Summary of Key Points
Following the implementation of the "Guidelines for Performance Comparison Benchmarks of Publicly Offered Securities Investment Funds" in March 2026, the public fund industry began to standardize the use of "performance comparison benchmarks" (which can be understood as the "reference points" or "passing thresholds" for funds). On June 1st, the first batch of nearly 195 funds, totaling approximately 400 billion yuan in size, underwent centralized benchmark adjustments, targeting the issue of "style drift" (for example, funds labeled as "consumer funds" that actually held a large proportion of semiconductors in their portfolios). Regulators emphasized the need to adjust benchmarks as much as possible without forcing fund repositioning to avoid market volatility. These changes will reshape the industry's evaluation mechanisms while also presenting challenges for fund companies.
I. Why Make the Adjustments?
The goal is to address the problem of funds not living up to their names:
- Funds with names suggesting a focus on certain sectors (such as "consumer") may actually invest heavily in semiconductors or renewable energy.
- Funds advertised as having a "growth style" might instead hold large-cap blue-chip stocks.
This "style drift" makes investing in funds akin to buying from a blind box—investors who expect to invest in consumer-related assets may end up with a portfolio focused on technology. As a result, the performance comparison benchmarks become meaningless (for instance, a fund with a high stock allocation might still easily outperform its benchmark, but this does not reflect its actual investment strategy). The adjustments aim to align the benchmarks with the actual holdings of the funds, making them more transparent and understandable for investors.
II. What Are the Characteristics of the First Batch of Adjusted Funds?
The first 195 funds (involving 12 leading companies) were adjusted with the core objective of ensuring that the benchmarks accurately reflect the true investment logic:
1. Types: Hybrid funds were the most numerous (113, accounting for 58%), and bond funds had the largest scale (188.5 billion yuan).
2. Flexible Allocation Funds: For example, Huashang Advantage Industry Hybrid's benchmark was changed from "CSI 300 × 55% + Government Bonds × 45%" to "CSI 800 × 85% + Government Bonds × 15%," increasing the stock weight from 55% to 85%, which better reflects its actual stock allocation.
3. Thematic Funds: E Fund Defense and Military Industries changed its benchmark from "Shenwan Defense and Military Industries × 70%" to "CSI Military Industries × 90%" to focus more on the military sector.
4. Overseas Funds: Ruiyuan Balanced Value Three increased the weight of Hong Kong Stock Connect assets from 20% to 35%, raising the total stock weight to 85%, in line with its actual portfolio allocation.
III. Regulatory Guidelines: No One-size-Fits-All Approach to Avoid Market Volatility
There were rumors that the volatility in technology stocks was due to consumer/medical funds selling off their tech holdings, but regulators had already made clear guidelines:
- A one-year transition period was provided, allowing fund managers to make gradual repositioning over 6–12 months.
- The priority was to adjust the benchmarks rather than force immediate repositioning. For instance, if a consumer fund heavily invested in technology stocks, it could either change its benchmark to a broader index (like CSI 800) or remove the "consumer" from its name to transform into a more market-wide fund.
- The key is for the benchmarks to reflect the investment strategy, not for the strategy to adapt to the old benchmarks, to prevent sudden market fluctuations.
IV. An Era of Easy Profits for Fund Managers Is Over
The new regulations will reshape the industry's evaluation and incentive systems:
- Previously: Funds with lower benchmark targets (e.g., 50% stock allocation) could easily outperform their benchmarks due to higher actual stock holdings, allowing managers to earn high salaries even when losing money.
- Now: Active equity funds that underperform their benchmarks for extended periods will see significant reductions in compensation.
- Competitive Focus Has Changed: The focus has shifted from competing on distribution channels and scale to achieving excess returns and the sustainability of investment strategies. Fund managers will need to demonstrate genuine expertise rather than rely on low benchmark targets.
V. Challenges Faced by Fund Companies
Morningstar analysts pointed out that fund companies face five main challenges in adjusting their benchmarks:
1. Repositioning Volatility: Existing funds are tied to old benchmarks, and changing them may lead to short-term portfolio fluctuations.
2. Performance Evaluation Reconfiguration: Benchmarks have shifted from being a loose reference to becoming strict requirements, meaning underperforming funds will face reduced compensation.
3. Difficulty in Achieving Excess Returns: Old benchmarks were often broad, making it easier to outperform; new benchmarks are more specific, making it harder to generate excess returns, which could lead to increased redemptions.
4. Index Availability: Some niche strategies may not have suitable benchmark indices, and updating data systems will take time.
5. Communication with Investors: Fund companies need to clearly explain the adjustment rationale to investors to prevent misunderstandings that could result in redemptions.
Conclusion
These benchmark adjustments represent a return to fundamentals in the public fund industry, ensuring that funds match their names and that investors can make informed decisions based on clear information. It also encourages fund managers to focus on delivering genuine investment performance rather than relying on misleading benchmarks. For ordinary investors, this will make buying funds more reliable—by examining the benchmark, they can get a better understanding of the fund's investment strategy without having to guess about its holdings.