"Fixed Income+" becomes "Fixed Income-"? Controlling drawdowns has become the "diamond tool" for wealth management firms

China Securities Journal reporter Shi Shiyu

Recently, a survey by a China Securities Journal reporter found that many “fixed-income +” wealth management products have shown clear net value volatility, and their performance has come under short-term pressure. Many investors have even joked that they are “fixed-income -”. Data from Wind shows that as of April 6, 204 “fixed-income +” products had negative annualized yields over the past month, and for some products, losses in the range have exceeded 10%.

Many wealth management companies have already begun optimizing their allocation strategies and strengthening drawdown control. In this round of market volatility, some “fixed-income +” wealth management products have also exposed shortcomings in product design and risk management, as well as the lack of contingency plans. Industry insiders believe that “fixed-income +” wealth management products are still an important choice for residents’ prudent allocation in a low interest rate environment. Wealth management companies need to further fill capability gaps in multi-asset, multi-strategy investment, optimize and upgrade in areas such as the investment research and risk management system and refined risk control, and improve their ability to weather through market cycles.

“Fixed-income +” product net values are currently volatile

“ I bought a one-year, daily open ‘fixed-income +’ product from CMB Wealth Management’s Jia Yue series with the shortest holding period. The returns were pretty good before, but since mid-March this year, the product’s net value volatility has become noticeably larger. In the past month, the range return is in the red.” Beijing investor Ms. Ma told the reporter.

The reporter learned from a wealth management manager at a branch of China Merchants Bank in Xicheng District, Beijing, that, from the perspective of asset allocation structure, the above-mentioned product Ms. Ma purchased has a fixed-income asset allocation ratio of no less than 80%. It mainly allocates to domestic high-quality credit bonds, with an equity position not exceeding 20%, and primarily invests in convertible bonds. “Recently, many ‘fixed-income +’ products’ net values have seen pullbacks. The main reason is that, in the same period, the bond market, the stock market, and the precious metals market have all experienced adjustments to different degrees. Market volatility will be reflected intuitively in wealth management products’ net values,” the wealth management manager said.

“Earlier, gold prices strengthened, so I bought a fixed-income gold enhancement product from Minsheng Wealth Management. Over the past month, the product’s drawdown in the range was 0.47%, but I currently don’t plan to redeem it.” said Ms. Zhang, a seasoned wealth management and investment investor.

“Recently, the capital markets have seen synchronized volatility among ‘stocks, bonds, and gold.’ The net values of all kinds of ‘+ equity’ and ‘+ gold’ products have faced short-term pressure. We are actively responding to drawdowns,” a person in charge of investment research and risk management at a wealth management company in the East China region told the reporter.

Wind statistics show that as of April 6, among “fixed-income +” products across the whole market that have disclosed the latest net values, 204 products had a negative annualized yield over the past month, while only 52 products had negative annualized yields over the past three months.

The United Intelligence · Public Offering Wealth Management Weekly Report shows that from March 21 to March 27, the average annualized yield since inception of fixed-income public wealth management products declined month-on-month, by about 2.79%. The number of public wealth management products trading below net asset value (under par) increased month-on-month by about 29.10%.

“Recently, the number of investors asking about product net value changes has increased noticeably. At present, the pullback range of product net values is within a controllable range. Cases of synchronized declines in stocks, bonds, and commodities also occurred last year. After the market faces the shock, it will revert to fundamentals, and the staged losses will be repaired.” the aforementioned wealth management manager at China Merchants Bank added.

Many bank wealth management managers suggested that, when facing a stage of yield pullback in wealth management products, investors should remain patient and avoid making emotion-driven moves based on short-term price upswings and downswings.

Product design and risk control shortcomings are exposed

In addition to external macro disturbances, many industry insiders believe that stage liquidity tightness and institutions’ reshuffling have amplified the magnitude of market volatility this time.

Huijin Wealth Management stated: “Factors such as tax payments at quarter-end, cross-quarter settlement funding needs, and net withdrawals from the open market have tightened liquidity at the margin. Meanwhile, ahead of the March 31 insurance industry assessment point, some insurance capital and ‘fixed-income +’ products reduced equity positions on a temporary basis for the sake of stabilizing indicators and preventing drawdowns, which accelerated the market decline through a negative feedback chain.”

Under the current market environment, many wealth management companies are actively controlling drawdowns and reasonably adjusting allocation positions.

“ We set strict drawdown control and assessment criteria for each of our ‘fixed-income +’ product lines. Faced with recent market volatility, we strictly implement investment discipline to control duration and leverage. In addition, under the core objective of controlling drawdowns, we actively seek investment opportunities in a volatile market,” a relevant person in charge of multi-asset investment business at a wealth management company in the East China region told the reporter.

