Smart Money | 6-year-old fund liquidated: Even if the wind blows, BlackRock will give up

Author|Li Jia Huang Yida

Editor|Huang Yida Zheng Huaizhou

Following the departure of the head of China in the first half of the year, BlackRock suffered another fall in the Chinese capital market.

On September 5, BlackRock Global Fund announced in a shareholder letter that it would close the China Flexible Equity Fund managed by it on November 7 . Once the incident was released, it aroused widespread attention and discussion in the market.

The reason why the topic is so high is that on the one hand, BlackRock is the world’s largest asset management company, and its industry status determines the impact of this event; on the other hand, 80% of the fund’s positions are allocated to Chinese-related stocks , as the fund was liquidated, rumors about BlackRock’s divestment from China were rampant.

From the perspective of performance, the fund was established in October 2017 and is an old fund established for more than 5 years. However, its long-term performance is unsatisfactory. The July fund monthly report disclosed on September 7 showed that the fund was established The loss so far has reached 21.6%. In the past five years, it has only had positive profits in 2019 and 2020. Comparing with peers, according to wind statistics, this fund underperforms similar funds most of the time, and the gap is even growing.

Chart: BlackRock China Flexible Equity Fund Performance Trend Source: Wind

Looking at the performance trend of the fund, it can be roughly divided into three periods. There was an obvious rise from March 20 to February 21, and from October 2017 to March 20 and from February 21 to the present. The period has been full of shocks and adjustments, especially the performance after 21 years is definitely worthy of the term “a rapid decline.”

Such embarrassing performance naturally lacks appeal to Christians. The size disclosed in the most recent fund monthly report was less than US$24 million. It is true that the fund’s performance is poor and its scale is difficult to expand, so it is reasonable for it to be abandoned by BlackRock.

So, does BlackRock’s liquidation of China Flexible Equity Fund really mean it is withdrawing from the Chinese market? Behind the dismal performance, what did this fund do wrong?

01 Offshore funds are liquidated, and rumors of BlackRock withdrawing from the Chinese market are untrue

After the news of the fund liquidation broke out, BlackRock officials also paid attention to the rumors in the market about their withdrawal from the Chinese market. BlackRock responded that the rumors were untrue and assured that its commitment to the Chinese market remained unchanged.

It must be said that BlackRock’s response is indeed very official, and the information disclosed is also very limited. Due to the worrying performance of BlackRock’s related fund products issued in China, this fund liquidation incident has intensified the market’s concerns about its asset management capabilities. The rumors of withdrawing from the Chinese market are the embodiment of these concerns.

As for whether BlackRock wants to withdraw from the Chinese market, after sorting out the fund liquidation incident, the answer is that this is most likely an independent incident.

Let’s first look at the fund issuer. The BlackRock China Flexible Equity Fund, which is about to be liquidated, is one of the BlackRock global fund series. The relevant disclosure maintenance is operated by BlackRock Asset Management North Asia Company established in Hong Kong. . BlackRock Global Fund is an open-ended investment company established in Luxembourg and is one of BlackRock’s signature products.

Therefore, the BlackRock China Flexible Stock Fund is a typical offshore fund, and its operation is not directly related to the domestic BlackRock Fund and BlackRock CCB Financial Management, which hold relevant financial licenses. As far as signals are concerned, we cannot speculate that BlackRock will withdraw from the Chinese market just because the liquidated funds invest in Chinese assets. After all, this fund liquidation does not involve BlackRock’s two major licensed institutions responsible for domestic market operations.

Moreover, liquidating a fund with poor long-term performance and a current management scale of only more than 20 million U.S. dollars can be said to be a normal operation. After all, the performance is dismal and there are also operation and maintenance expenses. BlackRock has made this fund in the short term. When it is judged that there will be no further subscriptions in the future, it has already shown that there is no need for this fund to continue to exist. This is a problem at the trading level.

From a strategic perspective, BlackRock’s main body of issuing financial products in the country is still operating normally. Among them, the public offering products related to BlackRock funds currently have a poor reputation in China. 4 of the 6 products have had negative total returns since their establishment, and the highest total return is only 1.36% (as of September 8, 23), which is the worst performance. The poor China New Vision had a net value of only 0.65 during the same period, ranking low among similar products.

Even if poor performance results in a certain shrinkage in fund management scale, BlackRock Fund’s current total management scale is still 5.345 billion yuan. At the same time, the management scale of BlackRock CCB Financial Management has grown rapidly this year, from 6.740 billion yuan at the end of 2022 to 11.817 billion yuan in the first half of this year.

