In the first half of this year, the mutual fund market saw a significant uptick, with a total of 623 new funds launchedThese funds collectively accounted for an impressive issuance of 6.609 trillion shares, indicating a year-on-year growth of 24.15%. This upward trend reflects a renewed confidence among investors and a potential shift in market dynamics.

In light of ongoing market fluctuations, investors have exhibited a cautious approach, leading to a notable increase in the appeal of safer investment optionsRemarkably, over 80% of the newly established funds are of the bond variety, while equity and mixed funds have struggled to maintain a significant share in the market.

The challenges facing actively managed equity funds have become evident as many fund companies have resorted to “self-funding,” launching initiator funds instead

This shift indicates a growing trend where companies are taking matters into their own hands to ensure the survival and growth of their funds.

Industry experts have pointed out that the momentum for fund issuance may continue into the second half of the year, which could subsequently lead to a marked concentration of market activities among leading fund firms.

Four Key Factors

According to data from Choice, a total of 623 funds were established in the first half of the year, boasting an issuance volume of 6.609 trillion sharesThe average issuance per fund stood at a considerable 1.061 billion shares, reflecting the positive sentiment surrounding fund investments.

This revival in fund issuance represents a stark contrast to the 5.324 trillion shares issued in the first half of 2023, highlighting a 24.15% increase year-over-year.

Sun Enxiang, head of wealth management at the financial advisory platform, attributes this surge in fund issuance to several interrelated factors

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First, the bond market has remained strong, compelling investors who are becoming more risk-averse to favor bond funds, spurring fund companies to increase their issuance in this segmentSecond, following the early year downturn, the A-share market has emerged as an attractive investment with high cost-effectiveness, igniting investors' enthusiasm for bottom-fishingThird, a robust performance from overseas markets and the favorable returns from Qualified Domestic Institutional Investor (QDII) funds have augmented the demand for global asset allocation among investorsLastly, continuous product innovations by fund companies, particularly in index funds, have provided a richer array of diversified investment tools, facilitating increased fund issuance.

Specifically, among the newly launched funds, bond funds have taken the lion's share at 81.23%, while equity and mixed funds accounted for only 10.05% and 6.63%, respectively.

When examining individual fund performance, it is evident that conservative funds have garnered considerable attention from investors

For instance, the Anxin Changxin Enhanced Bond Fund, Taikang Stable Dual-Profit Bond Fund, and Citic Prudential Medium-Term Government Bond Index Fund each achieved significant issuance scales, reaching 8 billion shares.

Moreover, several other bond funds, such as the Industrial Bank Tanying Bond Fund and Guotou Ruibin Qiyuan Interest Rate Bond Fund, surpassed issuance sizes of 7.9 billion shares, further exemplifying this trend.

As a result of the heightened risk-averse sentiment among investors, the issuance difficulty for actively managed equity funds has considerably increasedThe average issuance sizes for equity and mixed funds were around 291 million shares and 311 million shares, respectively.

In this context, several fund companies have opted to self-fund, launching initiating funds

Unlike conventional funds, which require at least 200 investors and 200 million yuan in capital, initiating funds impose much lighter conditionsFor example, on May 15, the Xinyin Advanced Manufacturing Mixed Initiating Fund was established with a modest issuance of 10 million shares, entirely backed by the fund managers' own capital.

However, it is important to note that if these initiating funds do not achieve significant growth within three years, they face the risk of forced liquidation.

The Stronger Get Stronger

As the second half of the year unfolds, enthusiasm for public fund issuance remains high, with over a hundred funds currently in the issuance phase.

As of July 2, data from Choice indicates that 118 funds (calculated as A/C shares separately) are still open for subscription, further highlighting the vitality in the market.

The first two trading days of July welcomed a flurry of fund issuances, with 36 products from renowned fund companies like E Fund, Southern Fund, and Tianhong Fund initiating their fundraising efforts

Notably, the focus of these new products is primarily on bond and index funds.

In addition to those currently issuing, there are also 49 funds waiting in line for their turn to launch in the near future.

Looking ahead to the remainder of the year, Sun Enxiang believes that the trend in fund issuance is set to maintain its upward trajectoryHowever, it may also exhibit a certain degree of differentiation, showcasing a pronounced head effect—this implies that larger fund companies and those with historically strong performances will likely experience more opportunities for issuance, while smaller or underperforming firms may face steeper challenges.

Regarding future market trends, Morgan Stanley Fund notes that in the first half of the year, traditional sectors, including banking, coal, and petrochemicals, exhibited substantial gains, characterized by their low valuations and relatively high return on equity (ROE) largely dominated by state-owned enterprises