The past quarter has witnessed a roller coaster ride in the stock market, characterized by dramatic fluctuationsAmidst robust signals of policy intensification, investor sentiments shifted dramatically, leading them to revise their expectations regarding the continued decline of the economyThis shift reflected an increased risk appetite among traders, resulting in a rapid broad market rally that contributed to some degree of overall valuation recovery.

This resurgence in the stock market has had a pivotal effect on the mutual fund landscape, particularly in ChinaAccording to statistics from Minsheng Securities Research Institute, the market capitalization of passive funds has for the first time eclipsed that of active management funds within the A-share marketThe liabilities side of passive equity funds, which includes newly issued funds and net subscriptions, has accumulated significant inflows for six consecutive quarters, whereas active equity funds are experiencing net outflows during the same period.

From the perspective of fund managers, the third quarter has highlighted the critical importance of ETF (Exchange-Traded Fund) operations, which have become decisive in determining market standing

Among the leading players, companies like E-Fund Management, Huaxia Fund, and Haitai-Pryor experienced substantial growth exceeding 200 billion yuan in non-monetary fund scales during this periodHuaxia Fund, notably, has seen its non-monetary fund scale surpass the significant threshold of one trillion yuanMeanwhile, Haitai-Pryor's meteoric rise has positioned them among the top ten non-monetary fund management companies, primarily driven by their ETF businessCompanies lacking a robust ETF strategy have found themselves left out of this investment frenzy.

Aside from traditional asset management focused on stocks and bonds, there exists a diverse range of attitudes and strategic paces concerning other investment avenues such as QDII (Qualified Domestic Institutional Investor), REITs (Real Estate Investment Trusts), FOF (Fund of Funds), and alternative investments

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Even for mid to large-sized firms within the industry's top twenty, a significant portion of their offerings remains underdeveloped.

Could it be said that "those who master ETFs will dominate the market"?

When assessing the growth rates of non-monetary funds in the third quarter, four companies stood out due to their impressive expansion metricsBoth E-Fund and Huaxia Fund managed to sustain continued expansion on an already substantial base, with non-monetary scale growth surpassing 200 billion yuanHaitai-Pryor exhibited an eye-popping growth rate of 55%, while Southern Fund reported growth exceeding 100 billion yuanThe notable growth of these four companies cannot be detached from the impressive rise of their respective ETF offerings.

The table illustrating the largest ten ETFs in the market reveals that the most significant players are primarily those tracking broad indices such as the CSI 300, SSE 50, CSI 500, and ChiNext 50.

The ETF tracking the CSI 300 experienced breathtaking expansion, with products under the management of Haitai-Pryor, E-Fund, Huaxia Fund, and Harvest Fund leading in terms of growth

Haitai-Pryor's CSI 300 ETF saw an influx of 175 billion yuan from the end of June through the current date, while E-Fund’s three ETFs have collectively achieved around 200 billion yuan in growthHuaxia’s trio of broad-based ETFs contributed an additional 150 billion yuan, and Southern Fund’s CSI 500 ETF in tandem with the CSI 1000 ETF accounted for more than 80 billion yuan in incremental growth.

As ETFs have emerged as the engines for some companies' success, those lacking corresponding business strategies faced tepid growth in the third quarterThe outlined data for the top twenty firms indicates that many saw their index funds grow by less than a hundred billion yuan, and two companies, China Europe Fund and Xinxin Global Fund, did not record any ETF products.

According to Minsheng’s strategic team, the passive equity funds have gathered substantial inflows for six consecutive quarters

As the enhanced liability side, coupled with strong asset growth, boosts passive equity funds’ holdings in A-shares, it is significant that the scale of passive fund ownership has for the first time overtaken that of active funds this past quarter.

“New individual investors seem to have transitioned from a mindset of 'fear of missing out on gains' to 'fear of losing returns.' For existing individual investors, the primary focus may be on 'breaking even and cashing out,' which has contributed to some of the current market trading disturbancesLooking ahead to 2024’s third quarter, with passive funds now holding more A-share capital than active funds, it’s essential to recognize that individual investors have significantly engaged in the secondary market transactions of ETFsThis emergence is likely to be vital in reshaping future micro-pricing mechanisms in the market," notes Minsheng Securities.

A Continued Outflow from Active Equity Funds

While ETFs continue to garner attention, active equity funds are displaying a troubling trend of increased redemptions as the market rises

Recent data shows that of the 27 active equity funds with assets exceeding 10 billion yuan, all registered positive earnings during the third quarterHowever, in terms of share changes, all but one of these funds faced net redemptions, highlighting a stark outflow of investments.

The E-Fund Blue Chip Select remains the largest active equity fund, reporting a net value increase of 15% in the third quarter, yet its fund shares saw a decline of 2.45%. Among these billion-yuan funds, Guangfa Multifactor, managed by Tang Xiaobin and Yang Dong, shone brightest with a stunning 23% net value increase, though their shares likewise decreased by 6.63%.

Per statistics provided by Minsheng's strategy team, the establishment of new funds saw a marked decline while existing funds encountered significant net redemption trends that only intensified

This has resulted in the continued outflow of funds from active equity management for the sixth consecutive quarter.

Redeemed Bonds

Active equity funds are not the only categories experiencing net redemptions; the bond fund market has also felt the impact of the “stock-bond seesaw effect” by the end of the third quarterAn examination of the redemption statuses of bond funds exceeding 10 billion yuan reveals that among 75 large bond funds, only 16 saw positive growth in their share sizes, while 28 funds recorded declines.

Wind data indicates that the asset net value of all market bond funds currently stands at approximately 10.26 trillion yuan, reflecting a slight contraction of 3% from the 10.59 trillion yuan noted at the end of June.

By analyzing the variants in non-monetary scales across the top twenty fund firms, it becomes evident that most companies experienced a contraction in their bond fund scales

However, a few firms like Guangfa Fund, Haitai-Pryor, and China Europe Fund managed to report positive growth in their bond fund offerings.

Gaps in Emerging Business Areas

In addition to focusing on stocks and bonds, an inspection of the asset scale changes among the leading twenty firms in relation to alternative investments, QDII, FOF, and REITs during the third quarter reveals varying attitudes and strategic approachesSeveral firms remain underdeveloped in these segments, especially regarding their investments in REITs.

Among these, QDII stands out as the most significant asset class, with both Huaxia and E-Fund registering growth exceeding 10 billion yuan during the third quarterIn the realm of FOF, Xinxin Global Fund holds the largest position with total assets of 17 billion yuan, while China Europe Fund grew by 3.7 billion yuan; in contrast, Harvest Fund's FOF shrank by 2.6 billion yuan