Mutual funds see investor demand surge in China

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‘Fixed income plus’ mutual funds expected to gain traction amid market volatility

Fund managers plan to roll out more equity and multi-asset mutual funds in China amid growing investor interest in such products. Newly issued mutual funds in the country raised 1.61 trillion yuan (US$249 billion) in the first half of 2021, up 52% from 1.06 trillion yuan in the same period last year, according to data from financial information services provider Wind.

This is the fourth time that assets under management (AUM) of mutual funds launched during a six-month period have surpassed one trillion yuan.

“We are planning to roll out more products in the second half, but all the budget for marketing has already been used in the first half. Other fund houses probably have the same pain-point as us,” says a fund manager, indicating that the growth numbers for the second half of 2021 could be more significant.

Banks are still the major distributors of mutual funds, with China Merchants Bank topping the league table in terms of total AUM, followed by Ant Financial and ICBC.

The 6,640 mutual funds registered in China recorded an average return of 4.65% in the first half. Equity mutual funds continued to dominate the market with the newly issued funds raising 1.3 trillion yuan during the period. New products such as mutual funds investing in real estate investment trusts were also popular among investors.

In the wake of heightened volatility in the equity market, fixed-income mutual funds are expected to attract more investors. A new product, the “fixed income plus” mutual fund, is likely to gain traction. This is a multi-asset product that is focused on fixed income to manage risks but also invests in asset classes such as convertible bonds, equities, and index futures to boost the returns.

This kind of product started to pick up in China last year. More than 240 fixed income plus mutual funds launched in 2020, a jump of 243% compared to just 70 in the previous year, according to Wind. As of the first half of 2021, about 70% of the 1,678 fixed income plus mutual funds have recorded positive returns.

Such products are expected to draw more investors, especially those who are concerned about volatility and risks in the equity market. Several fund managers plan to focus on launching such products on top of the dominant equity mutual funds to meet the growing demand. 

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