When "Fund Pickers" Evolve into "Asset Allocation Toolkits": The Breakthroughs and Challenges Behind the Public Fund FOF Scale Surpassing 300 Billion

Securities Times Fund Research Institute Shu Yu Chen

In the current market environment—where deposit interest rates continue to trend downward, China’s A-share market is increasingly diverging in a structural way, bond yields are at historical lows, and volatility in gold prices at high levels is intensifying—the difficulty of earning steady returns by relying on a single asset is growing day by day. The value of diversified asset allocation has therefore become more prominent: by spreading capital across low-correlation areas such as stocks, bonds, commodities, and overseas assets, it can effectively smooth portfolio volatility, control overall risk, and is expected to broaden the sources of returns.

The public fund industry is accelerating its layout in the diversified asset allocation space. Its investment scope has moved beyond the traditional “stocks-and-bonds” two-category framework and expanded into multiple categories such as gold, REITs, QDII, mutual-recognition funds, and overseas equities. As an important tool for implementing this strategy, public fund FOFs (funds-of-funds) have continuously expanded their investment boundaries, and industry enthusiasm continues to rise. According to Wind data, as of March 27, 2026, 53 newly established public FOF products raised a total of RMB 69.049 billion in the year to date, reaching 82% of last year’s full-year new issuance scale; the total public FOF scale across the whole market has also increased to RMB 312.89 billion.

This allocation transformation led by FOFs is not only a rapid expansion in scale, but also a comprehensive upgrade in investment logic and product form. As “deposit relocation” evolves from a trend into reality, and volatility of single assets becomes the norm, public funds are stepping up their efforts in products for diversified asset allocation. This is both a necessary choice for matching supply and demand in the wealth management market, and it also signals the deeper logic of an industry transition—from becoming a “single product seller” to a provider of “asset allocation solutions.” However, under the halo of rapid industry growth, real challenges such as double-layer fees, bottlenecks in investment research and portfolio management (投研) capabilities, and channel dependence still test the long-term healthy development and sustainability of this allocation feast.

Public FOF scale surpasses RMB 300 billion

Since 2026, the public FOF market has shown a clear momentum of growth. According to Wind data, as of March 27, the total FOF scale across the whole market has reached RMB 312.89 billion, up more than 28% from the end of 2025. The new-issuance market is also active. Since the beginning of this year, 53 new products have been established, raising a total of RMB 69.049 billion, with an average fund-raising size of about RMB 1.3 billion per product. Compared with the total fund-raising amount of RMB 84.529 billion for all of 2025, the new issuance scale in only Q1 2026 has already approached four-fifths of last year’s full-year level. At this pace, the full-year new issuance scale is expected to set a historical record.

In terms of product structure, stable-type products occupy the mainstream. According to Wind data, as of March 27, the combined scale of debt-biased hybrid-type FOFs and bond-type FOFs accounts for about 77% of the total FOF scale across the whole market, and the product count share is also above 50%. Nord Fund believes that this structural feature clearly indicates that today’s FOF is no longer an aggressive tool chasing high returns, but rather a positioning as an allocation product that carries funds with low risk preferences and seeks steady returns. In contrast, the combined share of equity-type FOFs, equity-biased hybrid-type FOFs, and balanced hybrid-type FOFs is less than 15%. This reflects that, in the current market environment, investors remain relatively cautious about allocating to high-volatility categories.

The competitive landscape among leading fund companies also shows a distinct “debt-biased preference” characteristic. According to Wind data, as of March 27, Fund manager 富国基金 (Fuj?o?) ranks first in industry FOF management scale with RMB 26.496 billion; among them, the debt-biased hybrid-type FOF contributes RMB 24.644 billion, accounting for as much as 93%. 中欧基金 (China Europe Fund) is next with RMB 25.141 billion, where the debt-biased hybrid-type FOF scale is RMB 19.664 billion, accounting for 78%. 易方达基金 (E Fund) and 广发基金 (Guangfa Fund) are ranked third and fourth with RMB 24.495 billion and RMB 23.345 billion respectively, and the debt-biased hybrid-type FOF share is both above 70%. The combined scale of the top four managers is nearly RMB 100 billion, accounting for more than 30% of the total scale across the whole market—indicating a high level of industry concentration.