Industrial and Commercial Bank of China Wealth Management stated that, at the product level, the company has built a quality control management mechanism based on a “layered drawdown target,” achieving whole-chain, whole-cycle control over “fixed-income +” products, as well as standardized and target-oriented management. This ensures that each product line has clear targets, a stable style, and strict quality control.

Zhejiang Bank Wealth Management stated that, in response to the recent extreme market conditions, the company closely tracks macro trends, geopolitical dynamics, and the logic of volatility in various assets. Driven by a dual-engine of “research + technology,” it dynamically optimizes asset allocation, proactively manages equity-type assets and gold positions, and works to minimize the impact of volatility. This also leaves sufficient room for net value recovery afterward.

It should be noted that during this round of market adjustment, the logic of some “fixed-income +” wealth management products thickening returns and risk-hedging allocation appears to have malfunctioned, and the shortcomings in investment research and risk management have been fully exposed. Wind statistics show that as of April 6, 10 “fixed-income +” wealth management products had a year-over-year? (over the past month) annualized yield drop exceeding 10%.

“ Under the impact of this round of market shocks, within ‘fixed-income +’ products, drawdown magnitude has clearly diverged due to differences in product type, risk rating, asset structure, allocation strategy, and so on,” said Wang Yifeng, Chief Analyst for the financial industry at Everbright Securities.

In the view of Zeng Gang, Chief Expert at the Shanghai Finance and Development Laboratory, large drawdowns in some “fixed-income +” products reflect real challenges faced by multi-asset allocation logic. “When asset prices such as A-shares, gold, and bonds are all under synchronized pressure, the effectiveness of the existing risk-hedging mechanisms is greatly discounted. This exposes deficiencies in product design and risk management. This phenomenon indicates that some wealth management companies, while pursuing enhanced returns, do not adequately assess the changes in correlations among different asset categories, and they lack contingency plans under extreme market conditions,” Zeng Gang said.

Strengthen refined management

Many industry insiders analyze that this round of market adjustment is more of a phased correction under the resonance of tighter liquidity and sentiment disruptions, rather than a reversal of the fundamental trend.

Zeng Gang believes that, in terms of market nature, the current changes should be understood as a deep pullback in a bull market rather than a trend shift. Looking ahead, although investors still need to remain cautious in the short term, over the medium and long term, the combined allocation effect of stocks and bonds will gradually become evident. Wealth management funds are becoming a continuous incremental source of capital for the capital market by increasing allocations to equity markets. This path has become increasingly clear, and it is expected that the annual scale of incremental funds will range between RMB 150 billion and RMB 250 billion.

Agricultural Bank of China Wealth Management believes that recent market adjustments mainly stem from the release of short-term panic sentiment, rather than substantial changes in fundamentals. Although short-term geopolitical risks may still be stirred, the equity market will ultimately return to its own operating logic. Extreme risk-avoidance sentiment will gradually dissipate over time, and the impact of geopolitical disruptions on the medium- and long-term trend is limited. It is expected that the market will gradually accumulate recovery potential amid volatility, and once risk sentiment has been fully released, it may stabilize and rise.

Industry insiders said that “fixed-income +” products are a necessary choice for wealth management companies in a low interest rate environment. However, wealth management companies still have compulsory lessons to learn in exploring multi-asset, multi-strategy investing. They need further optimization and improvement in investment research, contingency plans, and refined risk control.

Zeng Gang suggested that the next optimization direction for wealth management companies should be reflected in three layers. First, deepen research capabilities on the asset side. They cannot simply rely on historical correlation data; they need to establish a dynamic tracking mechanism to predict changes in correlations among assets. Second, strengthen risk management discipline—strictly control duration and leverage, prioritize allocations to high-rated and highly liquid assets, and strictly control the proportion of low-qualification credit bonds. Third, establish a sound early-warning mechanism for net value volatility, adjust positions flexibly based on market conditions, and increase allocations to steady assets such as certificates of deposit (CDs) and short-term bonds to smooth volatility. Meanwhile, wealth management companies should also strengthen cooperation with public fund managers and securities firms’ asset management institutions through a “build in-house + outsource” model, using them as important alpha strategy suppliers to make up for their own capability shortfalls in equity and multi-asset investment.

Wang Yifeng believes that the bank wealth management industry should build a more refined risk control system, establish a full-process management framework covering “risk budget—risk contribution—risk adjustment,” and improve drawdown control capability through measures such as setting an asset crowding risk early-warning mechanism and introducing tail risk characterization tools. It should also optimize allocation of alternative assets and flexibly use hedging instruments. Oriented toward improving customer experience, it should promote refined tiered segmentation at the product level. It should strictly distinguish between different types of “fixed-income +” products such as conservative and aggressive categories, and implement more professional and refined operational management based on each product’s risk budget and the customer’s risk preference.

(Editor: Qian Xiaorui)

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