On February 17, the Chinese public mutual fund market experienced a striking uptick in new issuances, with a record-setting 36 funds introduced in a single dayThis surge in fund launches was largely driven by the growing popularity of index-based products, which accounted for more than 70% of the total new offeringsAmong these, the launch of the Sci-Tech Composite Index products and a set of enhanced CSI A500 index funds garnered the most attention, contributing to the bulk of the new fund introductions.

The launch event saw Jianxin Fund's Sci-Tech Composite Index Exchange-Traded Fund (ETF) emerge as one of the biggest success storiesThe fund’s subscription was met with overwhelming demand, far exceeding its $3 billion fundraising targetAs a result, the fund’s fundraising process was closed early, with a proportionate allocation made to investors who had already applied for subscriptionsThis early closure signified the continued enthusiasm among investors for funds tied to the emerging tech sectors in ChinaThe decision to halt further subscription applications on February 18 underscored the strong market appetite for products that target the Sci-Tech Board, a key driver of innovation and technological growth in the country.

The initial launch of the Sci-Tech Composite Index series featured an impressive array of 13 distinct productsTen of these funds track the Shanghai Stock Exchange’s Sci-Tech Board Composite Index, while the remaining three follow the Sci-Tech Board Composite Price IndexThese indices are designed to reflect the performance of companies listed on the Sci-Tech Board, a special segment of the Shanghai Stock Exchange that focuses on high-tech and emerging sectors such as semiconductors, artificial intelligence, and biotechnologyThe primary difference between the two indices lies in their treatment of dividends: the Composite Index includes dividends in its total return calculation, while the Price Index excludes them.

The Sci-Tech Composite Index products, which were officially launched in mid-January, have already seen significant growth, with gains exceeding 8% since February 1. The top three stocks in these indices—Hai Guang Information, Cambrian, and SMIC—have emerged as the key drivers, each with notable weightings within the indices

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As the products continue to attract investor interest, the potential for these funds to generate significant inflows into the Sci-Tech Board remains high, with projections indicating that these funds could bring more than 26 billion yuan into the sector.

The overwhelming demand for these funds underscores the broader trends within China's capital marketsAs the country increasingly positions itself as a global leader in technology and innovation, investors are eager to gain exposure to this rapidly expanding sectorThe launch of the Sci-Tech Composite Index products is a reflection of this growing interest, offering a way for both institutional and retail investors to participate in China’s technology-driven growth story.

At the same time, other popular market segments, particularly the CSI A500 Index, also saw new products hitting the marketThe CSI A500 Index, which tracks the performance of China’s mid-cap stocks, has gained considerable traction in recent yearsThe February 17 launch saw multiple fund managers, including Rongtong Fund, Suxin Fund, Hongde Fund, and Manulife Fund, debut their enhanced CSI A500 Index fundsThese new offerings, which came in both A and C share classes, marked the latest addition to a growing pool of funds tracking this index.

As of mid-February, there were over 130 funds tracking the CSI A500 Index, with a total fund size exceeding 290 billion yuanAmong these, twelve funds had reached sizes exceeding 10 billion yuan, with the largest three being the CSI A500 ETFs from Guotai, Nanfang, and GuangfaThe sustained popularity of the CSI A500 Index funds reflects the broader investor sentiment favoring China’s mid-cap stocks, which are viewed as a key segment for long-term growth in the country's transition to a more consumer-driven economy.

In addition to the success of index-linked funds, the February 17 launch also saw the introduction of several new dividend-focused productsWall Street and Bao Fund, two major asset management firms, launched dividend index products, which have proven to be increasingly attractive to yield-seeking investors

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Wall Street introduced the Great Wall CSI Hong Kong Stock Connect High Dividend Investment Index Fund, while Bao Fund launched the Huabao CSI 800 Dividend Low Volatility ETF-Linked FundThese funds cater to investors looking for stability and consistent income, particularly in the context of an uncertain global economic environment.

Despite the strong performance of index funds, the February 17 fund launches also highlighted a significant shift in the asset management industry’s approach to actively managed equity fundsWhile actively managed funds have traditionally been a core offering in China’s mutual fund market, the recent trend shows a more cautious stance among fund companies toward launching new actively managed equity fundsIn fact, only a small proportion of the newly issued funds in 2024 were equity-focused active fundsInstead, most of the active funds launched were bond funds or, in a few cases, quantitative equity products.

This shift reflects broader trends in the Chinese mutual fund industry, where passive investment strategies, such as those linked to well-established indices, have gained increasing popularityThe ease of access, lower management fees, and the ability to replicate the performance of broad market segments make index funds an attractive option for many investorsMoreover, the recent volatility in global markets, driven by factors such as trade tensions, geopolitical risks, and shifting monetary policies, has led investors to gravitate towards more predictable and diversified investment strategies, such as those offered by index funds.

Wind data suggests that less than 20% of the newly launched funds in 2024 have fallen into the category of active equity funds, with the majority of these funds offering diverse allocations or quantitative strategiesThis trend marks a departure from previous years, when actively managed equity funds dominated the marketFor now, asset management firms seem to be taking a more cautious approach, focusing on ensuring the success of newly issued funds rather than taking on the higher risk associated with launching actively managed equity products.

While the cautious approach toward active equity funds may reflect market conditions, it is also indicative of a broader shift in investor preferences

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