To sum up, although BlackRock’s market share in the domestic asset management industry is not high, the asset management scale of the two major domestic issuers exceeds 15 billion yuan. Even if the performance of BlackRock funds is not good, they will never give up. The principle of domestic market. On the other hand, the offshore fund liquidation incident also allowed domestic investors to see that foreign monks may not be very good at chanting sutras, even if it is the largest financial institution in the world in terms of asset management.

02 What did BlackRock China Flexible Equity Fund do wrong?

The China Flexible Equity Fund, the protagonist of this fund liquidation, is one of BlackRock’s global funds. As BlackRock’s flagship product, under the halo of being the world’s largest asset management scale, the performance of the signature fund has been weak for a long time and the reasons behind it The reason is very worth reviewing and thinking by investors.

According to the monthly fund report officially disclosed by BlackRock, looking back at the holdings of the China Flexible Stock Fund since its establishment in 2017, the positions of the top 10 heavily held stocks have been around 50% for a long time, so the style of the heavily held stocks also determines the overall style of the fund. . During the fund’s duration of nearly 6 years, China’s flexible stocks have been heavily invested in major Internet companies such as Alibaba, Tencent, and Baidu for a long time. Other heavyweight stocks are distributed in large finance (mainly banks and insurance), new energy, liquor, medicine, etc. Key stocks include Ping An Group, Bank of China, CATL, Moutai, WuXi, etc.

Figure: China Flexible Stock Fund’s heavy holdings; Data source: Company official website, 36 Krypton

Since the stocks with heavy holdings are basically the leaders of various sectors, China Flexible Stock Fund is a typical blue-chip style. And because the stocks with heavy holdings are distributed in major Internet companies, new energy, pharmaceuticals and other sectors, the fund shows an obvious growth style. Moreover, the fund style has not changed significantly in the past six years. It mainly uses large factories and large finance as its base positions, and periodically buys leading stocks in new energy, medicine, liquor and other sectors.

While the overall style of the fund has not changed much, the market conditions of heavily invested sectors have undergone earth-shaking changes during the duration of the fund. In the past six years, the domestic equity market has experienced external changes in the trade environment and the impact of the epidemic; internally, the main line style has experienced a switch from the Mao Index to the Ning combination. Moreover, the interaction between internal and external factors is also the core reason why Big A’s expectations have been weak so far, and it also determines the beta of fund performance to a certain extent.

Looking at the stages, from its establishment in 2017 to March 2020, the performance of China Flexible Stocks generally fluctuated. During this period, the fund held heavy positions in Alibaba, Tencent, Baidu, Ping An of China, China Construction Bank, Bank of China and other stocks for a long time. At the same time, it also showed a preference for energy and securities companies. In the short and medium term, it held CNOOC, PetroChina, Haitong, GF Securities, etc.

However, the performance of the above-mentioned heavyweight stocks during this period has not been very good. First of all, the Internet industry’s long bull market that started in 2013 ended at the end of 2017. The main reasons are: first, the marginal weakening of Internet traffic dividends; second, the change in expectations caused by policy tightening; third, the influence of external factors .

Secondly, mainly affected by external factors, various sectors of A-shares either fell or fluctuated sideways in 2018 and 2019. The same was true for banks, insurance, securities firms, energy and other sectors that China Flexible Stock Fund has heavy positions in. Even if individual stocks held have had short-term outperformance during a certain period of time, they still cannot hedge against the negative impact of the decline in heavy holdings on the fund’s net value.

Between March 2020 and February 2021, China Flexible Stock Fund performed well. While the overall style changed little, the substantial increase in net value was due to the stock prices of major Internet companies strengthening again in 20 years. At the same time, the fund positions New energy has also been added, and Moutai, which is heavily stocked, also experienced a sharp rise in 2020.

But between February 2021 and October 2022, the fund’s performance plummeted. The problem lies in the fact that the overall style has not changed much.

In the two years of 20 and 21, the A-share market has undergone an obvious style switch. Taking the Spring Festival of 2021 as the boundary, before then, the core assets represented by the Mao Index were the main line of long-term investment in A-shares. When energy switching was promoted to a national strategic level, under the guidance of good policies, the penetration rate of new energy increased rapidly, and the new energy market began to ferment. The Ning Group, represented by CATL, gradually replaced the Mao Index and became the new A-share market. The main line of long-term investment.

Looking at BlackRock’s China Flexible Equity Fund, although it has seen the trend of style switching early, its position in new energy has never been too high, and it still insists on taking major Internet companies as its bottom position. Therefore, the new energy bull market’s help to the fund’s net value is relatively limited.

At the same time, the Internet rectification that lasted for two years from 2021 caused the total market value of major manufacturers to evaporate by 80~90%. Since the fund still insisted on investing heavily in major Internet companies during the Internet rectification period, the policy suppression caused the loss of major manufacturers. The plunge in stock prices was the core reason why fund performance plummeted during this period.