However, some companies also secure a place in niche tracks through differentiated positioning. For example, 兴证全球基金 (China? Global Fund) has accumulated a scale of RMB 11.801 billion in equity-biased hybrid-type FOFs, becoming a leader in that area. 国泰基金 (China Galaxy?) and 博时基金 (Bosera Fund) respectively hold RMB 9.742 billion and RMB 4.067 billion in bond-type FOFs, forming unique competitive advantages. Public-fund industry insiders say this structural divergence shows that the FOF market is moving from early-stage homogeneous competition toward more refined division of labor. Each manager chooses different directions to focus on based on its own strengths in investment research and portfolio management, and product forms are becoming richer and more diversified.

From a longer time dimension, the development history of public FOFs can be described as a winding path. Nord Fund said that when the first batch of FOFs was introduced in 2017, the scale was only RMB 13 billion. From 2020 to 2021, it experienced the first round of rapid expansion, with scale reaching as high as RMB 222.2 billion at one point. But from 2022 to 2024, affected by a volatile market and shifts in market style, the industry entered an adjustment period lasting three years, during which scale fell to RMB 133.2 billion. It was not until 2025 that, with the popularization of multi-asset allocation concepts and the sustained validation of performance, FOFs truly saw a “second spring,” and in 2026, they accelerated to break through the RMB 300 billion mark at the start of the year. This曲折 upward development curve reflects the industry’s continuous deepening understanding of asset allocation—from the early simple “choose funds and build a basket,” to today’s genuine multi-asset allocation solutions. FOF’s product positioning and investment logic have undergone a qualitative leap.

Three Key Logics Behind the Rapid Growth of FOFs

The breakout of public FOFs at the start of 2026 is not accidental. Analyses by multiple institutions suggest that the core driving forces are three-way resonance among the funding side, the channel side, and the product side.

First, in a low interest rate environment, “deposit relocation” provides an incremental source of funds for FOFs. In its report titled “The ‘Narrative’ and Reality of Deposit Relocation,” CICC estimates that the maturity size of residents’ time deposits in 2026 is about RMB 7.5 trillion, of which deposits with maturities of one year or more are about RMB 6.7 trillion. Meanwhile, the average fixed-deposit interest rate for one-year deposits has already entered the “1% era,” and the average yield of bank wealth management products has also dropped to 1.98% (source: China Banking Wealth Management Registration and Custody Center’s “Annual Report on China’s Banking Wealth Management Market (2025)”). CICC believes that in a low interest rate environment, making marginal adjustments to asset allocation may enable FOF products—which have the characteristics of secondary risk diversification and relatively steady returns—to become an important tool to absorb “deposit relocation” funds.

Second, under the backdrop of faster market rotation and larger volatility in single assets, FOF optimizes the risk-return tradeoff of portfolios more noticeably through multi-asset allocation strategies. Nord Fund’s statistics using data from March 19, 2025 to March 19, 2026 show that the annualized return of debt-biased hybrid-type FOFs is 6.32%, basically in line with the debt-biased hybrid fund index; however, the annualized volatility (2.68%) and the maximum drawdown (-2.13%) are both better than those of the latter (2.94%, -2.26%). Nord Fund believes this demonstrates that FOF achieves a double effect of “enhanced returns + reduced risk” within the “fixed income+” strategy. Even in the pure bond space, the bond-type FOF’s annualized return (2.67%) is far higher than that of long- and mid-term pure bond funds (1.21%), while volatility only rises slightly.

Finally, on the channel side, the shift from “distribution/sales” to “customized solutions” has accelerated the popularization of FOFs. According to publicly available market information, China Merchants Bank launched the TREE long-win plan (including series such as Anwenying, Andingying, Anxinying, Anyi ying, etc.), imposing explicit constraints on equity positions, return targets, and maximum drawdown. Construction Bank and others have also launched similar customized FOF plans. CICC believes that bank channels are no longer passively selling products. Instead, based on customer data, they control the allocation leadership. This transition from “selling products” to “providing solutions” makes FOFs an important tool to absorb funds with low risk preferences.

Outlook and Pain Points

Allocation Capability Determines the Long Run

Behind the breakthrough of scale to more than RMB 300 billion and the sustained hot new issuance, multiple deeper issues have come to the surface: can FOF’s allocation capability keep up with the expansion in scale? Where will the industry go in the future? And beneath the lively surface, what hidden concerns should be taken seriously? Multiple institutions have provided assessments from different dimensions, and the practices of a batch of leading companies also show the direction of product evolution—but the challenges also cannot be ignored.

