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Mutual Funds: Five Trends to Follow in 2023

Feb 09-2023   



The underperformance of the A-Share market didn’t dent the growth of China’s mutual fund industry in 2022: the number of new funds launched and the capital raised ranked the second and the third respectively among all years in the industry’s history. In 2023, investors’ mood has considerably improved, in part due to the confidence shown by foreign investors who piled in 141.2 billion yuan in January alone, a figure higher than the total net inflow in 2022. In a media commentary, Prof. Huang Zhuo of the NSD and co-author Mr. Shen Shaowei believed that the mutual fund industry will grow even faster this year and is demonstrating five note-worthy trends.

 

The first trend is that leading funds will continue to grab more market share, a continuation of what happened from 2019 to 2022 when the top five mutual funds’ market share rose from 17.24% to 23.26%. Using the US and Japan as references, the share still has significant room to grow. Conversely, small and medium-sized mutual funds will be confronted with more challenges.

 

Another trend to watch out for is that investors will become more cool-headed towards the ‘star fund manager’ effect. The two authors found that over the last ten years, a so-called ‘champion fund’ had a 58.33% of probability to slide into the bottom 1/3 of bad performers in the second year.

 

The third trend sees mutual funds competing more actively in the private pension scheme, which was officially approved late last year. As of January 20, a total of 40 funds had disclosed fourth-quarter results of 129 personal pension investment funds. Over the next five to ten years, a pension shortfall of 8 to 10 trillion yuan is expected, entailing a large role for pension funds to play.

 

Investment advisory service, as the fourth trends shows, will become a more significant business for mutual funds. After over three years of development, 15 funds had a combined investment advisory business of 110 billion yuan by the end of 2022, and 12 funds revealed to have accumulated 2.5 million customers. The two authors believed that further growth will be achieved through digital technology.

 

One more trend to follow is the expansion of foreign wholly owned mutual funds and their catfish effect on the market. As of December 2022, there were 46 Sino-foreign jointly invested or foreign wholly owned mutual fund companies, accounting for about 30% of all mutual funds. Since the beginning of 2023, three foreign wholly owned ones have been approved. Their presence and growth in the market will provide investors with diversified services, while stimulating domestic funds to learn to focus on compliance, risk control, and tech adoption.

 

 

Mutual Funds: Five Trends to Follow in 2023

Feb 09-2023   



The underperformance of the A-Share market didn’t dent the growth of China’s mutual fund industry in 2022: the number of new funds launched and the capital raised ranked the second and the third respectively among all years in the industry’s history. In 2023, investors’ mood has considerably improved, in part due to the confidence shown by foreign investors who piled in 141.2 billion yuan in January alone, a figure higher than the total net inflow in 2022. In a media commentary, Prof. Huang Zhuo of the NSD and co-author Mr. Shen Shaowei believed that the mutual fund industry will grow even faster this year and is demonstrating five note-worthy trends.

 

The first trend is that leading funds will continue to grab more market share, a continuation of what happened from 2019 to 2022 when the top five mutual funds’ market share rose from 17.24% to 23.26%. Using the US and Japan as references, the share still has significant room to grow. Conversely, small and medium-sized mutual funds will be confronted with more challenges.

 

Another trend to watch out for is that investors will become more cool-headed towards the ‘star fund manager’ effect. The two authors found that over the last ten years, a so-called ‘champion fund’ had a 58.33% of probability to slide into the bottom 1/3 of bad performers in the second year.

 

The third trend sees mutual funds competing more actively in the private pension scheme, which was officially approved late last year. As of January 20, a total of 40 funds had disclosed fourth-quarter results of 129 personal pension investment funds. Over the next five to ten years, a pension shortfall of 8 to 10 trillion yuan is expected, entailing a large role for pension funds to play.

 

Investment advisory service, as the fourth trends shows, will become a more significant business for mutual funds. After over three years of development, 15 funds had a combined investment advisory business of 110 billion yuan by the end of 2022, and 12 funds revealed to have accumulated 2.5 million customers. The two authors believed that further growth will be achieved through digital technology.

 

One more trend to follow is the expansion of foreign wholly owned mutual funds and their catfish effect on the market. As of December 2022, there were 46 Sino-foreign jointly invested or foreign wholly owned mutual fund companies, accounting for about 30% of all mutual funds. Since the beginning of 2023, three foreign wholly owned ones have been approved. Their presence and growth in the market will provide investors with diversified services, while stimulating domestic funds to learn to focus on compliance, risk control, and tech adoption.