Over 90% of fixed income + funds collectively pull back, with the largest single-day decline exceeding 3%

The Financial Association reported on March 24 (Editor: Li Xiang) that the “stable financial safe haven” originally seen by investors in fixed income + funds is currently facing an unprecedented collective withdrawal impact! Recently, due to the continuous weakening and significant pullback in the equity market, fixed income + fund net values have largely “crashed.”

According to Wind data compiled by the Financial Association, on March 23, out of 1,722 fixed income + funds in the market (with net value performance, combined A/C caliber), a total of 1,615 experienced a decline in net value, with a pullback ratio as high as 93.79%. Among them, Huatai-PB Growth A recorded the largest market drop of 3.29%, also being the only fixed income + fund to fall over 3% that day.

Chart: The top 20 fixed income + funds with declines on March 23

Data source: Wind, compiled by the Financial Association

According to the quarterly report of Huatai-PB Growth A, this fund is a bond-type fund, with 83.95% of its funds allocated to fixed income products; however, this fund has a heavy position in convertible bonds. The quarterly report data shows that nearly half (49.68%) of the fund’s capital is allocated to convertible bonds, with individual holdings such as Hengyi Convertible Bonds, Huayang Convertible Bonds, and Baichuan Convertible Bonds all exceeding 1.2%.

The Financial Association has noted that in recent years, the influx of funds into “fixed income +” funds has a distinct “market-driven” characteristic. When there are structural opportunities in the equity and bond markets, fixed income + fund managers tend to hold a certain amount of low-volatility bond coupons while seeking returns from equity and convertible bond markets.

“Since the end of February, the weakening equity market has dragged down the performance of fixed income + funds, and high-valuation, high-priced convertible bonds have also experienced a collective correction; the cost-performance ratio compared to stocks has weakened. Many institutions that heavily invested last year have reduced their allocations or even redeemed,” said a fund institution representative. Currently, fixed income + funds with significant pullbacks often hold a large number of convertible bonds, especially high-priced convertible bonds, which have faced dual sell-offs in conversion value and premium rate, with absolute price adjustments already being quite adequate.

Gu Yige, a fixed income analyst at Guotai Junan, also stated that the recent phenomenon of actively compressing valuations in the convertible bond market can be attributed to two main reasons. On one hand, the A-share market, particularly small-cap stocks, is under pressure, causing a decline in the risk appetite for “fixed income +” funds and a decreased tolerance for high-valuation varieties. Some convertible bonds with high prices and high premium rates, as well as newly issued convertible bonds, are under considerable adjustment pressure. On the other hand, the number of convertible bonds triggering mandatory redemption clauses has increased recently, with some forced redemptions exceeding market expectations, further exacerbating investor concerns about redemption risks, leading to a concentrated sell-off of certain individual bonds with potential for forced redemption.

It is worth noting that although the fixed income + market experienced a deep pullback yesterday, some products still rose against the trend. For instance, Huian Stable Yield A, Yongying Xinxing A, Baoying Hongsheng A, Changsheng Yuanying Six-Month Regular Open, Hongta Hongtu Changyi A, Zhonghai Stable Income, and China Merchants Tianli Two-Year Regular Open all closed in the green that day, but only with slight increases of 0.17%, 0.13%, 0.03%, 0.02%, 0.01%, 0.009%, and 0.006% respectively.

Chart: Fixed income + funds that closed in the green yesterday

Data source: Wind, compiled by the Financial Association

Despite the significant volatility in net values of fixed income + funds recently, the overall performance of fixed income + products this year remains resilient. From the performance of fixed income + funds year-to-date, after yesterday’s significant drop, over 60% (60.99%) of products still have positive returns, among which ICBC Tianhui A ranks first with a return rate of 11.40%, leading significantly over the second-place Huashan Zhilan A (8.61%).

There are also products with poor net value performance, such as Dongfang Minfeng Huibao Ying’an A, which has a year-to-date return rate of -12.29%, placing it at the bottom of the market. The Financial Association has noted that the fund’s quarterly report shows that the main capital allocation is in the equity market and convertible bond market, accounting for 34.31% and 49.27%, respectively.

In the view of industry insiders, the recent pullback in fixed income + funds mainly stems from institution funds that are highly sensitive to pullbacks, especially banking and insurance funds. “It is still difficult to say that the convertible bond market will warm up in the short term, given the current high uncertainty of the US-Iran conflict and the complex macro environment where sustainability is hard to estimate. It is recommended that fixed income + allocation strategies prioritize stability and consider focusing on fixed income + funds that invest in convertible bonds with relatively low prices and conversion premium rates.”