Popular funds frequently appearing, FOF scale surpasses 300 billion yuan

Why has the AI and bank customization program become a blockbuster driver for FOF?

Once considered a less prominent product in the public fund landscape, FOF products are now stepping back into the spotlight.

Since the beginning of this year, the FOF market has been exceptionally active, with not only a surge in fundraising amounts year-over-year but also multiple products selling out in a single day, frequent “small hits” exceeding 3 billion yuan, and a total increase of 65.1 billion yuan in just under a quarter. The industry scale has experienced a leap forward, surpassing 300 billion yuan from just over 100 billion yuan in a little more than a year.

Industry insiders believe that the search for stable outlets for household savings, strong promotion of bank-tailored asset allocation plans, and the popularization of multi-asset diversification concepts have collectively ignited this round of market enthusiasm. Although the current situation appears very promising, industry experts also warn that this hot trend still has some “sales-driven” characteristics. The widespread adoption of asset allocation concepts and investor stickiness remain long-term challenges for the industry. Additionally, the not-yet-solidified industry landscape offers small and medium-sized public funds an opportunity to overtake in the curve.

Is this “FOF craze” a fleeting phenomenon or the beginning of a new era in wealth management?

A Two-Way Journey of Channels and Demand

Wind data shows that as of March 19, 44 new FOF products (only initial funds) have been established this year, raising a total of 65.125 billion yuan, a 3.7-fold increase compared to the same period last year. The average fundraising size has significantly increased from 884 million yuan to 1.48 billion yuan.

Overall, investor enthusiasm remains high, with frequent announcements of products selling out in a single day or closing early. Statistics indicate that since the start of the year, 10 FOF products have sold out in a single day, accounting for over 30% of the “sunshine funds” in the market, highlighting the blockbuster effect. For example, Bosera Ying Tai Zhenxuan, with a 6-month holding period, raised 5.844 billion yuan in just one day, with over 20,000 subscribing investors.

It is important to note that some products with longer sale periods may not have started strictly on the initial fundraising date. For instance, China Europe Ying Xin Stable 6-Month Holding, which raised 5.125 billion yuan, started subscription on January 9. However, according to sources from channels, the actual issuance began in early March, attracting 20,800 investors within a few days, and the original deadline of April 8 was moved up to March 11.

“Some products will advance the process first, but the actual launch time mainly depends on the channel’s scheduling,” said a public fund channel professional. The success of China Europe Ying Xin Stable 6-Month Holding is largely due to its inclusion in China Merchants Bank’s “Chang Ying Plan,” which provided it with additional traffic.

When First Financial reporters inquired about new product plans with multiple institutions, many responded that FOF products would be a key focus this year. A senior executive from a mid-sized fund company revealed that they plan to build on existing FOF products, extending along the risk-return spectrum to include balanced and aggressive ordinary FOFs.

Industry consensus suggests that the rapid expansion of FOFs this round owes much to bank channels. A senior executive from a leading fund company stated that whether it is China Merchants Bank’s “Chang Ying Plan,” China Construction Bank’s “Long Ying Plan,” or other similar future projects, most are designed to provide investors with one-stop asset allocation services in the form of FOFs, which will further stimulate market demand.

“Chang Ying Plan FOFs are essentially productized asset allocation.” The aforementioned channel professional explained that this product format leaves complex processes such as macro allocation, sub-asset allocation, product selection, and dynamic rebalancing to professional asset management institutions, using a simpler, more user-friendly approach to unlock the value of diversified asset allocation, starting from customer profiles (targets) to directly match products. The maximum drawdown control and stability of returns are likely to be key focus areas.

“Unlike active equity funds, which are naturally more elastic and more engaging for retail investors, individual investors’ understanding and attention to public FOF products require channel efforts,” said a senior analyst at a large securities firm. Bank retail channels are a crucial source of funds for this FOF expansion, with a highly structural match between their customer base and the target audience of FOF products.