WuXi stocks also appeared in fund holdings between 2021 and 22. However, after the bull market of medicine in 2020 and the bullish pharmaceutical structure in 21, the previously popular CXO began to ebb. WuXi Biologics and WuXi AppTec have Since the second half of the year, stock prices have continued to adjust, and valuations have continued to be compressed.

Judging from the time point when the fund buys related stocks, the time when the fund holds positions is mainly from the second half of 21 to 22Q3. During this period, the stock price of Wuxi Department is in the process of adjustment. It is speculated that the fund manager may I wanted to trade on the left side, but the actual result was that I failed to keep up with the changes in the market’s perception of CXO and was buried.

In general, the China Flexible Stock Fund was born at the wrong time. It heavily invested in major Internet companies but failed to catch up with the Internet bull market from 2013 to 2017. The fund was established near the peak of the bull market, so the fund had to withstand the risk of taking over orders at high prices. pain. The investment strategy after that was to resolutely buy big blue chips, and the heavy positions were all good companies. However, it could not withstand the changes in the market, especially the epidemic, changes in the trade environment, policy suppression and many other factors, which accelerated the style switch of China’s equity market. At the same time, good companies However, the company is not equal to a good stock. Not only does the strategy fail to reflect the flexibility in its name, but it can also see the losses caused by timing.

It has to be said that the key to the poor performance of BlackRock China Flexible Equity Fund is that its investment strategy is too inconsistent with the characteristics of China’s equity market. A-share funds that have performed well in the past have all highlighted their respect for policies and their flexible grasp of the main market trends . These two characteristics are not possessed by BlackRock China Flexible Equity Fund.

03 The performance of BlackRock’s Hong Kong stock fund is also worrying

From the BlackRock offshore fund liquidation incident, we can’t help but think of the Hong Kong stock fund issued by BlackRock Fund in the mainland – BlackRock Hong Kong Stock Connect Vision. The biggest selling point of this fund when it was launched was that it used BlackRock’s Hong Kong investment research team as its Hong Kong stock investment advisor, highlighting the “home field” advantage through the localization of the investment advisory model.

However, from the perspective of actual efficacy, the performance of BlackRock Hong Kong Stock Connect Vision, which is “playing at home”, is not ideal. The total return of the fund since its establishment (1.6 years) is -23.04%, ranking only in the middle of the wind similar fund rankings. Fund performance even underperformed the benchmark and was not as good as the return level of the CSI 300 over the same period.

Figure: BlackRock Hong Kong Stock Connect Long-term Vision Performance; Data Source: Wind, 36 Krypton

From a style perspective, BlackRock’s Hong Kong Stock Connect vision is quite similar to the China Flexible Equity Fund that is about to be liquidated. Major Internet companies such as Tencent, Meituan, and Kuaishou can still be seen among the heavy holdings. Bank of China and AIA are also heavy holdings. and other financial stocks, in addition to real estate, manufacturing, pharmaceuticals, retail and other sectors.

Given that the styles are similar, the dismal performance of BlackRock Hong Kong Stock Connect Vision is easy to understand. Although the performance of the Hong Kong stock market in 2022 was sluggish, there were also structural trends, such as the energy sector, and the dividend strategy was also quite effective. Therefore, BlackRock’s Hong Kong Stock Connect prospects will not make many adjustments to its investment strategy when the market is unfavorable, so it can only follow the market’s adjustment.

From the perspective of the difficulty of position adjustment, the scale of BlackRock Hong Kong Stock Connect Vision was 500 million yuan in 22Q1, and dropped to 314 million yuan in 23Q2. It is relatively small in scale. There are no domestic star funds with over 10 billion yuan. The problem is that the scale is too large to adjust the position. It can be seen that the key reason for the decline in the fund’s net value and shrinkage is still the issue of investment strategy.

The difference from BlackRock China Flexible Stocks is that in the former, foreign monks helped Big A cut a wave of foreign leeks, while the investors in BlackRock’s Hong Kong Stock Connect prospects are all our own people. At a time when the performance of public funds is being criticized, even though investing in equity funds is quite risky, and investors and fund managers share the risk, in my opinion, improving fund performance is what top financial institutions should do for investors. .

*Disclaimer: The content of this article represents the views of the author only. Market risk, the investment need to be cautious. Under no circumstances does the information or opinions expressed in this article constitute investment advice to any person. Before deciding to invest, investors must consult professionals if necessary and make careful decisions. We do not intend to provide underwriting services to parties to transactions or any services that require specific qualifications or licenses.

36Kr Finance