CICC points out that products in the allocation category have been gaining market favor, which is a broader trend. But public FOFs face competition from various product types such as secondary bond funds (二级债基), advisory (投顾) portfolios, private FOFs, and multi-asset ETFs. Only fund managers that truly possess cross-cycle macro analysis and asset allocation capabilities can win. This means the future FOF market will exhibit structural differentiation, rather than every participant being able to share in the growth dividend.

Nord Fund, from the perspective of investor behavior change, says the rapid development of FOFs indicates that Chinese investors are gradually shifting from “buying a single product” to “buying asset allocation solutions,” which is an important sign that China’s asset management industry is becoming more mature. With the ongoing launch of innovative categories such as FOF-LOF, QDII-FOF-LOF, and ETF-FOF, product forms will become even richer, and more scenarios will be better matched.

Schroder? (S?万菱信基金) states that in a complex background of hesitation in U.S. monetary policy, ongoing geopolitical conflicts, and abnormal asset volatility, the risk that a single asset or a single strategy fails is increasing. Multi-asset allocation strategies, through scientific diversification, hedging, and dynamic adjustments, can transform uncontrollable market volatility into a manageable investment process. This is precisely the core value of FOFs.

Worth noting is that public FOFs have already gone through multiple rounds of iteration, with their allocation capabilities greatly expanded. Taking 兴证全球基金 as an example, the company began including gold in its FOF portfolio as early as 2019, with the original goal of reducing the maximum drawdown. In 2022, further research found that gold has absolute long-term returns and is lowly correlated with traditional stocks and bonds. As a result, in 2024 it was incorporated into the performance comparison benchmark. During the 2020 U.S. stock market circuit breaker period, the team timely increased holdings of U.S. stocks through QDII. In the second half of 2024, when QDII-ETF traded at a high premium, they took profits and switched to undervalued Hong Kong stocks. In 2025, 兴证全球基金 officially renamed the former “FOF Investment and Financial Engineering Department” to “Multi-Asset Allocation Department,” building a three-dimensional structure covering seven research sub-teams: domestic equities, fixed income, overseas, alternatives, and private funds, among others. This case shows that today’s FOFs are no longer simply “fund pickers,” but truly professional tools capable of cross-asset and cross-market allocation.

However, despite the halo of rapid scale expansion, challenges faced by FOF development must also be taken seriously. Nord Fund points out: first, the issue of double fees—investors need to bear both management fees at the FOF level and those at the underlying sub-funds, resulting in an overall fee level higher than direct investment in a single fund. Second, the high threshold for management ability—FOF managers need to have both a big-picture macro view and the micro capability to select funds, meaning they are “specialists among generalists.” Talent is scarce and the ability is difficult to evaluate. Third, the risk of mediocre performance—over-diversification may reduce risk while diluting returns, and especially in one-way bull markets, FOFs often fail to outperform pure equity funds. Fourth, liquidity and transparency issues—the subscription/redemption confirmation cycle is longer, and disclosure of underlying assets lags; investors may have an information gap in perceiving risk exposures.

Even more concerning is the current sales model that is highly dependent on channels. A FOF fund manager in Shanghai told Securities Times Fund Research Institute that the current FOF scale growth relies extremely heavily on bank channels, and that channel assessments are oriented toward incremental scale, so funds often “enter quickly and exit quickly.” This short-term orientation conflicts intrinsically with FOFs’ positioning as long-term, steady allocation. Some products already encountered a scale cut in half during the adjustment period from 2022 to 2024, due to the withdrawal of channel funds. To truly overcome this trap, managers need to keep putting sustained effort into investor education and the accumulation of long-term capital, rather than only relying on channel heat.

In summary, the boom of public FOFs is both the result of a supply-and-demand resonance in the wealth management market and an inevitable path for the industry to move from “single product sales” to “solution provision.” But to achieve sustainable development, managers need to keep making breakthroughs in fee design, investment research and portfolio management capabilities, and product differentiation. As more and more investors view FOFs as their own “asset allocation toolboxes,” the era of diversified asset allocation is only just beginning.