Fund "Facelift": Capital Guaranteed Funds Gradually Shift To Hedge Strategy Funds

At present, there are three types of low-risk funds in the market: monetary funds, bond funds and capital guaranteed funds. The low-risk of the first two funds stems from the particularity of the investment object, while the low-risk of capital guaranteed funds stems from the "system guarantee": it operates according to the established risk aversion investment strategy, while introducing a guarantee mechanism, To ensure that fund share holders can at least get back the principal when the principal guarantee cycle expires.

However, this third type of low-risk fund is about to withdraw from China's market. On January 24, the China Securities Regulatory Commission issued the Guiding Opinions on Hedge Strategy Funds (hereinafter referred to as the Guiding Opinions), requiring that the principal guaranteed funds be renamed as "hedge strategy funds". After the existing principal guaranteed funds expire, it will become a term only existing in the history of fund development in China.

The principal guaranteed fund in China was born in 2003, but until the second half of 2015, the development speed was relatively slow and the size was small. In 2014 and 2015, the average net return rate of the principal guaranteed fund reached 17.65% and 18.72%, respectively, showing impressive performance; In addition, the sharp fluctuations in the stock market in 2015 reduced investors' risk appetite, which jointly led to the hot sale of principal guaranteed funds from the second half of 2015 to the first half of 2016, ushering in a round of golden years. According to statistics, from 2011 to 2014, the number of principal guaranteed funds issued in China has been maintained at about 10 per year, 41 in 2015, and further increased to 72 in 2016, Raising scale It also increased by 86% year on year.

In order to ensure that investors will at least not lose money in the end, the principal guaranteed fund needs to find a guarantee institution for guarantee. However, the currently issued principal guaranteed funds all adopt the joint and several liability guarantee mode, and most guarantee institutions have unconditional recourse. As a result of this principal guaranteed arrangement, the fund company, rather than the guarantee institution, bears the losses caused by the fund investment failure. In fact, this has lost the meaning of guarantee. Once an extreme event occurs in the market and the investment loss exceeds a certain limit, the fund company may go bankrupt and endanger the entire fund system.

Moreover, with the continuous "evolution" of capital guaranteed funds, this risk is increasing. Due to the lack of derivatives in China's financial market, hedging operations are relatively difficult, and principal guaranteed funds generally adopt constant proportion portfolio insurance (CPPI) strategy for investment, that is to say, it stipulates that the portfolio should hold no less than a certain proportion of sound assets such as bonds and no more than a certain proportion of risk assets such as stocks. The fund manager should dynamically adjust the allocation ratio of risk assets and sound assets according to market trends and the level of fund net worth, so as to ensure the safety of principal at the expiration of the current cycle by investing in sound assets, Seek stable appreciation of assets through investment in risk assets.

The standardized asset allocation ratio of capital guaranteed funds in China is no less than 60% for sound assets and no more than 40% for risk assets, and efforts should be made to make safety cushions at the beginning of the capital guaranteed cycle. However, one result of this overly conservative investment strategy is that the yield is limited, which is not attractive to investors. Therefore, many fund companies are quietly launching more radical new capital guaranteed funds. First, shorten the period of principal guarantee, and reduce the three years previously default to two years or even one year, so that investors can make profits as soon as possible; The second is to reduce the proportion of steady assets held or include low-grade credit bonds into the scope of steady assets investment, and use leverage to invest to improve yield.

These two new changes have brought greater risks to the principal guaranteed fund. Wang Qunhang believes that the principal guaranteed period is shortened, and the yield is more difficult to guarantee, because it is necessary to make a safety pad, the yield of the principal guaranteed fund in the early stage is usually not very high. Taking the three-year term principal guaranteed fund as an example, according to a period of half a year, in theory, the third to fifth periods are profitable periods. If the principal guaranteed period is intentionally compressed, the safety pad is not even ready when the bond market is not good, The deadline will expire. And some capital guaranteed funds adopt more aggressive investment strategies to win high returns, which will undoubtedly increase the possibility of investment failure.

Although as of the issuance of the Guiding Opinions, there has been no precedent that the principal guaranteed funds in China cannot be guaranteed, under the regulatory thinking of the regulators with a stable tone, the risks brought by counter guarantee and aggressive investment strategies are not recognized. Therefore, the Guiding Opinions not only requires the change of the name of the principal guaranteed fund, but also cancels the joint and several liability guarantee mechanism, and more strictly stipulates the investment scope and investment rules. Jiang Saichun, chief strategic analyst of Desheng Fund Research Center, said in an interview with the media that the regulatory action reflects the idea of "risk prevention". Like graded funds, such risk loopholes that are relatively risky and may cause great damage to investment interests are blocked in advance.

According to the Guiding Opinions, the current stock is guaranteed fund It can continue to operate. After the expiration of the principal protection cycle, there are three options: first, revise the fund contract, prospectus and other documents and change them to hedge strategy funds; Second, transfer to other types of funds; Third, liquidate and launch the market. After sorting out the existing principal guaranteed funds, Huitianfu Baoxin will be the last one to withdraw from the market. The expiration date of the principal guaranteed cycle is September 30, 2019. At that time, the principal guaranteed funds will disappear completely in China.

So, as an alternative, can hedge funds continue the market performance of capital guaranteed funds? Wang Qunhang believes that there is no small difficulty when there are many other types of funds available in the market. According to the statistical caliber of the CSRC, as of the issuance of the Guiding Opinions, China has 151 principal guaranteed funds, with a net asset value of about 320 billion yuan. With the gradual transition from capital guaranteed funds to hedge funds, it is expected that the size of the new funds after the "facelift" will decline.

In 2016, due to the poor performance of the stock market, the debt market plunged at the end of the year investment The performance was poor, recording an average yield of -0.41%. Once more strict investment rules are implemented, hedge strategy funds will have more restrictions on investment in risky assets, and it will be more difficult to obtain high returns in the future. The research report of the Research and Innovation Department of Warburg Securities also agrees with this judgment, and believes that it is less likely that the hedge strategy fund will return to the market situation of the principal guaranteed fund in 2014 and 2015.

On the one hand, the return rate of the fund will decrease; on the other hand, the "rigid cashing" clause of the hedge fund has also been broken. In the Guiding Opinions, the original "guarantee that fund share holders can obtain investment principal guarantee when the principal guarantee period expires" is revised to "strive to avoid loss of fund share holders' investment principal". That is to say, the hedge strategy fund is the strategy capital protection rather than the result capital protection. It no longer guarantees that investors will be compensated by institutions if they lose money. For investors, the most attractive terms are canceled, and the hedge fund is likely to be abandoned mercilessly.

Of course, the Guiding Opinions did not prohibit fund companies from providing guarantee for investors' principal through guarantee mechanism, but made new provisions for guarantee institutions, requiring that commercial banks and insurance companies must meet the requirements of prudential supervision, and the amount they guarantee for hedge strategy funds will occupy the amount of their other guarantee businesses. Under this provision, unless the hedge strategy fund is willing to pay more guarantee fees than before, commercial banks and insurance companies will inevitably reduce their commitment to their principal protection business. And raising the guarantee fee means further compressing the already pessimistic yield, which puts the hedge strategy fund in a dilemma.

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