Source: Brokers China Author: Chen Shuyu

On April 17, the four funds under Ruiyuan Fund's Ruiyuan Growth Value, Ruiyuan Equilibrium Value for 3 years, Ruiyuan Stable Allocation held for 2 years, and Ruiyuan Wenyi Enhanced 30-day holding all disclosed their quarterly reports.

As of the end of last year, the largest stocks in the equity positions of the above four funds were all Hong Kong stocks$CHINA MOBILE (00941.HK)$As of the end of the first quarter of this year, this is still the case. Since the first quarter of this year, the Hong Kong stock price of China Mobile has been relatively stable, rising 3.234% in the first quarter. Regarding the reason for the heavy position of telecom operators, Fu Pengbo previously stated in the Quarterly Report that its stable cash flow and dividend policy, operational resilience in the context of macroeconomic pressure, and increased emphasis on the capital market have made it a “ballast stone” with a unique combination.

In terms of changes in positions in the first quarter, there was little change in the overall three-year heavy stock list of the two equity funds, Ruiyuan Growth Value and Ruiyuan Equilibrium Value. Among them,$TENCENT (00700.HK)$The top ten most valuable stocks in Xinjin Ruiyuan's growth value,$MEITUAN-W (03690.HK)$,$PICC P&C (02328.HK)$Xinjin Ruiyuan equilibrium value was the top ten heavy-held stocks three years ago.

Zhao Feng's views on the economy and market in the first quarter are already positive. In his opinion, the valuations of many companies are already extremely attractive; investor expectations have basically bottomed out; along with macroeconomic policy support and a recovery in demand, the economy and company fundamentals are likely to pick up in the future.

Looking ahead to the second quarter, Fu Pengbo and Zhu Wei expect that there will still be some structural opportunities in the A-share market, and the valuation level of sector indices is still below the historical average. With the disclosure of listed companies' annual reports and quarterly reports, improvements in fundamentals and changes in the economy in the second quarter may have a stronger and more clear guiding effect on investment throughout the year.

Additionally, it is important to note that the above four funds were net redeemed in the first quarter. Ruiyuan's growth value, Ruiyuan's equilibrium value for three years, Ruiyuan Steady Investment's two-year holding, and Ruiyuan Wenyi Enhancement's 30-day first-quarter shares outflow of 415 million shares, 436 million shares, 933 million shares, and 334 million shares respectively. Among them, Ruiyuan Wenyi Enhancement's net redemption rate for the first quarter of 30 days reached 45%.

Fu Pengbo: Adding more companies benefiting from export chain growth and benefiting from equipment replacement

As the star product of Ruiyuan Fund, Ruiyuan Growth Value, which is jointly managed by Fu Pengbo and Zhu Wei, was 18.813 billion yuan by the end of the first quarter, down 9.5% from 20.796 billion yuan at the end of 2023.

In terms of position changes, compared to the end of 2023, Tencent Holdings re-entered the fund's top ten major holdings.$Sanan Optoelectronics (600703.SH)$Then it was called up.$Luxshare Precision Industry (002475.SZ)$,$Guanghui Energy (600256.SH)$,$Suzhou Maxwell Technologies (300751.SZ)$,$Sinocare Inc. (300298.SZ)$Increased holdings, China Mobile,$Contemporary Amperex Technology (300750.SZ)$,$Tongwei Co.,Ltd (600438.SH)$,$Wanhua Chemical Group (600309.SH)$,$Beijing Oriental Yuhong Waterproof Technology (002271.SZ)$The holdings have been reduced. By the end of the first quarter, the fund's top ten stocks were China Mobile, Ningde Times, Lixent Precision, Tencent Holdings, Tongwei, Guanghui Energy, Maiwei, Wanhua Chemical, Sannuo Biotech, and Dongfang Yuhong.

Regarding the idea of position adjustment, Fu Pengbo and Zhu Yi said in the Ruiyuan Growth Value Quarterly Report, “We have made certain adjustments to our holdings, mainly reducing our holdings of some of the top 20 companies with net worth, adding some companies benefiting from export chain growth and replacing equipment from the bottom up, and increasing the allocation of Hong Kong stocks. In addition, individual energy stocks also bucked the trend and increased their holdings during their pullback.”

