How to Hold Steady and Sleep Soundly: Three Common Traits Hidden in Anti-Drop Funds

Securities Times Fund Research Institute Kuang Jixiong

Since March, the A-share market has continued to fluctuate and adjust, with the average return of active equity funds declining by about 6.6%. Five funds have fallen more than 20%, and investors’ experience holding these funds is generally under pressure. The Securities Times Fund Research Institute attempts to analyze, through data, how to identify high-quality funds that investors can “hold steady and sleep well” in a volatile market, providing a rational practical guide for long-term allocation.

Three Common Traits of Low-Drawdown Funds

In the context of recent market-wide declines, a group of active equity funds has shown remarkable resilience. Data shows that as of March 20 (the same below), among active equity funds established before the end of 2025, about 4.7% had positive returns since March. Notably, 21 funds such as Hui’an Industry Leader A, Hui’an Hongyang Three-Year Holding, and Hui’an Balanced Selection A performed well, with maximum drawdowns since March kept within 2%. Bo Shi Times Era Leading A, with a minimum drawdown of 0.68% and a return of 1.25%, became a benchmark for resilience among equity funds during the same period, providing investors with a significantly better experience than peers. Deep data analysis of these resilient pioneers reveals that their steady performance is not accidental but has clear, identifiable common features.

First, diversification is the primary characteristic of these funds’ ability to withstand volatility. The average concentration of these 21 low-drawdown funds in their 2025 holdings is only 0.04, significantly lower than the 0.11 average of similar funds. A more diversified portfolio can effectively reduce the impact of single holdings’ fluctuations on the overall fund, helping net asset values remain stable during market adjustments and avoiding sharp declines caused by concentrated exposure to individual stocks or sectors.

Second, a low valuation margin of safety is the core support for stable performance. The average P/E ratio of the top holdings of these funds at the end of 2025 is about 10 times, far below the 44.23 times average of similar funds’ holdings; the average P/B ratio is 1.63, much lower than the 5.14 times average of similar funds. Hui’an Hongyang Three-Year Holding is a typical example, with its top ten holdings mainly in transportation and utilities sectors. Its low valuation and high dividend characteristics demonstrate strong defensive properties during market adjustments. Since March, the top ten holdings of this fund have increased by over 6% on average, providing a solid foundation for net value stability.

Third, the experience and maturity of fund managers are key to resilience. The managers of these funds have an average of over 9 years of experience, having gone through two full bear markets in 2018 and 2022. Their investment frameworks have been tested through cycles, and their styles remain stable. They generally adhere to contrarian and balanced strategies, avoiding chasing short-term hot spots, with turnover rates significantly lower than industry averages. Last year’s first-half average turnover rate for these 21 equity funds was 92.54%, far below the 214.68% average of similar funds during the same period.

Data shows that these 21 low-drawdown funds have an average return of 2.51% since March, while the average drawdown of similar funds in the same period is 6.94%. The stark contrast indicates that products emphasizing risk control and holding experience are better at protecting investor returns during market adjustments.

Five Dimensions to Select “Comfortable” Funds

Short-term resilience may simply reflect a market timing advantage, but to consistently provide a “comfortable” holding experience amid bull and bear cycles, a fund’s overall strength in risk control, stable returns, and strong recovery capability is essential.

If we extend the observation period from January 1, 2021, to March 20, 2026 (about five years), during which the market experienced a complete cycle from core asset consolidation to deep correction and then to oscillating recovery, it becomes a “touchstone” for testing fund quality. The Securities Times Fund Research Institute selected funds with a maximum drawdown of less than 10% over the past five years, a Calmar ratio greater than 1, a maximum drawdown recovery period of less than 60 days, annualized volatility below 10%, and profitability over 60%. From all active equity funds established before the end of 2021, only 14 funds met all these criteria, accounting for less than 0.5% of the total, representing a model of resilient, cycle-proof funds.

Comparing these 14 “comfortable” funds with active equity “high-volatility” funds (with maximum drawdowns ≥50% over the past five years), the difference in holding experience is stark.

Data shows that some high-volatility funds, despite seemingly attractive long-term compounded returns, suffer from poor holding experiences, leading to serious “cannot hold” phenomena. For example, in the first and third quarters of 2022, when the Shanghai Composite Index fell more than 10%, the maximum net redemption ratio for the 14 “comfortable” funds did not exceed 20%. In contrast, the funds with maximum drawdowns over 50% in the same period had net redemption ratios exceeding 90%. This huge contrast vividly illustrates that excellent holding experience can effectively break the negative cycle of “decline—panic—redemption—loss,” encouraging investors to stay committed during turbulence.

Three Key Indicators to Build a Fund Portfolio

If, at the beginning of 2021, you allocated equal amounts to these 14 “comfortable” funds, by March 20, the portfolio’s return would reach 29.27%, with a maximum drawdown of less than 4%. In comparison, the Wind Active Mixed Fund Index returned only 2.24% over the same period, with a maximum drawdown exceeding 40%. This demonstrates that in the A-share market, excellent risk control is itself the strongest alpha.

To replicate this “steady happiness” in your own portfolio, investors can set three strict criteria to build a core pool of “high success, low pain” funds: First, a drawdown threshold—exclude funds with any natural year’s maximum drawdown exceeding 20% over the past three years, to avoid deep pitfalls and maintain psychological resilience during extreme markets; second, recovery ability—prefer funds with maximum drawdown recovery times under 90 days, to ensure quick rebound and shorten the pain period, preventing irrational redemptions caused by prolonged downturns; third, win rate—strictly select funds with a profitability percentage over 60% in the evaluation period, leveraging high-frequency positive feedback (“small steps, quick wins”) to increase the probability of seeing positive returns when opening the account, fostering a long-term mindset of “hold steady and sleep well.”

It is worth noting that all 14 of these “comfortable” funds are flexible allocation funds. This is not coincidental; the mechanism advantages of such funds—being able to attack or retreat—make them suitable for this strategy. This also suggests that ordinary investors can adopt an optimized “core-satellite” approach: allocate most funds to “core” low-volatility, high-success experience funds to establish a stable foundation, ensuring positive psychological feedback in any market environment; then allocate a smaller portion to high-elasticity sector or thematic funds to seek excess returns. This structure avoids the “roller coaster” pain of full high-volatility positions while maintaining opportunities to participate in market hot spots, balancing human weaknesses and market opportunities optimally.

(Edited by: Li Yue)

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