive index bond base and short-term bond fund increased by 0.33 years, 0.30 years respectively, 0.09 years, 0.04 years, and 0.08 years.
Most bond funds are deleveraged. According to the new asset management regulations, the leverage ratio (total assets/net assets) of open-end public offerings shall not exceed 140%. At the end of March 2024, the leverage ratios of the bond base were 121%, 121%, 117%, 116%, 116% and 114% respectively compared with the end of 2023, the leverage ratios of medium and long-term pure bond funds, primary bond funds, convertible funds, secondary bond funds and short-term pure bond funds decreased by 2.55 percentage points and 2.24 percentage points, respectively. 1.48 percentage points, 2.44 percentage points and 1.05 percentage points, and the leverage ratio of the passive index bond base increased by 0.36 percentage points.
5. Performance of various bond funds Bond funds performed well in the first quarter, and the income of the enhanced index bond base outpaced that of other bond bases. In the first quarter of 2024, the highest average return was in enhanced index bond funds with an increase of 1.69%, followed by passive index funds with an increase of 1.33%, and medium and long-term pure bond funds, primary bond funds and short-term pure debt funds with similar gains of 1.22%, 1.04% and 0.96%, respectively. Affected by the correction in the equity market, the return of the secondary bond fund with a high proportion of weighting was relatively low, rising by 0.59%, while the convertible bond fund performed relatively poorly, falling by 2.49%.
In terms of extreme returns, convertible bond funds had the largest extreme return difference in the first quarter, with a maximum return of 8.22% and a minimum return of -9.84%, while passive index bond funds had less fluctuations in returns, with a maximum and minimum return of 3.44% and -0.60% respectively, and short-term pure bond funds achieved positive returns. The extreme returns of the remaining types of funds are as follows:
In terms of risk, the average drawdown of short-term pure bond funds is the smallest, and the average drawdown of convertible bond funds is the largest. We have calculated the maximum drawdown of various funds in the past year, with the short-term pure bond fund with the smallest average drawdown of 0.24%, and the average drawdown of medium and long-term pure bond funds, enhanced index bond funds, passive index bond funds and primary bond funds are similar, at 0.40%, 0.49%, 0.59% and 1.37%, respectively. With the increase in the proportion of equity assets, the average maximum drawdown of the secondary bond base reached 5.95%, and the average drawdown of the convertible bond fund in the past year was 18.19%, far exceeding that of other types of bond bases.
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