Looking ahead to the second quarter, the two fund managers said that the A-share market is expected to have some structural opportunities, and the valuation level of sector indices is still below the historical average. With the disclosure of listed companies' annual reports and quarterly reports, improvements in fundamentals and changes in the economy in the second quarter may have a stronger and more clear guiding effect on investment throughout the year. “We will continue to dynamically adjust our portfolio, explore new investment targets, and select companies with reasonable valuations, high growth certainty, and steady endogenous growth that continues to generate cash flow.”

Zhao Feng: Listed companies will be more rational about expansion and will pay more attention to profitability and shareholder returns

In the first quarter, the three-year net worth of Ruiyuan's equilibrium value managed by Zhao Feng increased by 0.91%. By the end of the first quarter, the total size of the fund was 11.83 billion yuan.

In terms of position changes, in the first quarter, Meituan-W and China Financial Insurance added Ruiyuan's top ten heavy-held stocks with balanced value three years ago, Dongfang Yuhong,$CG SERVICES (06098.HK)$Withdrawal, Ningde Era, Wanhua Chemical,$Zhejiang Weiming Environment Protection (603568.SH)$Acquired additional holdings, China Mobile, Tencent Holdings,$Sieyuan Electric (002028.SZ)$, Sannuo Biotech, and China Resources Beer were slightly reduced. By the end of the first quarter, the top ten major stocks were China Mobile, Tencent Holdings, Ningde Times, Siyuan Electric, Wanhua Chemical, Weiming Environmental Protection, Sannuo Biotech, China Resources Brewery, Meituan-W, and China Financial Insurance.

Regarding the reason for the position adjustment, Zhao Feng gave a detailed explanation in Ruiyuan Equilibrium Value's three-year mixed quarterly report. First, he clearly stated that his views on the economy and market in the first quarter were: 1. The valuations of many companies are already extremely attractive, and even if future economic and profit growth slows down, their potential level of return far exceeds that of other assets; 2. Market sentiment is extremely pessimistic, and investors' expectations have basically bottomed out; 3. As of February 2024, PPI for all industrial products has been declining year on year for 17 consecutive months, and social inventories have continued to be compressed at a low level. Levels, along with macroeconomic policy support and a recovery in demand, the economy and corporate fundamentals are likely to pick up in the future.

“Based on future judgments and market conditions, we have made some adjustments to our portfolio, reducing our holdings of companies related to fixed asset investments, companies with unattractive static valuations and difficult to determine future growth, increasing our holdings in some new energy companies with attractive valuations, and companies with low valuations and stable fundamentals. In recent annual report exchanges with listed companies, more and more companies said they would control the pace of expansion, shrink loss-making business lines, and place more importance on the balance between revenue growth and profit levels. We expect that as demand growth slows, listed companies will be more rational about expansion and pay more attention to profitability and shareholder returns, which will improve the profit quality and level of return for listed Chinese companies.” Zhao Feng said this in a quarterly report.

Rao Gang: The degree of fiscal influence on economic momentum in the second quarter may have increased

As a debt-biased hybrid fund, Ruiyuan steadily allocated 35.61% of the net asset value of the fund's equity investment held for two years in the first quarter, which is a slight increase from the end of 2023. In terms of equity positions, the top ten major stocks are China Mobile, Ningde Times, Tencent Holdings, Siyuan Electric, Weiming Environmental Protection, ICBC, Meituan-W,$Shenzhen Pacific Union Precision Manufacturing (688210.SH)$,$Baoshan Iron & Steel (600019.SH)$,$Midea Group Co., Ltd (000333.SZ)$. As of the end of the first quarter, the size of the fund was $8.424 billion.

Regarding asset allocation for the first quarter, fund managers Rao Gang and Hou Zhenxin, who have held funds for the first quarter, said in the quarterly report that during the liquidity shock in the equity market at the beginning of the year, on the one hand, when the prices of dividend assets and growth assets were greatly differentiated in the short term, the position structure was rebalanced according to the expected level of return, and on the other hand, it also actively seized opportunities and increased positions in some high-quality targets with solid fundamentals and cheap valuations, thus increasing equity positions slightly compared to the end of last year.

