Public equity funds all the rage among youth
High-profile star managers leading frenzy of activity, attracting people into the fast-growing market in China
It's human nature to want to make an easy buck.
But things can get complicated when a surge of mainly young investors jump headfirst into China's rapidly growing public equity fund market, attracted by star fund managers, who manage bourse-buying decisions on behalf of investors.
Public equity funds refer to publicly-offered funds that invest in a portfolio mainly made up by stocks and do not provide guarantee of return.
"Suddenly everyone around me started talking about funds, even for those who had zero experience. It's interesting that talking about funds is now a good conversational icebreaker," said 36-year-old Beijing-based office worker Liu Ronghuan, who has about one year's experience in fund investing.
Liu's friend, 36-year-old accountant Wu Nan, had similar sentiments.
"I have six years' experience investing in funds. Recently I felt many more friends and relatives began asking me which funds they should buy," Wu said.
Liu and Wu are just two of the millions in China who have embraced China's rapidly growing public equity funds.
A report by the Asset Management Association of China said the total value of the country's public equity funds in 2020 increased 34.7 percent year-on-year to 19.89 trillion yuan ($3.06 trillion), with profits totaling 1.98 trillion yuan.
A China Central Television report said those born in the 1990s accounted for over half of newcomers to the fund market. The report said their investments focus on areas including baijiu, a type of Chinese liquor, and new energy.
More interestingly, fund-related conversations have even become an effective means of social networking, the report said.
Discussions on funds and star managers are also hot topics on mainstream social media platforms like Weibo, life-sharing app Xiaohongshu and review platform Douban.
The "Weibo Chaohua", a column of super-hot topics managed by Weibo, saw posts regarding fund-related topics exceed 109,000, with views surpassing 1.96 billion so far.
One of the best known star fund managers, Zhang Kun, became the first ever to manage funds surpassing 100 billion yuan.
Zhang's fans also set up a Weibo account named "global fan club of Zhang Kun". The club had over 20,000 fans worldwide at last check. Fans even gave him the nickname "iKun", which sounds like "love Kun "in Chinese.
"Who doesn't want to make money? Working hard is no doubt important as it creates a stable income. But investment is also a big part of wealth management," Liu said.
"Past performances of fund managers as well as areas of investment are two important factors I look into when selecting funds to hold," Liu added.
Despite the recent turbulence in the A-share market, Liu's rate of return has reached nearly 30 percent as of the end of February.
"I think institutional investors have more knowledge, experience and information compared with retail investors. Rather than investing in A shares, I prefer to trust professional managers," Liu said.
David Huang, a Beijing-based mutual fund sales manager, said that starting from the first half of 2020, more and more people are asking about fund investments. "They care mostly about two types of questions: First, is now a good time to buy funds and what should they buy? Second, they ask some general questions about the fund industry."
According to Huang, the recent fandom of some high-profile fund managers may exacerbate the bandwagon effect in behaviors including buying and redemption, which can amplify market volatility and make management more difficult for star managers.
The young generation's enthusiasm for investment is partly buoyed by China's booming stock market, which is becoming more mature and aligning with international practices, said Kang Yong, chief economist at KPMG China.
On Dec 31, the CSI 300 index, a benchmark for the A-share market, was 27.21 percent higher at 5211.29 points compared with that of Dec 31,2019. The Shanghai Composite Index rose 13.87 percent to close at 3473.07 points over the same period, while the SZSE Component Index increased 38.73 percent to close at 14470.68 points.
Kang said that with the institutionalization of the A-share market in recent years, it is becoming more and more difficult for retail investors to make money in stocks. Meanwhile, the public equity fund market has been better at making money for investors. As a result, more people, including those who had invested directly in the stock market, have switched to public equity funds as an important way of building up their nest egg.
Dong Dengxin, director of the Wuhan University of Science and Technology's Finance and Securities Institute, said that families in China are also becoming increasingly wealthy and have the need to find good investment products to preserve and increase the value of their family wealth, which opens the door for more opportunities for development in the public equity fund market.
Li Daxiao, chief economist with Yingda Securities, shared similar views. Li said that compared to the past when investors directly jumped into the stock market, today more and more young people tend to buy into public equity funds.
The history of more mature stock markets has signaled that the trend of Chinese youth betting on fund investments and chasing after star money managers may have just begun, Li said.
"But the fandom of fund managers probably won't last for long, because many star fund managers do not necessarily have the ability to outperform the market over the long term. Sometimes star managers buy into a few stocks, followed by smaller companies and individual investors, and the funds might see surging value. However, that might not reflect the actual level of profitability of those managers," Dong said.
Dong explained that at present, due to a lack of professionals and insufficient efforts in research and development of public equity fund products, many small-sized fund companies have chosen to follow in the steps of big companies who have a relatively more professional team of managers and more proven investment products. Individual investors, especially those with limited experience, are likely to pay a lot of attention to fund managers who have manifested good performances in the recent past.
According to Dong, the fandom of star fund managers may have some negative influence on the industry. First, newcomers to fund investment may be hasty in buying funds because they are managed by star managers, or other people are doing so, without careful consideration into their decisions. More importantly, buyers and sellers jumping on the bandwagon may accelerate stock price volatility, which increases market risk.
E Fund's small and medium-sized caps under guidance by star manager Zhang Kun recently fell afoul of previous fans and put restrictions on fund purchase. Experts said the move was to control the size of funds Zhang manages to guarantee good performance and to avoid massive fund redemptions, especially when some of the recent investors are likely to redeem funds when seeing a decrease in net value.
Dong called for a de-homogeneous development of the fund industry. "It is important that different fund companies develop investment products with their own characteristics and thoughts, and meanwhile the government should take measures to avoid exaggerated advertising of certain fund products."