Data shows that China Merchants Bank performs particularly well in FOF custody. According to First Financial, out of the 44 FOF products established this year, 10 are under China Merchants Bank’s custody. Among the eight “small hits” with fundraising over 3 billion yuan, China Merchants Bank accounts for five. Besides the two products exceeding 5 billion yuan, ICBC Ying Tai Stable 6-Month Holding raised 4.581 billion yuan, and products like E Fund Ruyi Ying Ze 6-Month Holding and GF Yuying Stable 3-Month Holding each attracted over 3.2 billion yuan in a single day.

Reflections Behind the “Market Darling” Turn

Reviewing the development of public FOFs in China, from policy inception in July 2014 to now, it has been ten years. For a long period, FOFs remained a secondary player with slow growth.

Wind data shows that in October 2017, the first six public FOFs were launched. Coupled with the promotion of pension target funds, the industry experienced a phase of growth. However, subsequent weak equity markets and underperformance of some products caused the FOF market to shrink, with the industry size reaching only 133.15 billion yuan by the end of 2024.

A turning point occurred last year. As equity markets recovered and the low-interest-rate environment promoted multi-asset allocation concepts, combined with intensive channel efforts, public FOFs entered a second expansion cycle. By the end of last year, the industry size reached 244.188 billion yuan, nearly an 80% increase for the year.

This momentum has continued into this year, with the category completing a remarkable transformation in just a few months. As of March 19, the industry size reached 308.965 billion yuan, surpassing 300 billion yuan. Notably, the FOFs under China Merchants Bank custody totaled 118.746 billion yuan, accounting for nearly 40% of the total market.

Currently, various assets are presenting abundant investment opportunities, and the investment targets of FOFs are becoming more diverse. Many newly launched FOFs include terms like “multi-asset allocation” and “multi-asset,” with benchmarks increasingly linked to indices involving Hong Kong stocks and gold.

A FOF investment director at a large fund company told First Financial that early FOFs mainly focused on selecting within domestic equity and bond funds to help investors solve the problem of “how to choose funds.” However, as yields on bonds, wealth management products, and deposits decline, ordinary investors now need products that can deliver good long-term returns with relatively controlled volatility and drawdowns.

“Today’s FOFs have long surpassed simple fund selection; they now achieve cross-asset, cross-cycle portfolio optimization through professional frameworks,” he said. Such products are more suitable for novice investors, risk-averse conservative investors, those with limited capital seeking diversification, and busy professionals who lack time to research markets.

Industry insiders believe that, beyond channel support, the explosive growth of FOFs precisely targets current market conditions and residents’ wealth management needs. A senior executive from a leading fund company stated that over 50 trillion yuan of residents’ medium- and long-term fixed deposits will mature by 2026, and FOF products meet the demand for “steady progress amid volatility,” making them an important tool for transferring these funds.

Meanwhile, in a low-interest-rate environment, traditional single-asset allocation strategies are increasingly unable to satisfy investors’ desire for higher returns. The focus on multi-asset products aiming for lower volatility and steady appreciation continues to grow.

Although FOF funds are currently very popular, industry experts also warn that this wave still has some “sales-driven” features. The continued popularity of new bank-issued FOFs should not be simply equated with a full endorsement of asset allocation concepts, nor should it be assumed that ordinary investors have truly understood and adopted long-term investment principles.

The aforementioned FOF investment director also admitted that the multi-asset allocation function of FOFs is not yet fully recognized, and “investor education is still a work in progress.”

“Funds may originate from deposit transfers, but FOFs still bear the real market volatility costs,” said a fund industry professional. To sustain growth, it is crucial to not only increase product scale but also to retain investors. Public fund managers need to think about how to build investor trust and loyalty.

Currently, the public FOF industry landscape is not yet fixed. Among 84 fund companies, only 12 have assets exceeding 10 billion yuan. Among these, GF Fund and China Europe Fund each have over 25 billion yuan, while E Fund and GF each hold around 24.5 and 23.3 billion yuan, respectively, with a relatively small gap at the top. Smaller fund companies still have significant room to break through, representing a golden opportunity for industry overtake.

How can smaller FOF managers “overtake on the curve”? A securities analyst suggested that first, performance is the foundation for sustained growth; second, seize the opportunity of transferring deposits by focusing on stable, low- to medium-volatility FOFs; and third, strengthen cooperation with sales channels and tailor products for asset allocation clients.