In terms of debt conversion, there are still mainly undervalued debt conversion types, such as bonds conversion from financial companies with high pure bond yields and sufficient valuation protection, etc. Previously, long-term utility convertible bonds had met the conversion conditions in stages as the original stock rose, and the fund reduced its holdings and achieved good returns, so there was a slight decline in bond conversion positions compared to the previous quarter.

In terms of pure debt, behind the rapid decline in long-term and ultra-long-term yields since 2024 to record lows, the “rush” movement driven by demand for partial capital allocation is also reflected to a certain extent. Subsequently, as monetary policy is gradually transferred to easy credit, the increase in supply pressure on interest rate bonds or improvements in real estate and infrastructure data may cause fluctuations in medium- to long-term bond types to increase, so after long-term interest rates declined markedly in the first quarter, the fund moderately reduced the leverage and longevity of bond assets. Currently, domestic real interest rates are still at a high level, and inflation does not constitute a monetary policy constraint for the time being. Although special treasury bonds will be issued around the second quarter, and the choice of issuance method may have a phased impact on the market, bond supply will generally not change the trend, and bond assets still have good allocation value in the medium to long term.

Looking ahead to the future market, the signs of a gradual shift in the global manufacturing industry from a contraction range to an expansion range are becoming more prominent, and the drive of external demand on China's exports has also been initially verified. In terms of domestic demand, when the rate of issuance of government bonds within the first quarter budget is low, the second quarter may gradually move closer to normal seasonality, thereby increasing the degree of fiscal influence on economic momentum. The transmission chain of “bond issuance - fiscal expenditure - physical workload” is also worth paying attention to.

Hou Zhenxin: The valuation of high-quality companies is still in the cost-effective region

Ruiyuan Wenyi Enhanced 30-Day Holding is a hybrid bond tier 2 fund established in September 2023. By the end of the first quarter, the fund's equity investment accounted for 19.51% of the fund's net asset value, and the fund size was 411 million yuan.

It is worth noting that the bond market has performed well since 2024, and the fund's share showed significant net redemptions. Among them, the C share decreased by 332 million shares in the first quarter, a decrease of about 50%.

Fund manager Hou Zhenxin analyzed the fund's asset allocation in Ruiyuan Wenyi Enhancement's 30-day quarterly report. In terms of stocks, the main investment direction is companies with low valuations, strong competitiveness, good free cash flow, and emphasis on shareholder returns, as well as companies with reasonable valuations, strong competitiveness, good competitive patterns, and rapid growth periods. Taking into account the position of the industry cycle and the valuation level of stocks, the share of holdings in battery, power grid and service consumption increased in the first quarter. In terms of debt conversion, the overall bond conversion market shows the characteristics of a “high conversion premium rate+low pure bond premium rate”. The fund has selected some bonds with sufficient debt underwriting protection and at the same time include a high option value for investment. In the process of market restoration in the first quarter, the fund dynamically adjusted the allocation ratio of stocks and bonds according to the risk-return ratio, and switched most of its debt-conversion holdings to stocks.

In terms of pure debt, real interest rates are currently still at a high level. Inflation does not currently constitute a monetary policy constraint, and the risk of a sharp rise in bond yields is limited. However, it should also be noted that behind the rapid decline in long-term and ultra-long-term yields to record lows since 2024 is a “rush” move driven by allocation requirements, the volatility of medium- to long-term bond types may increase as monetary policy gradually spreads to easy credit. After long-term interest rates declined markedly in the first quarter, the fund reduced the leverage and longevity of bond assets.

At present, from the perspective of free cash flow discount returns, the valuation of high-quality companies is still in a cost-effective region. In addition to cheap valuations, after about two years of adjustments, the supply level of some industries has improved markedly, and inventory levels are low, so even if demand improves slightly beyond expectations, it may cause some enterprises to usher in a good situation where volume and price rise sharply. In terms of bonds, in the context of a decline in the risk-free return center of the whole society, pure debt assets still have allocation value. Under the current yield curve, which is still relatively flat, structural opportunities in the short to medium term deserve attention.

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