As all funds released their 2016 annual reports, the investment performance of the 5 high-profile public funds that were bought by China Securities Finance Co., Ltd. (CSF) to save the stock market have come into sight. As the stock market has swung for a long time after thousands of stocks suspended trading based on the “circuit breaker” mechanism, these 5 funds turned positive on the market for 2017. Fund managers believed that there are mainly structural opportunities this year, especially investment opportunities on low-valued blue chips.
Record RMB 8.8 bln. loss last year
In July 2015, CSF announced the subscription of funds from five fund companies with 200 billion yuan. The five 40-bilion-yuan funds were established to save the stock market. As all funds released their 2016 annual reports, the performance of the 5 funds have come into sight.
Statistics from TX Investment Consulting show that the 5 CSF funds recorded a total loss of 8.838 billion yuan last year; while all public funds posted a total loss of 175.47 billion yuan during the same period. In fact, thanks to their outstanding performance in the year of establishment, these 5 funds still have made 1.542 billion yuan profits as of mid-2016. Yet the market crash in the latter half of 2016 make they turn profits to losses.
In terms of individual fund, China Merchants Fund Fengqing Active A gained a profit of 101 million yuan against the market, the only profitable fund among the five CSF funds. It is noteworthy that the fund earned an accumulative total of 1.752 billion yuan since its establishment, also topping on the list. In terms of asset allocation, the fund’s holdings in stock have stayed below 30 percent throughout last year, and even reduced to 17.3 percent in the fourth quarter as the market pulled back remarkably. Meanwhile, it has heavy holdings in China State Construction Engineering Corporation Limited (601668.SH), China Shenhua Energy Company Limited (601088.SH) and Inner Mongolia Yili Industrial Group Co., Ltd. (600887.SH), all of which gained remarkably last year.
In addition, E-Fund Ruihui and China Southern Fund Management Consumption Active also performed well in profit-making. Although the two funds lost 2.67 billion yuan and 770 million yuan, respectively last year, they still earned a net profit of 654 million yuan and 390 million yuan since establishment.
Take defensive strategies throughout last year
In terms of allocation in industries, the 5 CSF funds preferred stocks in the manufacturing and financial industry.
As of the end of last year, the holdings in manufacturing by China Asset Management New Economy, Harvest Fund Management New Opportunity, China Southern Fund Management Consumption Active, E-Fund Ruihui and China Merchants Fund Fengqing Active A account for 30.27 percent, 34.51 percent, 16.56 percent, 8.95 percent and 5.52 percent of their net asset value, respectively. Except China Merchants Fund Fengqing Active A, the holdings of the other four funds are heaviest in terms of market capitalization. In addition, the holdings in finance by China Merchants Fund Fengqing Active A rank first in industry allocation. The holdings in finance by China Asset Management New Economy, China Southern Fund Management Consumption Active, E-Fund Ruihui came at second to the holdings in manufacturing.
From a dynamic view, the CSF funds have adopted a defensive strategy throughout last year. Data released on the annual reports shows that E-Fund Ruihui held only 245 individual stocks at the end of last December, down by 56 from the end of 2015. Its holdings in China Minsheng Banking Corp., Ltd. (600016.SH), Industrial Bank Co., Ltd. (601166.SH) and China CITIC Bank Corporation Limited (601998.SH) decreased the most.
In contrast, China Asset Management New Economy sees not much change in the dispersion of investment. It held a total of 291 individual stocks at the end of last year, only decreasing 6 from the end of 2015. However, the fund also adopted a conservative strategy. It only bought Nanjing Huadong Electronics Information & Technology Co., Ltd. (000727.SZ) and Jiangxi Black Cat Carbon Black Inc., Ltd. (002068.SZ). Among the 20 most decreased holdings, Shanghai SMI Holding Co., Ltd. (600649.SH), Wolong Electric Group Co., Ltd. (600580.SH) and Humanwell Healthcare (Group) Co., Ltd. (6000079.SH) ranked top three.
Keep close eye on low-valued blue chips
Looking forward to 2017, Harvest Fund Management New Opportunity pointed out that the domestic economic data is expected to remain stable, but the cooling-down in the real estate and automobile market may bring some pressure on economic growth. As the size of China’s economy is large now, there will be many structural opportunities despite of low flexibility in total demands. The growth rate in traditional industries and emerging industries will continue to diverge.
China Asset Management New Economy believed that a noticeable rebound in PPI will drive the CPI higher by improving costs, and the recovery in inflation will continue to help enterprises improve their profitability. There are many uncertainties in market liquidity in 2017.
“After the market crash in 2016, some industries have seen their valuation becoming reasonable. We remain bullish on low-valued large-cap blue chips. But considering uncertainties in economic recovery, we expect that there are mainly structural opportunities in the future,” said E-Fund Ruihui.
China Southern Fund Management Consumption Active expressed similar views. It expected that the securities market will further restore in 2017. But the rebound in risk-free interest rate and the slowdown in money growth will suppress the prices of all assets. There is little possibility for a large bullish run, but a large possibility in continuous fluctuations or slight upward trend amid fluctuations.
Based on these judgements, funds will continue to stay neutral in positions and focus on low-valued blue chips. Meanwhile, despite of the economic downturn in the past few years, the competition pattern in some industries has improved remarkably. The market share of leading companies continued to improve. Those stocks are also a focus of the funds.
Translated by Coral Zhong
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